The Pin Factory Blog

We've another report telling us that just much too much food gets wasted and that we all must do something about it. The important something we must do being resolutely ignored by those who would comment on the report. This time the report comes from the mechanical engineers and here's the essential precis:

1. The UN Food and Agriculture Organisation (FAO) works with the international engineering community to ensure governments of developed nations put in place programmes that transfer engineering knowledge, design know-how, and suitable technology to newly developing countries. This will help improve produce handling in the harvest, and immediate post-harvest stages of food production.

2. Governments of rapidly developing countries incorporate waste minimisation thinking into the transport infrastructure and storage facilities currently being planned, engineered and built.

3. Governments in developed nations devise and implement policy that changes consumer expectations. These should discourage retailers from wasteful practices that lead to the rejection of food on the basis of cosmetic characteristics, and losses in the home due to excessive purchasing by consumers.

One is telling us that we people who know how to do these things should be aiding the poorer countries in building efficient food harvesting, collection, transport and distribution systems for food. You know, exactly the things that Tesco's, Sainsbury's, Morrissons etc know how to do and do: run supermarket supply chains.

Two is telling us that the poor countries have to let the supermarkets in to run these efficient supply and logistics changes. And three, well, three is telling us in the rich world that we've got to stop being oiks now that we've got reliable and efficient food supply and logisitics chains.

No prizes for guessing what Rose Prince went with:

We wasted far less food when there was no supermarket culture, when what we bought was the food we needed – as opposed to what is now skilfully marketed to us. It does not shock me so much as provoke anger to hear that, according to the Institution of Mechanical Engineers, we are throwing away half the food sold to us by supermarkets, worth some £480 a year per family. Put in context, there is even something obscene about the situation.

As that wise boat, Raedwald, pointed out, there something hinky about that waste number:

In fact the IME acknowledge that only a tenth of the £480 'worth' of food thrown away by each family is edible. That makes £48 a year. Or about a pound a week. But I guess the headline "British families throw away £1 a week each of edible food" isn't what they're after.

But that's not what is obscene. Nor even her delusion that £480 is half an annual food bill. No, the obscenity is focusing on the triviality of minor waste from the supermarket system when what the report is really saying is that the starving can and would be fed if only they had access to supermarkets. It is the very lack of this developed world food distribution system that is the problem for them.

Let's get everyone suffering from the problems of cornucopian wealth before we start worring about those problems of cornucopian wealth, eh? The time to worry about us being oiks is after they all have the opportunity to be oiks.

The most constructive approach towards the renegotiation between the EU and the UK would embrace a fulfilment for the UK of the EU’s central bargain: a surrender of sovereignty in return for palpable gains. For the UK this means not so much peace (as for France), or respectability (as for Germany, as well as in different ways as for the Southern and Eastern European members with only recent history of democracy), or a voice (as for the Low Countries and other smaller nations), but free access to local markets where we have comparative advantage, specifically services.

This, however, has been delayed indefinitely: for all that the “Service Directive” was negotiated during the good times from 2000 to 2006, it was rendered toothless by vested interests and now stands unenforced. The failure of the EU to deliver on its central bargain with the UK amplifies the grievances which find expression as concerns about sovereignty.

The natural course would be to revisit the issue with a new timetable. Setting aside credibility, at present no-one can engineer such a thing. There is neither understanding, fiscal capacity nor political will for the critical reform, cleaning up bank balance sheets and the zombie companies they support.

Instead the authorities have diverted themselves with regulatory tokenism, while the Euro's sovereign debt crisis complicates events beyond any hope of timely resolution. In addition, the political class’s successful campaign to demonise banks has demolished any appetite for public intervention to restructure balance sheets. So efforts on this score are acutely untimely, with the recession and banking crisis leading to greater rather than lesser restrictions.

So negotiators will be left unable to address the market in services in a positive spirit. This means that possibly in spite of themselves, our delegation will be obliged to engage with the other side of the failed bargain - in other words to contemplate the repatriation of powers which famously threatens to inflame attitudes. Do negotiations founder at this point? It depends on how the Government’s has communicated its ambitions for renegotiation and the public's sense of these things.

