Medellín's Cable Car Miracle

When most people think of Medellín horror stories come to mind. The presence of the infamous Medellín cartel of the 1970s, 1980s and 1990s, an image of a Robin Hood style city with Escobar inflicting his own sense of justice over its citizens, the homicide rate of 266 murders per 100,000 residents of 1991. For many, with the exception of Narcos fans on Netflix, Medellín will have all but fallen off the map. This is a shame because Medellín has made great leaps forward and is now a great example of progress.

This development is thanks, in part, to the city’s cable cars. Medellín is mountainous, much of the crime took place in more remote areas so in 2004, overseen by the mayor Sergio Fajardo, a project began to connect these hard to reach areas with the city centre. The theory behind the project was to promote movement between areas and to encourage firms to set up shop in cheaper parts of Medellín.

This meant adults now had viable routes into the city enabling them to take up jobs that would have otherwise been off limits, preventing them from having to resort to crime for a livelihood. A 2014 report found that employment opportunities have doubled for the Metrocable users. The project also enabled students to travel into the city and receive better education. They were no longer isolated in an area in which crime was more profitable than all else. It meant that gangs were starved of their cash and their workforces. No more lawless areas in once-lawless Medellín.

The results have been spectacular. Since 2004 the murder rate in Medellín has fallen drastically, reaching its lowest point at 19 murders per 100,000 residents in 2017 compared to 266 per 100,000 residents in 1991. As an article from Virgin explains, other improvements such as better air quality and increased tourism have also been enjoyed. The article also cites a study which found that when comparing areas with a cable car to those without: ‘the decline in the homicide rate was 66 per cent greater in intervention areas, and resident reports of violence decreased 75 per cent more’. Although we can’t chalk all of this up to just a cable car, it is important to recognise that this movement towards lower crime rates and other improvements in the area coincided with the introduction of the cable car. For many the cable car is representative of the progress that Medellín has undergone and has encouraged further investment. 

The cable car is connected to the metro meaning that it doesn't just leave them at the bottom of the mountain and ensures that the cable car serves routes that people wish to travel. Financed by both the municipality and the publicly-owned Metro de Medellín, the cable car offers a combined ticket with the metro to make onward travel all the more feasible. The first cable car cost around $24m and the second another $47m. But in a country where the economic impact of conflict, terrorism, homicides and sexual assaults still costs around $4,700 per person per year a thirty dollar per person investment by Medellin’s citizens a decade ago seem a prudent crosssubsidy from Medellín’s metro company.

As the areas grow richer and more interconnected, the subsidy can be removed without shutting the area’s people out of economic activity, while crime stays lower forever.

The cable car helped Medellín by both improving social mobility and by inspiring faith in the area and in the government. As Alvarez Correa, a Medellín tour guide put it the cable car serves as ‘a symbol of resurrection or a symbol of hope’. Where formerly the gangs were well unified, the cable car has unified Medellín’s citizens.

Sajid Javid really ought to have a word with Matt Hancock

Normally advising the Chancellor to have a word with the Sec of State for Health is a muttering that someone should tell the latter to stop spending like a drunken sailor. This time around though it’s that the latter should tell the former that there’s some risk to messing with pensions:

Sajid Javid, the Chancellor, is considering plans to limit tax relief on pension contributions to 20pc, as revealed by The Telegraph.

All taxpayers would only receive a flat rate of tax relief – the current level offered to basic rate taxpayers. This will be instead of some receiving relief at their marginal rate of income tax of 40pc or 45pc.

But how much would higher earners lose? Those earning £50,000 or less would not be affected but those who earn between £50,000 and £150,000 would lose the additional 20pc top-up from the Treasury. Those with annual income above £150,000 would lose an additional 25pc relief on all pensions savings.

The thing is, we’ve tested the outer limits of this sort of thing already. And if we’ve tested it to the point that even The Guardian has noted that marginal tax rates are too high then we’ve really, really, tested it, haven’t we?

