Reasons for government not to do things

Here’s an arm, the list is as long as that and longer. But a crucial component of that list is that government isn’t very good at doing things. As this example shows:

A false claim to the NHS is the only way to avoid a fine

Filling out a form about free NHS prescriptions the wrong way can lead to a fine. As has in fact happened here. It is also not possible to fill out the form correctly:

You are the latest of a number of readers to have fallen victim to indefensible bureaucratic turpitude. Six years after universal credit was introduced, there is still no corresponding box on many NHS forms. The NHS Business Services Authority (NHSBSA) website – responsible for verifying eligibility for free NHS treatment – instructs dental and pharmacy staff to ensure that universal-credit claimants tick the allowance box until the form is updated. Patients who are not informed or, like you, are unwilling to sign a false claim, face fines of up to £100 plus the treatment or prescription charge. Another £50 is added if they don’t pay within 28 days, hence your latest bill.

This is the health care system that is the very Wonder of the World. It cannot furnish the correct box to tick given a six year head start.

This is the point at which we’re all supposed to invoke Kafka but there is no malice here. Just the incompetence of any large bureaucratic machine. Which is, of course, why we shouldn’t use large bureaucratic machines to run our lives.

65 million people simply cannot be run from the centre. Therefore we should not be trying, should we?

If not HS2 then what?

A claim is being made - as we’ve been noting ourselves - that HS2 isn’t worth the candle. So, what instead?

HS2 is a super turkey. Let’s invest in northern rail instead

That is not the correct answer. For it is to make the claim that there is some pot of money which should be spent upon transport. Or that there is some pot of money that government should be spending. Upon something or other.

Neither of which is true. We have a long list of things that the resources of the nation can be spent upon. That list being, quite literally, everything. Money is after all fungible, it’s something that can be devoted to any end.

That a specific transport idea isn’t worth doing - as HS2 isn’t - does not then mean that some other transport project must be done. Or even that anything to be done by government should be done as a substitute. Once we kill one allocation of resources off we need to go back to the beginning again and think through all of the alternative uses of that money, those resources. Then see which one comes top of our new list.

Which could be northern rail. Might be protecting the lesser wagtail (if such a thing exists, creating it if not). Or boosting education, a decent movie about punk rock or a memorial to the Unknown Taxpayer. Or whatever the heck 65 million individuals might decide they’d like to spend their own money upon.

The best manner of deciding between these alternatives is to leave the price fructifying in the pockets of the populace. For it is indeed true that some forms of collective action justify picking those pockets. But each and every such proposal must pass that test of justification. That the wallets have been vacuumed for some other purpose which we now abandon doesn’t mean that some other form of government - or transport - spending now passes that justificatory test.

That government shouldn’t be doing HS2 is entirely true but that doesn’t mean that government must be doing something else. Our default option must always be that if government shouldn’t be doing this one thing then government should be doing nothing with this money. Even, not having the money at all.

So this new technology stuff works then

We’re told that streaming has increased the consumption of music:

The consumption of music in the UK is now higher than in any year since 2006, when the industry was being powered by the downloadable mp3 file. Thirteen years ago, Crazy by Gnarls Barkley became the first song to get to No 1 on downloads alone as consumers switched over from CD singles and filled up iPods with individually purchased tracks (and, possibly, pirated ones too), while still purchasing plenty of CD albums.

Given, as Adam Smith pointed out, that the purpose of all production is consumption this should be welcomed. We all get to consume more music than we did, we’re richer. New technology works therefore, it achieves that goal of increasing our wealth.

There is one little fly in this ointment. Which is that it is conceivable that the turnover of the music business has declined at the same time. Much of this streaming is, after all, available to the consumer for free. This means that GDP will have declined at the same time as we’re all becoming richer.

As many have pointed out there are problems with the manner in which GDP is calculated but this is one that’s given too little weight to our minds. Some at least - we would argue much to all - of the seemingly languid economic growth of the past decade and more is a result of this quirk of how we’re counting.

Our specific example would be WhatsApp. There was a period when it was not charging that $1 a year fee and also was not carrying any advertising. Facebook had a couple of hundred people developing and operating it. Standard GDP calculations included the costs of those engineers and yet applied no value at all to the output or consumption. WhatsApp, in the official way we count these things, therefore turned up in the economic statistics as a decline in global productivity. Which is absurd for a system providing some 1 billion people with some to all of their telecoms needs off the work of 200 people.

Punch an economist hard enough and they’ll agree that this is happening to some extent. We’re outliers here in insisting that much of the modern world can be explained in this manner rather than it being just some fringe issue. But then sometimes outliers are in fact correct….

Truth in advertising - whose truth?

