Milton Friedman, Nobel Laureate

Milton Friedman, the US economist, was born on July 31st, 1912. He was awarded the 1976 Nobel Prize in Economic Sciences for his research on consumption analysis, monetary history and theory, and the complexity of stabilization policy. In addition to being one of the century’s most influential economists, he was also the best known. He popularized economics. In addition to his 300+ op-eds for Newsweek magazine, he also published in the New York Times. He was a tireless advocate for free markets and free trade. His book “Capitalism and Freedom” (1962) was a best seller. He supported a range of free market ideas, including floating currencies, education vouchers, negative income tax and the abolition of many licences, including those for doctors. 

He vigorously opposed conscription (the draft), favouring a volunteer army instead. “You want an army of mercenaries?” demanded General Westmorland. “And you want an army of slaves?” Friedman shot back before a Congressional hearing.

With his wife, Rose Friedman, he co-authored “Free to Choose” (1980), another best seller, this time accompanied by a PBS documentary TV series that drew a mass audience. To academic economists he is best known for advocating monetarism as an alternative to Keynesianism. Famously he said that “Inflation is always and everywhere a monetary phenomenon.” Keynesians has supposed that inflation and unemployment traded off against each other (the Phillips Curve), and that inflation could boost employment, especially in a downturn. Friedman’s “Studies in the Quantity Theory of Money” (1956) stated that in the long term, once people became used to it, this ceased to hold. In the 1970s the Phillips Curve went vertical as rising inflation combined with rising unemployment (stagflation), and most academic opinion was won over to Friedman’s view.

His “Monetary History of the United States, 1867–1960,” co-authored with Anna Schwarz, made the case that the Great Depression of the 1930s was brought about by the Federal Reserve’s credit tightening in response to the stock market crash. This proved very influential with governments, and led them to ease credit, instead of tightening it, in response to the Financial Crisis of 2007-2008. Many people believe this prevented the emergence of another 1930s-style depression.

His view was that the best policy was to aim at an increase in the money supply that coincided as far as possible with the long-term growth rate, perhaps approximating to about 2 percent per annum. He thought this might sustainably achieve steady expansion of the economy. His influence on present-day government thinking can still be seen around the world.

He was one of the founder members of the Mont Pelerin Society, and graced nearly all of its meetings with his infectious smile and bubbling good humour. He was a good friend of the Adam Smith Institute, especially helpful in its early days, speaking at our meetings and lending his name to our activities. When I applied to read a master’s degree at Cambridge University, he sent them a hand-written note recommending me.

Economics got to this spectrum idea 150 years ago of course

As The Guardian notes a current fashion is to insist that things exist upon spectrums:

Coined by Isaac Newton in 1672 to describe refractions of light, today referencing a “spectrum” is almost always shorthand for acknowledging a metaphorical range of nuances.

While the word is most commonly used in relation to autism spectrum disorder, political ideologies and gender expression, there’s really no end to things that have been described as falling on a spectrum, from perfectionism, to homelessness, to social media use.

The observation is correct of course. No one with any experience of either boarding schools or prisons is going to insist that male sexuality is entirely fixed and invariate - incentives matter. The spectrum from male to Aspie to compiler programmer is much joked about in computing circles.

But of course this is just the change that happened in economics in the 1870s, the marginalist revolution. Things are not solely one thing nor the other, action happens at the margins as behaviours bleed into each other. That is, economics got there 150 years before the rather more woke social sciences.

To continue the amusement there is that little point that precisely those who do insist - rightly - upon much human behaviour being on a spectrum are those who - wrongly - try to reject neo-classical economics. You know, the very form of correct economics which encapsulates the very same point. But then intellectual consistency among the woke isn’t something we generally observe, is it?