Ministers have been sent a dossier demonstrating how a shortage of staff caused by medics working fewer shifts to avoid the NHS pensions “tax trap” is affecting frontline care.

The Academy of Medical Royal Colleges, which represents Britain’s 220,000 doctors, has written to the chancellor, Sajid Javid, and the health secretary, Matt Hancock, calling on them to urgently address the pensions tax issue that is causing many of the UK’s most senior doctors to reduce their overtime or leave the NHS altogether.

And:

Senior doctors in the NHS are reducing their hours, turning down extra work and even retiring early to avoid being hit with huge tax bills on their pensions, a report reveals.

We have this vague idea that Javid and Hancock meet regularly to discuss how the country should be governed. Even, so we understand, sit around the same table once a week to chew through such matters. Perhaps, just occasionally, they’d care to note that world outside the Cabinet Room, pay attention to the lessons the real world is trying to teach them?

After all, we do have that evidence that the taxation of pensions can be too high. You know, actual, direct, real time, experience of this. And wouldn’t government by reality be an interesting concept?

We tend to think actions speak louder than words

The Guardian publishes another of these whines about the language that people use:

It’s not at the top of the list, but a fresh reason to resent Boris Johnson surfaced last week in the course of a news story about old cases of child abuse. Last year the prime minister averred that the pursuit of these cases, from the 1970s and 80s and many involving state institutions, was akin to “spaffing” money up the wall. Last week Labour called on him to apologise for the remark after the publication of new police figures indicating the abuse had been more widespread than assumed. The scandal is Johnson’s attitude, of course, but it might be observed as a side note that the word “spaffing”, which was funny for five minutes, has now been categorically ruled out for usage.

The Guardian also publishes the news that Boris is going to approve HS2:

Boris Johnson will give the final go-ahead to the first phase of the controversial HS2 high speed rail link early this week – despite fears over spiralling costs and strong opposition from at least 60 Tory MPs.

The prime minister is expected to make an announcement to parliament on Tuesday approving construction of the line between London and Birmingham, two days before conducting a wide-ranging reshuffle of his cabinet.

Actions and words - we tend to think that spaffing £100 billion and change on a project that shouldn’t be done in the first place matters more than the use of the word spaffing. But obviously that’s just us and our pickiness.

Although we would suggest a deal. The Prime Minister gets to use whatever language he likes as long as he’s rather more careful with our money. Who knows, could be the latest revolution in politics.

Lessons from Ireland

The Irish Election has been a shock to the previous two party system. The former political wing of the IRA (Sinn Fein) secured 24.5 percent of first preferences in Ireland’s system of single transferable votes with Fianna Fáil on 22.2 percent and Fine Gael on 20.9 percent. Sinn Féin registers as the most popular among all but the over-65 age group (those who lived through the brunt of the Troubles). This is up from 13.8% of the vote and only 23 seats in the 157 seat lower house. 

The former political wing of the IRA put housing at the centre of their campaign and manifesto - aiming for younger votes part of Generation Rent. They promised a three-year rent freeze, tax credits worth an average one month’s rent and a large state-led building project through local authorities. As the polls showed, it worked and—according to some—almost all roads currently lead to them eventually participating in government. 

While it gives warning about how Brexit can quickly drop from the mind of the electorate the key lesson coming from the election is that housing and the desire for change are top priorities for the young (and also bottom end of the middle aged). Housing came in as top priority for 42 percent of 18-24 year olds and 51 percent for 25-34 year olds. The socially liberal policies of Fine Gael - from gay marriage to legalising abortion - have either been forgotten or matters little compared to the state of their material wealth. 

Like the UK, the Irish government has primarily used demand side interventions and state-led building efforts. Their Help to Buy initiative may have looked good on paper, but pumped up demand and failed to address underlying supply issues in areas where the housing crisis actually is. Their pledge to build 25,000 new homes each year also sounds like a similar promise -- both failed. These policies not only require vast sums of money but also struggle to deliver. 