Ahead of the PM’s speech, we are getting a strong sense of a PR campaign to manage expectations. In the last few days, this has included the Sunday Telegraph interview with the PM himself, articles by senior commentators and Tuesday’s round-robin letter to the FT from business leaders. Whether or not culminations, Wednesday’s speech by a senior US diplomat, Philip Gordon, followed by today’s by Gunther Krichbaum, the chair of Germany’s European affairs committee, do double duty.

On their face, such speeches argue for restraint by drawing attention to the misgivings of principal allies. More to the point, they do HMG the favour of defining sovereignty down, so that after such interference any reference whatever to a referendum qualifies as bulldog independence. Knee-jerk comments from harrumphing columnists are already helping this along.

Madsen says the news that we waste up to half the food we produce is a big reason to be cheerful:

Much is wasted in developing countries between farm and consumer because it is stored or transported badly, with some of it consumed by pests or allowed to rot.  In the developed world there are over-zealous sell-by dates and a reluctance by retailers to take misshapen vegetables, or a tendency to promote over-buying by generous two-for-one offers.

All of this is much more easily redressed than trying to increase the output of food.  If we attend to the wastage we can double the world’s supply of food without planting an extra acre.  So there is no incentive to cut down rainforests or to engage in more intensive farming, no need for extra pesticides and fertilizers.  All we have to do is stop wasting what we already produce.

He's right. I buy value-range produce because it is the same as the more expensive stuff, just a bit less attractive. Some companies have even made a virtue of imperfect-looking foods, like the promoters of the 'ugli fruit'. At farmer's markets, mud-encrusted fruit and vegetables are sold at a premium (they're more 'authentic', after all). Even if that doesn't really catch on, as Madsen says we're eating more pre-prepared food than ever. We might have found a very simple solution to a persistent problem.

How did we, as members of the academies and intelligentsia, come to be trapped in the romantic myth that politically organised authority could direct our lives so as to satisfy our needs more adequately than we might satisfy them ourselves through voluntary agreement, association and exchange, one with another?

– James M. Buchanan, John Bonython Lecture 1990

With the death of James Buchanan, it is interesting to reflect on some implications of public choice theory. Public choice theory presents a powerful explanation of why democracies tend towards government expansions that are difficult to reverse. As Dr Butler succinctly puts it: 'small groups with sharply focused interests have more influence in decision-making than much larger groups with more diffused concerns, such as taxpayers.'

Buchanan and the public choice school stress the importance of constitutional restraints on the size of government. Indeed, many Americans revere their Constitution’s ability to check the growth of government. Some of the Founding Fathers understood the public choice-style implications of large government and the tendency towards it, even if they did not express these fears in the same language.

But American constitutionalism has not been entirely successful in restraining the growth of government. For all its merits in guaranteeing enunciated political liberties, over time the US has seen such significant erosion of many of the economic liberties of the US that in many respects it is not greatly different from European 'social democracies' in terms of government spending or economic regulation. 

Fortunately, it is not inevitable that large government will favour special interests. Public choice assumptions account for only part of the rationale for collective action. There are significant variations between and within different polities in relation to particular levels of government activity. There have been points when large group interests have coalesced to prevent further exploitation by special interests. Without siding with critics of Public Choice, it is important to recognise that its explanatory power is not total.

I would argue, following Robert Higgs (his fascinating lecture series is well worth a listen), that ideology also presents a major explanatory factor that runs counter to 'instrumental' interests.  In the US, this would suggest that the growth of government and the 'failure' of the Constitution has been caused as much by the development of new ideologies such as Socialism, Progressivism, Keynesianism and so on as by pure instrumental interests (particularly because the results of such ideologies often run counter to the instrumental interests of many of those who support them). By the same token, the American Revolution itself emanated from a Whiggish culture and ideology which was imbued with a scepticism of powerful government and a desire for liberty. Ideology, as much as interest, also explains say, the abolition of the slave trade or Thatcherism.

