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.

Polly wishes to know - Do you sincerely want to be rich?

Polly Toynbee wouldn’t like the answer most of us would give to this question if we were directly asked it. For quite a large portion - we’d bet a majority rather than just a plurality - would indeed like to have a 50% pay rise. Which isn’t what Polly thinks we ought to want given the horror with which she regards this possible future:

Charles Grant of the Centre for European Reform says the EU is genuinely alarmed that Britain may develop into a deregulated Singapore on its border, unfairly competing by undercutting on standards and social conditions while subsidising our key industries to destroy those of its member states.

It’s worth pondering whether Singapore competes unfairly, subsidises and all that. Not so that anyone has noticed is the correct answer. But it’s also true that the place is about 50% richer than the UK. Or, to put it into more domestic terms, about as much richer than the UK average as London is of that same average. It often being said that we should be trying to get the non-London parts up to that London standard, no?

What’s much more interesting is that the EU, Polly and the CER all agree that this possibility is within our grasp through deregulation. We can be 50% richer simply by having less government and waiting a bit. Sure, we agree, but it is rather fun that they are making that same claim. For if that weren’t possible then there would be no fear of outperformance from deregulation, would there?

Government insists electric cars will still be terrible in 2035

Electric cars have their moments of course. Posing in a Tesla has merits among certain highly impressionable populations. Milk floats have always had their advantages. But in bad news for the success of technological development the government is insisting that by 2035 non-diesel and petrol cars are still going to be pretty bad for general usage:

The sale of petrol and diesel cars will be banned five years earlier than planned, under a climate change drive to be unveiled by Boris Johnson.

The Government announced in 2017 that it would impose a ban on diesel and petrol cars from 2040 as part of an effort to tackle air pollution.

However the Prime Minister is said to be speeding up the plans with a view to implementing the ban by 2035.

If the non-internal combustion engine cars were to be wondrous by that point then there’d be no need to ban them. For everyone would be purchasing them as a matter of choice. The only reason to ban people from purchasing ICEs is because they would be chosen given how appalling the alternatives are all going to be.

The ban is thus an admission - and insistence - from government that non-ICE cars are going to remain pretty terrible. But we’re going to be forced to have them, aren’t we the lucky ones?

If you tax vaping, people smoke more cigarettes

Unsurprisingly, a new NBER working paper has found that e-cigarette taxes result in more people smoking cigarettes. The authors examined vaping taxes enacted in eight U.S. states and two large counties, concluding that e-cigarettes and traditional cigarettes are substitutes. 

This result is hardly surprising— in the UK, 94% of our 3.6 million vapers are former or current smokers. More than half have quit smoking completely. A large body of evidence shows that vaping is at least 95% safer than smoking. Randomised control trials have demonstrated that they are a highly effective quit method. The idea that we should make vaping more expensive through a targeted tax hike is absurd.

Despite this, America continues to wallow in its hysterical moral panic about e-cigarettes. A House Bill championed by Democrats is proposing a tax of $50.33 per 1,810 milligrams of nicotine (raising the price of a Juul pod by $1.72), which the NBER paper’s authors estimate would increase traditional cigarette purchases by 29,182 packs per 100,000 adults. This is extremely unlikely to improve public health.

And it’s not just the idea of taxing safer substitutes for cigarettes itself that’s nonsensical. Many states levy e-cigarette taxes on the amount of e-liquid in a particular product rather than on a per-unit basis. Just as cultivation taxes on the weight of cannabis encourage more potent strains, taxing the volume of e-liquid biases the market towards higher nicotine concentrations than would otherwise have been the case. Regulated high nicotine liquids are just as safe and may be useful for heavier smokers who need an extra kick to make the switch, but we shouldn’t distort consumer preferences like this.

Thankfully the majority of the public health establishment in the United Kingdom isn’t likely to go the same way as America, although there are still alarmist voices. The last time we had rumours of an e-cigarette tax, it received the reception it deserved. This NBER working paper is yet another reminder that crackdowns on vaping aren’t just illiberal—they drive people back to traditional cigarettes.

Finally, the European Union admits that the EU is a cost

Everything has costs and benefits, everything. To refuse to admit that is to refuse the basic insights of economics. Thus there are costs to being inside the European Union, costs to being in alignment with it. True, there will also be benefits, it’s the balance of the two that matters.

This is not some weird ultra position, this is what the EU itself is telling us:

The EU is making clear its bottom lines. It insists that the UK must accept alignment with its rules on workers’ rights, the environment and state aid, as the price for a deal (fearing that otherwise the UK will steal a competitive advantage).