Arnold Schwarzenegger – immigrant makes good

Arnold Schwarzenegger was born on July 30, 1947, in Thal, Styria in Austria. His is a classic story of someone from an unpromising background making good by ambition, talent and determination. He decided at age 14 to become a famous bodybuilder, the best in the world, and went on to do so. While on national service in 1965, he absconded to participate in the Junior Mr Europe competition, and was put into military prison for a week. He won the contest, though, and won the Mr Europe contest a year later, aged 19. He won many more, including five times Mr Universe. He achieved his "world best" ambition in 1969 when we became the youngest ever Mr Olympia at age 23.

He moved to the US in 1968, speaking little English, and that with an impenetrably thick accent. He wrote regularly for Muscle and Fitness magazine, and became a successful bodybuilding entrepreneur, with several business ventures that made him a millionaire by the age of 30. Despite his accent and lack of acting skills, he wanted to transition into a movie actor, and saw his big breakthrough in the 1982 epic, "Conan the Barbarian." He listened to the critics and took acting lessons. Then came his definitive role in James Cameron's 1984 classic sci-fi movie, "The Terminator." Sequels followed, and a succession of blockbuster hits, mostly sci-fi, with titles such as "The Running Man," "Predator," "Total Recall," and "Eraser."

In the US he thought Democrats sounded like the Austrian socialists he had little time for, so became a Republican. I took a bet with William Hill in 2000, long before Schwarzenegger had expressed any political ambitions, that he would be the next elected governor of the state of California. Three and a half years later he was elected after the incumbent Governor Gray Davis was removed in a recall vote. William Hill duly paid me £2,500, which I spent on a party in Trafalgar Square. Governor Schwarzenegger sent a note congratulating me on "knowing my political ambitions before I did." He told us he'd enjoyed his time in London, and promised us, "I'll be back."

He was re-elected in 2006, and governed as fiscally conservative and socially liberal. He backed gay rights and domestic partnerships, and he performed a same-sex marriage as Governor. He supported the San Diego Food Bank, (whose outreach and public relations department is run by ex-ASI staffer, Chris Carter), using his fame and charisma to boost donations to it. He declined to accept the Governor's salary of $175,000 a year. He returned to acting when his second term as Governor ended in 2011, and is revisiting the Terminator franchise with "Terminator: Dark Fate," due for release on November 1st this year.

Any aspiration to run for President would be thwarted by the US Constitution that requires its presidents to be American born. Although Schwarzenegger became a US citizen in 1983, he was not born there, and retains dual citizenship with Austria. He is, nonetheless, an American success story, a further example of that country's receptivity to talent and hard work, combined with a self-belief that attempts the impossible and achieves it.

Schwarzenegger joked about his fortune, "Money doesn't make you happy," he remarked. "I now have $50 million, but I was just as happy when I had $48 million." Estimates of his current worth put it well over $100m, perhaps $400m.

His determination to apply and improve himself is witnessed by his decision, a decade after his arrival in the US, to enrol in business studies at Wisconsin-Superior University, from where he graduated in 1980 with a degree in business and economics. He is thus an economist as well as an Austrian, and must be among the most exotic of today's Austrian economists.

If this assertion were true than we'd not have a climate change problem

We’re told that supermarket fridges are a significant climate change problem:

Supermarket fridges should be closed, campaigners have said, as it emerges that the appliances use up one per cent of all UK electricity.

Believe as much of that as you wish. It’s this assertion which is problematic:

Her brother, 28, told the Mail on Sunday: "I happened to be in a restaurant and they had given me a plastic knife and fork, so I was in an environmentally conscious mood. In the corner of my eye I saw a fridge and it was open, and I just thought that couldn't be very environmentally friendly.

"I think people are very happy to sacrifice convenience for the environment and that is the same with plastic as well."

If people were happy to sacrifice convenience - or anything else - for the environment then we’d not have a climate change problem. Because, given that humans at least attempt to maximise utility - the economists’ pet name for happiness - we would already have increased our happiness by having so sacrificed.

Our actual climate change, as with so many other environmental, problem is that people aren’t happy to do so.

Another way of making the same point, if we were all happy then there’d be no need for any laws on the subject, would there? No one would have to be forced into anything.