A current insistence is that things said on social media - Facebook, Twitter and the like - must be true. Sometimes this is insisted upon just about commercial advertising, sometimes about political such and, appallingly, at times about any statement whatsoever. The appalling coming from the fact that freedom of speech does indeed include the freedom to be wrong, even to lie.

The problem with this is the same one we’ve got about any declaration of what is the truth - sez ‘oo? As an example:

Facebook has quietly removed false and misleading ads about HIV-prevention medications after months of pressure from LGBTQ+ and health organizations.

Fifty organizations including Glaad and PrEP4All started a public campaign in December, arguing that the social media platform was putting “real people’s lives in imminent danger” by refusing to remove targeted ads containing medically incorrect claims about the side effects of HIV-prevention medications such as Truvada.

The ads highlighted by the campaign were largely run by personal injury lawyers seeking potential clients, and falsely claimed medications like Truvada could cause severe kidney and liver damage.

But “PrEP is safe and generally well-tolerated,” Trevor Hoppe, a sociologist of sexuality, medicine and the law, previously told the Guardian. “Any misinformation to the contrary is likely bad for public health, especially communities hardest hit like gay men in the US.”

That PrEP is generally safe and well tolerated is true. But then so is penicillin and that will still kill some people. Vaccines are generally safe and well tolerated and yet they kill perhaps 1 in a million given them - which is why we have vaccine compensation funds in this country and the US.

Just for the avoidance of doubt we’re all in favour of things like Truvada. People like having sex, the drug reduces the ill effects of their doing so. We like things that reduce the ill effects of what people enjoy doing - statins allow palatable diets into our dotage too, why wouldn’t we be in favour?

But we do get, along with this insistence that we can only handle the truth, this problem of whose truth? For Truvada can indeed cause liver problems:

Truvada can cause serious, life-threatening side effects. These include a buildup of lactic acid in the blood (lactic acidosis) and liver problems.

That’s the US Government and this is the Mayo Clinic:

Two rare but serious reactions to this medicine are lactic acidosis (too much acid in the blood) and liver toxicity, which includes an enlarged liver. These are more common if you are female, very overweight (obese), or have been taking anti-HIV medicines for a long time.

So now the pursuit of truth in advertising leads to the banning of people stating a truth - Truvada can cause liver problems. True, we’re not greatly worried that ambulance chasing lawyers get their business model curbed and yet, actually, we are.

For we come back to this basic point. Who gets to define that truth that is all that can be said - or advertised? The only answer we can come up with which is consistent with maintaining freedom and liberty themselves, let alone freedom of speech, is that no one should have that power because no one is to be trusted with it. As here, activists in favour of the prescribing of Truvada insisting that plain and simple truths may not be stated.

We wouldn’t trust ourselves with that power either - the philosopher kings capable of righteously ordering society simply do not, never have done and never will, exist.

We might even start off the new year with some ancient wisdom - quis custodiet ipsos custodies? For this current idea that what we may say publicly is to be determined by every grouping with a grudge or an agenda is going to mean that we’ll only be allowed to say what is approved of by those with a grudge or agenda.

Rhode Island’s wage and price controls

On December 31st, 1776, Rhode Island introduced wage and price controls. They limited the wages of carpenters to 70 cents a day, and those of tailors to 42 cents a day. These were price ceilings, and it was illegal to set wages or prices higher than the government stipulated levels.

The law fixed maximum prices for items “necessary for existence.” 7s 6d was the maximum for a bushel of wheat, and fourpence-halfpenny a pound for “fresh pork, well-fatted, and of a good quality.” A gallon of New England rum could be sold for no more than 3s 10d, 10d a pound for butter, 8s for a pair of shoes, and 30s for a barrel of blubber.

Other states joined in the “Providence Convention” that sought relief from “the exorbitant prices of goods.” Delegates from Massachusetts, New Hampshire, and Connecticut joined those from Rhode Island in recommending maximum wages and prices that were then enacted by state legislatures.

It didn’t work, of course; it never does. Nor did it last; it never does. Within months the ceiling prices were raised, then abandoned. It never works because wages and prices are signals of supply and demand. To fix them by law at arbitrary chosen levels is to deny the ability of supply and demand to determine the levels of wages and prices. It is roughly akin to bunging up a thermometer in an attempt to control temperature.

My colleague, Eamonn Butler, co-authored a book entitled “Forty Centuries of Wage and Price Controls,” detailing every instance in the 4,000 years since Hammurabi of ancient Babylon in which rulers have tried to set wages and prices by law. Many were governed by the false notion that there could be a “just price” for things.