It is only possible to gain, let alone steal, a competitive advantage if costs must be carried by one side and not the other. Thus this insistence, the very negotiating position of the EU, is that the rules on workers’ rights, the environment, state aid, are a cost that has to be carried by those who obey them.

The benefit here is the ability to export UK produced goods and services into the EU without facing tariffs and or quotas. This is the position they’ve laid out, this is not us making the statement, this is the EU itself.

The question to be answered is therefore whether those costs are worth that benefit?

One answer is that the real costs of such tariffs are carried by the consumers who pay them - the EU citizenry denied that tariff and quota free access to those things that the UK produces which they would like to have. Our position therefore becomes clear - those costs aren’t upon us so we should be free traders, pure and simple. We gain the benefits of not being constricted by the regulatory costs.

Even if we wish to, wrongly, insist that the exports are a benefit to us the costs of the regulations seem to be higher than the benefits of the exports. Otherwise why such worry that we might decide to jettison the regulations?

The correct negotiating stance therefore becomes clear. We wish to be free of the costs, those regulations. We’ll take as much of the benefits as we can, those exports. But it’s the being free of the constraints that is important.

If it doesn't work stop doing it then

As we’ve long pointed out some recycling makes excellent sense - if you’re making a profit doing it - and much of the stuff we’re urged to do doesn’t. To add to this the method of recycling used is important too:

Car seat manufacturers urged to launch recycling schemes to stop 90% of them ending up in landfill

“Having to treat child car seats as waste is scandalous and is extremely frustrating for councils and parents."

We don’t in fact want to have recycling schemes for specific products. We most certainly don’t want specific manufacturers to be responsible for recycling specific products.

Car seat manufacturers are being urged to launch recycling schemes to stop almost all of them ending up in landfill.

The Local Government Association (LGA) has today issued a warning calling upon companies to be responsible for the waste created by their own products.

No, this isn’t the sensible way to do it at all.

The LGA, which represents councils in England and Wales, is calling on manufacturers to recycle their own child car seats,

Ludicrous. That would, for example, mean that any new manufacturer cannot launch into the UK market until they’ve built a hugely expensive recycling system. Economic argle bargle.

However Worcestershire-based car seat design firm, JMDA, has also implemented a successful project.

It collected 30 used seats and packed them into scrap cars, which were then put through a recycling firm's industrial shredder.

The seats' different elements were separated into recyclable materials: the metals were sold and reused; the plastics were converted into pellets for reuse in the moulding process, and the fabrics were incinerated to generate electricity.

However attempts to roll out this idea nationally have faced obstacles. It is understood that JMDA approached major brands and retailers for backing but the discussions have stalled due to difficulties over commercial viability.

The lack of commercial viability here means that the cost of the process is greater than the returns to the process. That is, it makes a loss, subtracts value. Or, the same statement, we must use more resources to recycle car seats than we gain by recycling car seats. Thus, if our goal is the saving of resources we must not recycle car seats.

Over and above that though is this idea that we must recycle this, then recycle that. This is not correct. We have a set of resources which are fed into the economic process. We have a set of products which come to the end of their useful lives. The products should be one large pile which is then picked over for the useful - ie, economic - resources that are then fed back into the production process.

The idea of a separate system for the recycling of car seats is as ludicrous as the idea that we have one paper recycling system for napkins and another for office memos. There are, after all, economies of scale to industrial processes.

That is, if we are to recycle then we want to have the one collection system, that one collection system then sorts into what is usable and what is not, the recycling does or does not take place. That is, exactly the opposite of this fragmented and repeated system that is being advocated. Fortunately, we have that one collection system, the one currently run by local councils. We should use it more.

Polly never really has grasped logic, has she?

Polly Toynbee on the iniquity of turning the current tax based system of financing the BBC into something voluntary like a subscription:

The latest anti-BBC argument is that with binge-watching Netflix, Amazon and the rest, who needs an outdated national broadcaster? The answer is: because most people want British-produced programming.

If this is true, if there is this appetite, hunger, for British made programmes for British people, then the British will, in their droves, pay the subscription fee, make the donations, watch the advertisements, whatever the funding system is that replaces the taxation.

The very insistence being made is the proof that the new system would work.

The only argument in favour of tax funding, this legal insistence that everyone has to cough up at pain of jail time, is that people won’t voluntarily pay up. But if people won’t pay voluntarily then that’s proof perfect that there isn’t that hunger for those British programmes for British people.

Even if we accept that most people do want such then the answer is that most people should pay for it, rather than all having to.

Logic is a terrible thing which is presumably why Polly has spent so many decades avoiding it.