Those advocating a smaller state should, therefore, take some heart that public choice theory does not provide a remorseless logic of concentrated special interests overpowering the general interest.

Public choice presents a powerful ideological reason to oppose big government and rent-seeking, and ideas about how to do so. But, alongside public choice critiques of government, we must also promulgate an ideology of a free society and limited government. As Higgs points out, prevailing ideologies can be shifted, sometimes rapidly.

The Guardian has endorsed Paul Krugman for the US Treasury Secretary job. The initiative began with actor Danny Glover’s online petition. The Guardian's case for Krugman begins:

Krugman has been right about the major problems facing our economy, where many other economists and much of the business press have been wrong. [For example]: he wrote about the housing bubble before it collapsed and caused the Great Recession.

So have many others – earlier and more accurately than Krugman. As for Krugman's predictive powers on the housing bubble, here he is in 2002:

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Of course, we hear similar arguments today: that the government needs to create a spending boom to offset the lack of private sector investment. The more things change, the more they stay the same.

Krugman claims that he was taken out of context. He meant that the only good Greenspan could have done was to create a bubble. He was right. After all, the housing bubble did lead to a recovery. Up until 2007, that is.

Going back to the endorsement:

[Krugman] has forecast and explained that large budget deficits and trillions of dollars of "quantitative easing" (money creation) would not cause inflation or long-term interest rates to rise; and that the "confidence fairies" would not reward governments that pursued austerity in the face of recession.

Of course inflation and long-term interest rates are low: the environment is uncertain and growth in the West is stagnant. Investors are looking for safe havens like US, UK or German bonds. That will change once we begin to recover. As for inflation expectations, we are still waiting to see how the Fed-induced monetary "bomb" will affect us in our next boom years – however far away they are.

And gee – I wonder why the confidence fairies are not rewarding tax increases, postponement of structural reforms, and a highly uncertain political environment? (Think Eurozone; think debt ceiling.)

Krugman has written extensively about the stupidity of the last few years of economic policy in Europe, which has been a major drag on the whole world economy. The treasury secretary would have only limited influence on Europe through the IMF, but in developing countries the US treasury department pretty much is the IMF.

Well, yes – Paul Krugman was opposed to the "stupidity" of Europe's economic policies, but from the wrong side. He opposed reforms to welfare states but was strongly in favour of large stimulus spending to "end this depression now". This is the same reasoning behind the UK's enormous budget deficit, unsustainable public finances, and current kick-the-can-down-the-road policies.

If Paul Krugman had been Treasury Secretary in 2002, would he have supported Greenspan in initiating the housing bubble or would he have opposed it? These are the decisions a Treasury Secretary has to cope with every single day. Krugman’s record does not suggest that he would make the right decisions.

Finally, can I make a suggestion for the US Treasury Secretary, since we're apparently allowing anyone to make important nominations? I nominate Ron Paul. He served his last day in Congress the other day so he's available. Maybe a famous fan like Kelly Clarkson should start a petition.

We are sorry to report the death of James M Buchanan, the US academic who, with colleague Gordon Tullock, was the leader of the so-called Public Choice School of economists.

Public Choice theory applied the methods of economics to the theory and practice of politics and government – with extremely important results which give us important insights into the nature of democratic decision-making. Just as self-interest motivates people's private commercial choices, so does it affect their communal decisions. People also act 'economically' as voters, lobby groups, politicians and officials, aiming to maximise the outcome they personally desire, for minimum effort. Consequently the well-developed tools of economics – such as profit and loss, price and efficiency – can be used to analyse politics too.

Collective decision-making is necessary because there are some large projects that we cannot undertake alone. There is also the 'public goods' problem – that certain useful things, such as defence, will be under-provided by markets because non-payers can simply 'free ride' on the efforts of others.

But Buchanan and Tullock showed that such 'market failure' does not necessarily mean that government can do things better. There is 'government failure' too. Political decision-making is not a dispassionate pursuit of the 'public interest' but a struggle between different, competing personal and group interests. In this struggle for the supremacy of different values, small groups with sharply focused interests have more influence in decision-making than much larger groups with more diffused concerns, such as taxpayers.