Which is also why the correct answer is, as ever, that carbon tax. No, leave aside whether there’s a problem in the first place. Assume there is. The carbon tax then makes explicit to us all, through the price system, the costs of whatever convenience or anything else we gain. Faced with actually having to pay for it we then all decide whether we’re happy to or not.

That is, if our problem is that we simply don’t know those costs but would be happy to avoid them if we did know, then the carbon tax is the pure complete and only necessary climate change solution.

To complete the logical trifecta here:

A Friends of the Earth spokesperson added: “With the world in the midst of a climate emergency our shops and stores should make it a top priority to save energy and slash the emissions that are roasting the planet.

“Supermarkets must ensure that their fridges and appliances operate to the highest energy efficient standards – and if they won’t, the government should make them.”

That we must be forced to means we’re not all happy to do so, doesn’t it?

Chronicling Canada’s Cannabis Experiment

In late 2018, the landmark case of Billy Caldwell—a child who relied on cannabis oil to control his seizures—came to a conclusion. The UK government allowed the drug to be prescribed medicinally in certain circumstances in a move that has been called the first step on the road to legalising recreational cannabis. BBC Newsbeat looked into the issue further by following three MPs on a trip funded by the advocacy organisation Volteface to Canada, the first Western country to take the step of legalisation. Spanning the political divide, the results of their research seem to indicate that the tide of opinion is turning in favour of such a move. 

Newsbeat first visited Vancouver, the centre of Canada’s burgeoning legal cannabis trade and the cutting edge of the ‘world’s biggest drugs experiment’. Meeting the ‘Cannabis Editor’ of a local newspaper, the ready availability of the drug points to both the benefits and teething troubles of its legalisation. Black market consumption remains high at just over half of all sales, but as former Toronto police chief Bill Blair was eager to point out, this significant reduction marks only the first phase of a long-term initiative by the country’s government to reduce the market share occupied by illegal suppliers. The greatest benefit to date, Blair argued, was perhaps an even stronger draw: legalising cannabis removes the need to criminalise a generation of young Canadians.

The MPs’ stances on the issue varied considerably, though all saw recreational drug use as a concern. Two, Labour’s David Lammy and the Conservative Jonathan Djangoly, noted the impact that the illicit cannabis industry was having on their constituencies. Lammy in particular pointed out that for many young people in his Tottenham seat, their first contact with police came via the drug, opening the door to more serious offences. The final MP, Sir Norman Lamb of the Liberal Democrats, went into the experiment with a more sympathetic attitude as his party is currently the only major parliamentary grouping which seeks legalisation. A visit to a legal supplier was followed by a trip to a major commercial producer of the plant. Allowing production to move into purpose-built, ventilated facilities allows the Canadian product to be generally freer of impurities, something backed up by regulation and crucial in removing impurities, making cannabis safer for public consumption. Lamb even tested a small quantity of low-strength cannabis oil to aid his sleeping, reporting that he suffered no side-effects or, indeed, most of the effects commonly linked to illegal cannabis. This informed his conclusion that in the event of legalisation, safety could be greatly improved by introducing a minimum quantity of CBD, a substance that controls the drug’s potency and can be varied as required by lawmakers or retailers. Lammy’s conclusion, having been impressed by Canada’s handling of the issue, was more simple: by taking the market out of the hands of criminals, young people are spared the gateway a cannabis-related arrest can provide into more serious criminal pursuits. 

The main point made regarding Canada was that legalisation remains the first step in a long process, the ultimate goal of which is to entirely shift production and supply out of the black market and into the hands of legitimate retailers. It was suggested that the next phase could centre on lifting the heavy levels of government involvement in most legal supply, a factor which currently gives black market sellers the competitive edge. After a largely successful first stage in Canada, David Lammy’s closing comments on the issue carry overtones of another great North American social experiment, resolved ultimately by empowering legitimate retailers. ‘Prohibition’, he said, ‘isn’t working’. 