Now Ireland faces even worse policies from Sinn Fein, with more restrictions on the percentage of social and affordable housing in developments. Of course, it is easier to make the case for further government intervention if you tie private developers arms behind their backs. Complex planning bureaucracy reduces the amount of development, further limiting expansions on supply that is needed to deliver wide ranging real affordable housing for all. 

Along with this is the tragic irony that young voters will be shifting the cost of their rent onto those younger than them - as rent controls benefit those already renting at the cost of those trying to get into the market.

So what can we learn from this? Help to buy and government-led building are expensive failures; lifting restrictions on building new homes and extending existing ones are far better. Not only do these changes not cost as much, but they are policies that will deliver far superior results. 

The Conservatives cannot rely upon younger voters turning conservative as they grow older if they are still renting (at astronomical prices) aged 45. Thatcher’s dream of creating a nation of homeowners kept the Conservatives in power for years. Pushing forward and going further on efforts to streamline the planning system is the correct solution to the problem and one that will look good not only on the balance sheet but also at the ballot box.

No, not really

A useful and possibly even important start to understanding the world is to get things the right way around. To be clear about what is happening out there in reality so as to be able to consider how to deal with it.

A new European Union carbon border tax could lead to tariffs being slapped on British imports of steel, cement and aluminium in a climate change trade war after Brexit.

No, not really. In fact, not at all.

British imports are the things imported into Britain. What tariffs, carbon or otherwise, are going to be on them is something that will be decided by the British government, not the European Union.

What is actually meant is the opposite, that British exports of such into the European Union will have such a carbon border tax added to them. But even that’s not correct.

Tariffs are paid by the consumers of the items - the importers - not the producers or exporters. Thus the actual claim here is that the citizens of the European Union are going to be taxed by the European Union for their temerity in buying British steel. An event which is considerably less scary - they’re getting taxed by their rulers, not us by our or even us by their.

We can even strip this back. Forget why they don’t want to buy British steel and think on that basic fact that they don’t. We’d better stop making steel in Britain for foreigners then, hadn’t we? There’s no point in going to all that effort to make something that no one wants, is there? We should devote those resources to making something else. Either that foreigners do want to purchase from us, or, something that will raise our own living standards, something that we ourselves want.

The correct answer to someone saying they don’t want our exports is shrug, we’ll do something else then.

Piketty's latest bright idea - let's be like the Ottoman Empire

Thomas Piketty is back with his latest idea, that we should have a near total inheritance tax:

“What I’m proposing is not radical at all,” says rock star economist Thomas Piketty, who’s back on our bookshelves again six years after his first economic opus became a surprise best-seller.

Come again? The policy ideas unveiled in Capital and Ideology, the follow-up to his 2014 Capital in the 21st Century, are so extreme the most avowed Corbynite might whistle through his teeth and murmur about going a bit far.

His new work – released last year in French but launched in English shortly – sets out his stall for “participatory socialism”, but involves in practice wealth and inheritance taxes of up to 90pc.

That would help pay for an endowment for every 25-year-old of €120,000 (£101,000), a “public inheritance for all” for each to begin their personal and professional life.

There’s ever such a slight problem with such an idea. We’re had societies that do this. Have no transmission of accumulated wealth through the generations of a family. Where what wealth there is is allocated by the mechanisms of the State.

They’re societies in which long term investments in productive projects simply don’t happen.

As Alex Tabarrok is alluding to here, in India.

Under the Mansabdari system which governed the nobility, the Mughal Emperor didn’t give perpetual grants of land. On death, all land that had been granted to the noble reverted back to the Emperor, effectively a 100% estate tax. In other words, land titling for the Mughal nobility was not hereditary. Since land could not be handed down to the next generation, there was very little incentive for the Mughal nobility to build palaces or the kind of ancestral homes that are common in Europe. The one exception to the rule, however, was for tombs. Tombs would not revert back to the Emperor. Hence the many Mughal tombs

In the Ottoman system it was the Sultan who owned the freehold to all, Pashas merely having lifetime access to an asset.