Buchanan believed that strong constitutional restraints were needed in order to ensure that the 'silent majority' could not be exploited by coalitions of vested interests using political power over them. The commonly adopted rules in democracy is that 51% of the population decide the policy – even if the other 49% are vehemently opposed, as in the old joke that 'democracy is two wolves and a sheep deciding what to have for dinner'. Simple majority decisions are easier to make than ones requiring unanimity or higher majorities, but they do have this downside cost in terms of personal liberty. And the fear is that if producers are exploited too much by others, they will simply quit the productive sector and the whole society will suffer in terms of economic prosperity. Buchanan maintained that proper constitution can set the rules by which different sorts of decisions are to be made, and therefore can balance the interest of individuals and society as a whole.

Buchanan received the 1986 Nobel Memorial Prize in Economic Sciences for his work on Public Choice theory and was a life member of the Mont Pelerin Society, among many other awards and distinctions.

By now almost everyone has heard that Child Benefit is going to be means-tested. We’ve also heard the middle class has responded to the move with “outrage.” We might also have heard the world’s smallest violin somewhere in the background of a BBC interview where a married mother complains of the manifest injustice that her six-figure income is structured so that her state aid will be taken away, whereas other families' six-figure incomes are not. She is not alone. Tonight, parents everywhere will cry out for Leviathan's intercession, hoping government will hearken to them in the spirit of fairness and equality… and, perhaps, with a little cash.

The refrain is a familiar one, and reminds me of a time I went down to Occupy London Stock Exchange – the cleaner, British version of Occupy Wall Street. I attended a talk there once on the subject of work, and the attendees – about twenty of them –  began the session by stating their employment, only to follow with aggressive complaining about how their work represented their abject mistreatment by the “system." “The terms of my employment are unfair,” said one; “my work is not valued,” said another, an unpaid intern in an art gallery. “I am not paid enough for what I do,” said a third. 

A range of employment – builder, cleaner, lecturer, doctor, student, protester (really?), freelance writer, freelance landscape architect – was represented. But the solution which the twenty of them agreed in council was not, as one might think, to go out and find another job, or to change careers to one which provided steadier work than freelance journalism, art internships or landscape design in central London. Instead, it was agreed that their labour should be withdrawn for a day on 30 November (even those who were self-employed): they would go on strike and seek a political solution in the longer term.

None of which, of course, does anything to solve the particular problem each of them faced: that their incomes were unsatisfactory compensation, in their eyes, for the marginal disutility of their labour.

Life is hard, goods and services are expensive, and competition in the labour market is ferocious. Nonetheless, except in cases of egregious civil rights violations, politics is almost never the best answer for improving one’s lot, particularly when one wants to make meaningful improvement on a middle-class financial position in a developed industrial state.

We each possess a degree of influence over our own lives which is far greater than that of any redistributive policy. What job to accept, what job to keep, what job to quit -- whether we can afford to have children, and how many. What these choices have in common is that they are ours alone. So should be the consequences. Viewed this way, spending life begging the government to save you is merely a waste. But asking your fellows to subsidise your expensive decisions — especially when you can afford to shoulder the burden yourself — is simply rotten. 

The UK Labour party wants to end higher-rate tax relief on pension contributions, arguing that current reliefs are a subsidy to higher earners. As I argued on Monday, they are not – they simply defer tax on that part of a person's income that they defer drawing, and put into a pension investment instead. But what should the right policy on pensions be?

The straight libertarian argument is that governments have no business trying to encourage savings, whether through tax deferral, outright subsidy, or anything else. To do so distorts the market and puts the values of the authorities ahead of the values of the general public.

But of course we are not living in a libertarian paradise. The fact is that we have a large state welfare apparatus, with something like one-eighth of government spending going on transfer payments. And unless people are encouraged to make provision for their retirement, some (or perhaps many, given the natural human tendency to value present income more than future income) will consciously choose not to save while they are in work and rely on state welfare once they have retired. There is, therefore, a case for subsidising pension contributions as a way of incentivising people to provide for their own income in retirement, rather than relying on state benefits.