Alexis de Tocqueville, foreign observer of liberty in practice

Alexis de Tocqueville was born in Paris on July 29th, 1805. His "Democracy in America" (1835 and 1840) was based on his extensive travels in the United States, and is today regarded as a classic defence of both liberty and democracy, though de Tocqueville saw that there was a tension between the two, one that required a balance. He described himself as "neither of the revolutionary party nor of the conservative," but wrote that liberty was his "foremost passion."

"But one also finds in the human heart a depraved taste for equality, which impels the weak to want to bring the strong down to their level, and which reduces men to preferring equality in servitude to inequality in freedom".

De Tocqueville spotted that America was radically different from Europe in that people in the US had no respect for breeding or background, as they did in Europe. By contrast, Americans respected hard work, drive, ambition, and seeking to become rich. All of these were disdained by the European upper classes, he observed, regarded as crass and vulgar, and inappropriate to their class. Many of them inherited wealth and took it for granted, while most ordinary Europeans could not aspire to it.

In America, though, "the common man enjoyed a level of dignity which was unprecedented," and it was "where commoners never deferred to elites." America was relatively classless, and when ordinary Americans saw rich people enjoying their wealth, it encouraged them to expect that hard work would enable them to do the same. America, in a word, was aspirational, where Europe was not.

This fed into democracy, not always with favourable outcomes. He thought one of the outcomes of majority rule was that it encouraged conformity in thought, and acted to suppress individual thinking. He said he didn't know of any country where there was "less independence of mind, and true freedom of discussion, than in America".

"The majority has enclosed thought within a formidable fence. A writer is free inside that area, but woe to the man who goes beyond it, not that he stands in fear of an inquisition, but he must face all kinds of unpleasantness in every day persecution."

Because Americans refused to defer to those who de Tocqueville thought possessed superior intelligence and talents, it promoted equality, but along with that equality came mediocrity. Those possessing such talents could not expect to wield political power, as they might elsewhere, so they made money instead.  

He also warned that democracy was capable of great oppression if it became despotic, because whereas European despots could only affect small groups of people, a despotic democracy could affect "a multitude of men." He also saw the possibility that a democracy might treat its people with paternalism, treating them like sheep to be cared for instead of as autonomous individuals.

He liked and admired America, thinking it the best country in which to be poor. He recognized that it was something new in the world, somewhere that the liberty he valued could find expression in giving people the chance to advance their lives and prosper to a degree not possible elsewhere. His other great work, "The Ancien Regime and the French Revolution" (1856) emphasized that while the modernization and centralization of the French state had begun under Louis XIV, and the French Revolution had continued that, the  Revolution's rulers were too imbued with abstract ideas to be successful in practice. This could not be said of the Americans.

But, but, why must House of Fraser be "saved"?

An entry in our who is the most conservative handicap stakes here.

House of Fraser, which accounts for at least 10,000 jobs on the British high street, should not be allowed to fail and at some point an ailing retail name will have to become a test of government resolve to help the industry.

The department store’s problems are shared by healthier businesses: stifling business rates, a benign tax environment for online rivals, and the lack of a properly funded government retail strategy. House of Fraser’s predicament is serious and will almost certainly become a test of the government’s ability to do something constructive about the state of the high street amid Brexit. Last week, the CBI said Britain’s retailers had recorded the longest period of falling sales for almost eight years, while at least 75,000 retail jobs have been lost since last year. Action is needed.

What action? Consumers must be forced to shop at department stores? Why?

Worth noting that ONS has reported retail sales are up - except in the department store sector. Sports Direct is reporting that some House of Fraser stores are operating at a loss even when they’re paying zero rent.

Our question thus being, well, why must a business which produces nothing of value be saved? The costs of House of Fraser existing are higher than the benefits gained by its doing so. Better, by far - assuming Mike Ashley can’t do something with it and who other than an aggressive capitalist has the incentive to do so - that the potentially productive assets be freed from that organisation and go off and do something more productive elsewhere. This including the labour, obviously, as well as the sites.