Now, perhaps it’s true that people shouldn’t prefer passing on wealth to their own children rather than to the society more generally. But those experiments in societal organisation across history tell us that they do. Do to such an extent that they will curtail current consumption in order to invest for the long term where their children benefit and won’t when it’s society.

We do need to be organising matters to deal with the raw clay we have available - us humans - rather than whatever it is people might hope is true of those who don’t exist.

At least Piketty is right about one thing, his proposal isn’t radical at all. Returning to the inheritance - and thus investment - patterns of Istanbul circa 1750 AD really doesn’t sound anything other than distinctly conservative, reactionary even.

The beginnings of some sense on tariffs

In order to be able to deal with reality first we’ve all got to recognise reality. Understand what is actually happening out there. So far, one cheer for people beginning to grasp what trade tariffs are:

Ministers say they will reclaim Britain's mantle as the world's foremost free trade champion with a radical overhaul of tariffs that could save households £8.3bn a year.

The Government has pledged to slash thousands of tariffs and strike deals with the US and other countries as the nation sets its own trade policy for the first time in almost 50 years.

The Department of International Trade (DIT) is consulting on a new post-Brexit UK Global Tariff, cutting the cost of a swathe of goods ranging from fridges to bricks, burglar alarms and some food products.

Many tariffs will fall sharply, with “nuisance” charges of less than 2.5pc cut to zero in a bid to slash costs for families and manufacturers.

Tariffs are, in the jargon, incident upon consumers. That is, it’s us out here, we people buying things, who pay the tariffs. They’re a tax on the people who have the temerity to buy things made by foreigners.

So, lower tariffs, households save that £8.3 billion a year, isn’t that lovely? Except that’s only the lower bound of what is saved. For the point of the tariff is to “protect” the domestic producer. To allow them to charge higher prices in the absence of that foreign competition. So the costs to households are the tariffs collected plus the higher prices charged by domestic producers as a result of the existence of the tariffs.

We consumers are all made poorer by their existence. Therefore, given that we’d all like to be richer - indeed, the very point of having an economy is so that the people become richer - we should have no tariffs.

But it is only the one cheer so far. For the truth of that reality out there hasn’t sunk in properly as yet:

Ms Truss told Parliament that the UK will "drive a hard bargain" in its trade negotiations and is "prepared to walk away if that is in the national interest".

What negotiation? Walk away from what bargain? It is in our simple - and complex - interest to not tax ourselves for buying those lovely things made by foreigners. Therefore we should simply announce unilateral free trade and declare victory:

"My only lament for the UK is that the immediate plan is not to cut all tariffs to zero on Jan 1, 2021.”

Quite so, we did this in 1846 when we abolished the Corn Laws. That’s just when real wages started to rise substantially after the Engels Pause. Why the heck don’t we just do what we know works?

Why do people want to reduce the tax on landlords?

The campaign to reduce business rates trundles on. The question we’re asking ourselves is why does anyone - other than landlords of course - want to reduce the tax upon landlords?

While competition in Britain's retail sector is strong, bricks-and-mortar retailers say they are subject to an unfairly high burden from business rates, which are based on a property's estimated value on the rental market and can run to millions of pounds a year for department stores in prominent spots.

Internet-only rivals such as Amazon rely instead on vast out-of-town warehouses in low-cost areas and pay much lower rates as a result.

It’s true that business rates are incident upon the cashflow of those retailers. But in the end it is rents which are lowered, not retailers’ profits or gross margins.

The entire campaign therefore is an attempt to lower the taxation rate of landlords. Why is this something that anyone at all, other than those landlords, wishes to achieve?

All of which is an interesting example of why politics is such a lousy manner of running things. Decisions are made not just as a result of who has the political power to male them but on the basis of clear and evident untruths. Retailers don’t carry the burden of business rates yet they are to be cut to alleviate the burden upon those retailers.