If that is so, then the state has no business encouraging people to save more than they need to save in order to keep themselves off the welfare rolls. That would suggest that any state encouragement of pension contributions should be limited. Once you have saved enough to prevent yourself being a charge on the welfare system in retirement, you should receive no further tax relief.

It also suggests that you should indeed convert the bulk of your pension pot into an annuity, providing you with a regular retirement income – or that you draw down your pension pot at a steady rate. Otherwise there would be 'double dipping' - people using the tax relief to accumulate pension pots that they then spend liberally, before declaring themselves impoverished and then relying on state welfare.

Again, though, practicality may intervene. It may be complicated to grant tax relief to some contributors rather than others; there is a bureaucratic cost to checking how much people have actually saved. Likewise, annuity rates may fluctuate considerably, perhaps leaving people with much lower pension income than they anticipated. And drawdown arrangements can be hard for people to understand and for the tax authorities to police.

Inevitably, such considerations make pensions complicated – and that complexity must discourage people from paying in to pension plans. A simple regime has much going for it – say a straight pound-for-pound matching by government of everything you put into a pension – up to a total or annual limit, calculated to be enough to keep folk off the welfare rolls in retirement. Easy. The only trouble is, you can't just tear up the existing pension contracts that people have, as pensions are inherently long-term commitments. And there are lots of those different arrangements, because the pension rules have been changed many times in the past. Which means that pensions will continue to confuse the general public. Annoying, but true.

Following the benefits cap debate today, I can’t help but think that, yet again, the government has missed the point. Yes, the cap will save some money. Virtually everything the government spends money on needs to be cut. But where are the pro-growth policies? Where are the jobs that people on welfare are supposed to take? And where is the wholesale reform of the state that would allow the really big cuts to be made?

The country is broke. Government debt has topped £1 trillion. This year, we will have borrowed another £108.5 billion, only down £13 billion from the year before. The deficit reduction plan has only just begun, and we'll keep borrowing until 2018 at the earliest. 

At a little under £3bn/year, the savings from capping the rise in benefits at 1% in cash terms (a real-terms cut, in other words) are better than nothing. But let’s not kid ourselves – they will be painful, especially since the fastest-rising prices are for things like food and home heating. Because we tax low-income workers and then give it back to them in the form of ‘tax credits’ (which are really just a cash transfer payment), many people who are in work will be affected.

On the other hand, public sector pay has been capped at the same rate, and it would be perverse for benefits to rise faster than Whitehall cleaners' pay. And this is no ordinary recession – the deficit is staggeringly big, and the global economy is moribund. Cuts really do need to be made, and I haven't heard any alternatives from the people opposing these ones.

As I wrote last week, the government has singularly failed to make the big reforms that would make public spending cuts work by promoting growth. There has been essentially no deregulation of enterprise; no simplification of the tax code to produce a revenue-neutral tax cut (for everyone who can’t afford a Westminster lobbyist, at least); no real, pro-construction reforms to the planning system; and no sense on immigration.

The principle of universal benefits is, thankfully, being chipped away, but as long as the health and pensions systems remain as they are there will not be any way to avoid people on £24,000/year paying for the healthcare and retirement of people who have earned three times that.

So long as the tax threshold is so low, the government’s claims to be ‘making work pay’ are a joke. Full-time minimum wage workers pay nearly £1,600/year in tax, which is then topped up by more welfare money (the mis-named ‘tax credits’, which will now be capped!). How different would today’s debate be if we weren’t taking low-income workers’ money away with one hand and giving it back as welfare with the other?

But these things are difficult. It’s easy not to touch business regulation, to keep immigrants out and leave reform of the welfare state to some other sods. Welfare cuts are very popular with voters, and it’s easy to see why. So, another frustrating day – some cuts, yes, but none of the reforms needed to grow the economy and make them work.