The demand to save HoF is not, as we might have thought, from some nostalgic for the old days conservative newspaper but from the impeccably liberal Observer. But then as we’ve had cause to note over the years there’s nothing so reactionary as a progressive when considering the economy.

Karl Popper, philosopher of liberty

On July 29th, 1902, was born one of the most remarkable and influential philosophers of the 20th Century, Karl Raimund Popper. As a teenager in Vienna, Popper was attracted by Marxism, and at one stage thought of himself as a Communist. What disillusioned him was the realization that none of the precepts of Marxism could be tested.

He formed the view that there was a difference between the ideas of Marx, Freud and Adler, and those of Einstein. Einstein’s theory of relativity could be tested by observation, and indeed was tested by Eddington’s experiments in 1919. By contrast, those of Marx, Freud and Adler could accommodate everything that happened; there was nothing that could happen in the observed world that could refute them.

This led Popper to the ideas he published in his 1934 “Logik der Forschung,” published in English in 1959 as “The Logic of Scientific Discovery.” Here Popper advanced his central notion of falsification. He said that although a theory could not be proved true, because an experiment might one day come along to refute it, it could be proved false if an experiment contradicted its predictions. Einstein’s theory could have been refuted, but wasn’t, whereas those of Marx, Freud and Adler could not be subjected to experiments that might refute them. They represented a determination to interpret the world in certain ways, rather than being capable of adding to our knowledge of it.

Popper solved Hume’s problem of induction. We expect the sun to rise each day because it has done so every day so far, although there are no causal links to explain why the past indicates the future, and why induction is valid. Popper replaced induction by conjecture and refutation. We form a theory that the sun will rise tomorrow, and test it each day. If one day it didn’t, then our conjecture would be refuted. Our scientific knowledge is thus not what we know to be true, but the collection of theories that we have been unable to refute. Theories that cannot be tested like this are not necessarily nonsense, but they are not scientific.

Popper’s other great influential work was his 1945 “The Open Society and its Enemies,” in which Vol 1 was “The Spell of Plato,” and Vol 2 was “Hegel and Marx.” Popper called it his “war book,” but it remains one of the most powerful demolitions of totalitarian ideology ever written. Far from being interested in “justice” and “virtue,” Plato was in fact justifying rule by the superior élite, and is profoundly anti-democratic and pro censorship and thought control. As Popper says, Plato’s idea of virtue is “the ruler rules, the worker works, and the slave slaves.” And Hegel and Marx enlist fanciful notions of where historical destiny is taking us to justify oppression and control. Popper opts instead for “piecemeal social engineering,” by which we gradually improve our circumstances by building on what has worked and making it better by removing some of its shortcomings. Democracy is not about choosing those best fitted to rule; it is about removing those who are bad or incompetent.

I was never happy with Popper’s idea that things could be “proved” false, thinking it subject to the same flaws as “proving” them to be true. We can decide to discard theories that are less good than their rivals at enabling us to predict what we shall observe, but that is a conventional decision to reject them, not a “proof” that they are at odds with some objective reality. My 1978 “Trial & Error and the Idea of Progress” was about that.

I knew Popper, and once spent a pleasant day and a half pacing the streets and the beach at St Andrews in his company. He was, I think, the most intelligent person I have met, in a linear, logical, Newtonian way. Hayek was perhaps wiser, bringing a greater breadth of knowledge to his more considered answers. But the two were friends and saw eye to eye on almost everything.

What is this inequality that The Guardian speaks of?

It’s a certainty of our times that inequality is high in the UK. Too high and something really must be done about it. So says The Guardian in their listing of the things that Boris Johnson really must get on with. There is a problem with this idea. Which is that UK inequality is lower today than it was at any point in Gordon Brown’s premiership. Which is a problem for this insistence:

If the Conservative party wants to win over large sections of the poor then it will have to tackle the damagingly high levels of inequality in the UK

What damagingly high levels of inequality?