The Reality of China's Virus

Recently on twitter, videos of the Wuhan Coronavirus Hospitals being built in 8 days have been circulating. Of course, when you have a command economy you can complete certain tasks very quickly. There’s no local consultation or planning permission to fill out - if the party wants it, it’s done. While some may hail this a triumph of socialism, it’s important to distinguish between the surface and what lies beneath it. 

Of course a totalitarian state does have its advantages. It is fairly free to quarantine a city the size of London, surrounding it with troops so no-one gets out. Doctors and nurses can be forced to work overtime. Stricter censorship (supposedly) prevents mass panic. 

Of course this is not the case. Speculation through word of mouth fills the void that little official news has left. Internal communication, particularly between doctors restricts the ability to react to the crisis.  

When the SARS epidemic ended there were still a number of people who were not recognised in official statistics. Suppressing the number of cases and deaths makes the government look better. 

China is admittedly less stonewalling than they were in the SARS outbreak. As Cindy Yu reports, back then, keeping face was so crucial that doctors hid patients inside ambulances away from WHO inspectors. This time Xi Jinping has declared any officials caught in a cover up would be ‘nailed on the pillar of shame for eternity’. Of course there is a difference between not reporting accurately to your superiors, and the top down suppression of reports. Performance in dealing with the crisis is not as important as demonstrating loyalty and saving face for the government. 

These priorities both for officials and government itself ensures that the priority of saving lives is sidelined. Of course you could argue, any government in such a situation wants to maintain popularity to stay in power. But in a totalitarian regime, where facts are tweaked and suppressed, the incentives are much worse. The Chinese regime has a deadly calculus put before it, weighing up between suppressing numbers to save face or stopping the epidemic and potentially more deaths. A public choice theory disaster played to the extremes. 

It would be nice to say, “well let’s wait and see how they manage it” as many reporters say. But if we still do not know the whole story about how the government managed SARS there’s no guarantee we will know how they managed this epidemic. Worse still, if another epidemic arrives down the line then we will not be anywhere closer to learning from past mistakes. 

It would be nice to counter the propaganda videos circulating with facts about how well the government is managing the crisis but sadly this is not possible. All this proves to demonstrate the risks of a state that plays by its own rules, and is unaccountable to the very people it is supposed to serve.

Over and above the giggles there's an important lesson from Iowa

That Iowa caucus thing, well, yes. Those who would run the country find themselves incapable of counting a couple of hundred thousand votes. We all look forward to their running the entire economy, right? But past that amusement there’s an important point:

“The sequence of events that led to the failure of this technology is nothing new – it happens in every rollout,” said Meredith Broussard, a professor at NYU and computer scientist. “This was a totally predictable disaster.”

What’s more, the app was not tested at scale and not vetted by any third party agencies, according to reports.

Move up a level of abstraction from a mere app to any new manner of doing something, or any new thing to be done. That testing at scale. This is one of the things that markets do and planned systems don’t.

Sure, planners - competent ones - do at least try to make sure that what they’re doing works. Works in the sense that if it is adding one plus one it gets to two. What planning doesn’t do, because it can’t, is test whether it works in the grander sense.

That grander sense being, well, is it something that is wanted? Is it better than this other method, does anyone want the thing to be done, is there some wildly different solution unthought of?

This all being what markets do actually do. For we float our new method of whatever into that sea of possibilities and allow them to compete with each other. Those that win are those that do what people want done in the manner that people want them done.

Yes, of course, at one scale everything is planned. The person writing the code had better have an idea of what they’re setting out to do for example. But the market is, in the case of the US, those 330 million people doing that widescale testing. Which is why market systems, with their competition, actually work. Only those things which achieve something desired come into widescale use. We thus end up with an economy full of things that have passed that test, doing something people desire well enough.

Rather than, say, things which reach the answer three when adding one and one and which are then imposed by central command.