Yet even in Eamonn’s lifetime (and mine), the Heath government in the UK, and the Nixon administration in the US, introduced wage and price controls. They never work, and they didn’t work then, either. They commonly set prices too low to make it worthwhile for producers to bring goods to the market, or set wages too low to make the activity worthwhile. They do not deliver stability, and never have. What they deliver in spades is shortages, and it is the shortages that cause the suffering that eventually makes people rebel against them.

Present day advocates of rent controls should note that they will cause the supply of rental accommodation to disappear, and make it not worthwhile to maintain existing rentals to a high standard. The answer to “exorbitant” prices is to let those prices lure other suppliers into the market in order to profit from them. The increased supply lowers the price more effectively than government laws can.

If Willy Hutton can't get the past right how can he manage the future?

As we all know Willy Hutton has a plan for us all and our society. Which is that it should be managed by people like Willy Hutton. So that we all do what people like Willy think we ought to be doing.

There is a certain problem with this and it’s not just that perhaps we’d prefer not to be doing what we’re told to. The little niggle being that if the planner doesn’t even know what happened in the past then how can they direct that future? Today’s example:

The financial crash of 2008 was the consequence of hyper-deregulation, following the palpably absurd rightwing faith that markets were magic.

The thing being that we didn’t in fact deregulate the financial markets. Far from it in fact. The 1998 Bank of England Act increased the power of the Bank to regulate. Then the 2000 Financial Services Act centralised and strengthened regulatory control again - distinctly stronger regulation than under the 1988 Act.

It’s entirely true that both of these have been superseded by new acts - in 2016 and 2012 respectively - but it’s simply not true that the Blair years brought deregulation of finance let alone hyper- anything.

It is possible that those years brought bad regulation of those markets but that’s rather another matter isn’t it? And one which does rather undermine the idea that the bureaucratic classes - or even Willy Hutton - know what they’re doing and thus should plan matters for us.

Which does lead to that problem about any such set of plans. If the people making them don’t even know what has happened then how can they lay out that future?

Robert Mugabe’s paper money

Robert Mugabe, who had been a terrorist, became Prime Minister of Zimbabwe in 1980, and on December 30th, 1987, became the country’s President by pushing through a constitutional amendment. The new post made him head of state as well as head of government. He was also commander-in-chief of its armed forces, and could stay on indefinitely as President, and declare martial law and dissolve Parliament if the mood took him.

His policies were disastrous for his country. He favoured his own tribe and stirred up violence against others. He encouraged blacks to seize white-owned farms by violence. Many so seized ceased to produce, and food production declined, causing famines. The economy collapsed. By 2000, living standards were below those when he took office in 1980. Wages were down, and unemployment had rocketed; by 1998 it was almost 50 percent. And by 2009, most of the country’s skilled workforce, some 3-4 million citizens had voted with their feet and emigrated.

Mugabe’s re-election campaigns attracted worldwide derision and condemnation, marked as they were by fraud, ballot-rigging and violence. He was widely condemned for violating human rights and ordering summary execution of opponents. He formed a view that he was the victim of an international gay conspiracy, and pursued a violently anti-gay policy in his own country.

He will be remembered for hyperinflation on a Weimar scale, as well as for his abuse of power. He printed money on a massive scale to finance his activities. An accurate measure is difficult because his government ceased filing statistics at the height of inflation between 2008 and 2009, However, it was estimated that at its peak month it ran at 79.6 billion month on month, and for the year on year in November 2008, it peaked at 89.7 sextillion percent. Eventually the country could no longer afford the ink to print currency with. By then people were using the currency of other countries.

I was given a hundred trillion-dollar banknote which by then would probably not even buy a coffee. There were stories that notices in toilets forbade the use of banknotes instead of toilet paper (they were cheaper). It is an object lesson that never seems to be learned. In a straight line from Weimar through Zimbabwe to Venezuela, excessive printing of money has resulted in hyperinflation and brought savings and investment to a standstill. It is a small irony of history that the same firm that printed the Weimar banknotes also initially oversaw the printing of the Zimbabwe notes.

Adam Smith famously observed that:

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice.”

He might have added sound money as a further requirement. Zimbabwe under Mugabe had none of these, and its citizens paid the price.

One thing to be grateful to Donald Trump for

We wouldn’t say that we’re greatly enamoured with Donald Trump’s trade policies but there is a silver lining all the same:

Examining his tariff-hiking, trade-war-inducing approach to international relations, their research shows the claim that it protects manufacturing jobs is… fake news. Far from creating jobs, it has reduced them. Yes, domestic manufacturers get some protection within the US market, but that is more than offset by the fact that they face higher costs for components they import and lose export markets when others (such as China and the EU) retaliate. The lesson? Trade wars bad, independent central banks good.