Income inequality was unchanged in financial year ending (FYE) 2019 at 32.5% (Figure 1), based on the Gini coefficient for disposable income.

This puts us rather squarely in the middle of the rich country distributions. A little above Denmark and Sweden, about the same as France, lower than the US and Italy, on a par again with Germany. What damagingly high levels of inequality?

Perhaps other measures would be preferred, Palma, P90/P10, but all of these are showing, again, that inequality is low given the experience of these past 40 years or so.

If Mr Johnson is serious he will have to deal with the UK’s damagingly high levels of inequality.

It’s entirely true that we don’t place the same value upon equality as those who write The Guardian. But that’s not the issue here at all. The stated excessive amount of inequality just doesn’t exist. So what is it that they’re talking about?

Sadly, we seem to have here one of those things that everyone knows. As with witches floating, or their existence even, in former times everyone just knows that inequality is terribly damaging and that also we’ve got much too much of it. We disagree with the evaluation of the damage but again, that’s not the point. The excessive levels simply don’t exist.

The story of tobacco

Sir Walter Raleigh brought the first tobacco back to England from Virginia on July 27th, 1586. It was not its first appearance in Europe, because Hernández de Boncalo had brought back tobacco seeds for Spain’s Philip II in 1559, but it was the first in England. It had long been used in the Americas, with evidence that it was grown in Mexico as early as 1400 - 1000 BC. Native Americans grew it and traded it, and famously smoking it ceremonially in a “pipe of peace.”

People enjoyed it because of the nicotine high it gives, and it soon became popular for smoking, chewing or snuffing, and became a major industry. Glasgow merchants who traded in New World tobacco became fabulously rich, and were known as Lords (Lairds) of the plainstaines as they strutted through the streets, resplendent in scarlet cloaks with gold-handled canes.

It was alleged to have health benefits. The astronomer, Thomas Harriot, enjoyed it on a 1585 expedition, saying that it "openeth all the pores and passages of the body" so that the natives’ "bodies are notably preserved in health, and know not many grievous diseases, wherewithal we in England are often times afflicted." King James I and VI was less impressed, describing it in his 1604 “Counterblaste to Tobacco,” as “a pernicious weed.”

Nicotine not only gives its user a buzz, it also acts as a sedative and an aid to learning, mimicking to some extent the action of acetylcholine. War-wounded soldiers on stretchers would often have a lighted cigarette put between their lips to calm them, and many university students found it helped with late-night cramming.

The damagingly adverse effects of tobacco smoke on health were only revealed in a famous 1962 report by the Royal College of Physicians. It has subsequently been shown to be a leading cause of lung cancer, heart disease and other conditions. Health authorities began to take increasingly strident action against it, identifying it as the single most preventable cause of disease.

Despite health warnings on packaging, bans on smoking in pubs and restaurants, and then on smoking indoors in public places, many smokers find it hard to give up because nicotine is undoubtedly addictive. Libertarians have generally backed health warnings, but opposed measures that deny smokers the choice of whether to continue smoking despite them.

The big breakthrough that came recently was the development of ways that separated the nicotine itself from the smoke that causes the vast bulk of the health consequences. Vaping and heated tobacco products enable the user to enjoy the one without the other. Studies claim to show that vaping, for example, is 95% safer than smoking. Vaping has been identified as easily the most effective route to giving up smoking for those who wish to do so. Despite this, some misguided health campaigners oppose it. San Francisco’s ban on vaping will undoubtedly lead to fewer people successfully giving up smoking, and therefore to more smoking-related deaths and crippling health conditions.

The new ways of enjoying nicotine without inhaling the damaging tobacco smoke might well lead to the near disappearance of smoking with a short time frame. Less than four centuries since Sir Walter first brought it to England, people may still be enjoying tobacco products, but it’s quite likely that they won’t be smoking them; except for cigars, of course, where people will still enjoy the aroma and the flavour, without inhaling the smoke.