Not just that trying out protectionist policies and thereby proving they don’t work is educational. But the antipathy to Trump is such - all that “Orange Man Bad” stuff all over the place - that anything he proposes is opposed just because of the source of the proposal.

Meaning that the right on left is now near entirely converted to the cause of free trade. Which is indeed a silver lining of great value.

Of course, as soon as the political wheel of fortune turns we’ll find that somehow restrictions upon trade proposed by progressives are different in some manner, miraculously beneficial. But for the moment Trump has managed that impossibility, encouraged the left to embrace a useful economic policy. For which, given the rarity of the event, we should be grateful.

Ronald Coase studied real markets

Ronald Coase, winner of the 1991 Nobel Economics Prize, was born on December 29th, 1910. As is the way of most Nobel economists, he lived a long time, and died in 2013, aged 102. He studied under Arnold Plant at the LSE, and went on to become part of the Chicago School, where he co-edited the influential Journal of Law and Economics.

He gained acclaim by examining why it is that business firms develop as they do, identifying the transaction costs of entering and operating in the market as a key factor determining their size and nature. In a ground-breaking paper, “The Problem of Social Cost,” he dealt with the problems of externalities, and suggested these might be handled by assigning property rights. This approach has been applied to dealing with problems of over-exploiting common resources, such as in the Icelandic fishing industry, where quotas are assigned and traded so that boat-owners have property rights over the fish.

Coase was determined to examine markets that operated in the real world, rather than study theoretical abstract models. It was this empirical approach that led him gradually to alter his political outlook. He started out as a young man thinking of himself as a socialist, but his studies under Plant at the LSE made him recognize the superiority of market systems versus the often ill-conceived government schemes. He studied public utilities in the UK, and working in wartime with the Forestry Commission and the Central Statistical Office, he observed that, “with the country in mortal danger and despite the leadership of Winston Churchill, government departments often seemed more concerned to defend their own interests than those of the country.”

Despite these observations, he still thought of himself as a socialist, but recognized the contradiction, and gradually ceased to describe himself as such as the real world impinged more and more on the theoretical models. He became active postwar in the Mont Pelerin Society founded by F A Hayek.

The Coase journey is one that has been undertaken by many. Starting with a theoretical approach that processes information about an ideal world, setting our models and describing economic activity in terms of equations, some are led to the recognition that this bears sometimes scant relation to the real world in which people do the best they can without perfect knowledge.

It is a commonplace today that many young people’s world view is formed from ideas, and that as they experience more of what actually happens in the world they observe in practice, their views gradually modify to incorporate the lessons of experience. Many come to recognize that it is what actually happens that matters, and that it is sensible, when advocating what a perfect world should be like, to look at what the world is actually like, and at what motivates people in practice. Ronald Coase did, and taught us some valuable economic lessons in consequence.

Clearly, we should all be buying Huawei and writing a thank you note

If other people make things cheaper for us then what is it we should do? The correct response being to then enjoy that greater wealth that those others have enabled us to have. It’s not actually necessary to write a note to Santa as well but perhaps politesse would indicate we should:

The Chinese telecoms company whose role in the construction of Britain’s 5G network has been questioned amid growing security fears has received as much as £57 billion of state aid from Beijing, helping it to expand and undercut its rivals, it is alleged.

A review by The Wall Street Journal of grants, credit facilities, tax breaks and other state assistance shows for the first time the extent to which Huawei has been helped — allegedly enabling it to offer generous financing terms and charge 30 per cent less for network equipment than competitors.

Assume that all of this is true and isn’t just competitors trying to justify their own higher prices - what should our reaction be?

Well, as a result of the Chinese taxpayer being rooked by the Chinese government’s pandering to special interests we can have a 5G telephone network cheaper. Or, presumably, for the same price as we would pay elsewhere we can have more 5G telephone network. Either way we are richer as a result of those taxes paid in China.

The correct response then, to this claim of subsidy of Huawei is to buy Huawei for we’re made richer by doing so. This is true of any such foreign subsidy to a producer as well. The appropriate reaction to such unfair competition is to say thank you, please may I have some more?

That is, foreign subsidy is the same as an advance in production technology, or our useful reaction to trade itself. If, for whatever reason, other people are making us richer then we should enjoy that greater wealth. After all, that is the very thing we’re trying to do, get richer.

Certainly, the Chinese taxpayer has reason to complain but why wouldn’t we appreciate network equipment that is 30% cheaper, wherever the £57 billion to produce it has come from?

Some will complain that this all makes China richer somehow but that can’t be true. It’s a straight transfer of £57 billion from them to us, from China’s state revenues - thus the Chinese populace - to us consumers. Our only difficulty here is to work out where to send that thank you letter. D’ye think they’d let us post it up on the Tiananmen Gate?