To understand why economic growth is slow look at Keystone XL

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The saga over Keystone XL is an excellent example of why rich world economies are in general slow growing at present.

President Barack Obama rejected the Keystone XL oil pipeline on Friday, in a move that infuriated conservatives but will bolster his legacy on environmental issues ahead of next month's climate change summit in Paris.

No, not because the pipeline will now not be built, not because of those climate negotiations and no, not because conservatives are unhappy about this.

The pipeline was to bring Canadian tar sands oil down to the refineries on the Gulf Coast. Very simply, refineries further north just aren't set up to process such heavy crude. The ones on the Gulf are. So, instead of changing all the refineries, build the pipeline to get the oil to where it can be efficiently processed. And that's really it.

Given current crude prices those tar sands are shutting down some production and the whole plan is just less important than it was. And while the plan did indeed have a positive current net present value (and thus was something that made us all generally richer) it wasn't either as earth shattering as the proposers suggested nor as earth shattering as the environmental protestors insisted. And in something the size of the US economy something like an oil pipeline or not is always going to be a marginal decision.

The decision whether to build it or not is obviously highly interesting for those directly involved and for the rest of us very much a "Meh" question. Except for this:

Mr Obama's announcement follows a seven-year review process

It's worth noting that it is only phase IV of the project that has been cancelled. The other three phases are up and running. And they each took between one and two years to build.

That is, we now have a system whereby it can take 7 years to get a decision on whether one can build something which takes two years maximum to build. And that is why modern economies have a slower growth rate than they perhaps should have. Not because people aren't allowed to do things like build oil pipelines, but because the entire economy is being strangled by red tape.

Perhaps we should have environmental regulation of the type that stops such building. Perhaps we shouldn't: the existence or not of such regulation isn't the problem at hand. What is the problem is that whatever the decision is it needs to be made quickly. So that either the project can be built or, if rejected, then everyone can stop their efforts at filling out paperwork and go off and do something more interesting.

We obviously do have our view of which way this decision should have gone. But that isn't our point today. Rather, if we're going to have a system of regulation over who may do what then it has to be an efficient system of deciding who may do what, how and when. Even to whom. Otherwise the entire economy will descend into a welter of form filling that would make C. Northcote Parkinson proud and the rest of us poorer than we need be.

There really is no gender pay gap

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As we've been saying for some time now, there really is no gender pay gap. At least, not one of any size that anyone should be bothering to do anything about. It's a motherhood pay gap, most certainly, but then that's just not the same as gender is it? This latest empirical report comes from the US:

A new report from PayScale, a jobs website, takes a stab at this very problem by looking at the gender gap in various occupations controlling for factors including experience, education, company size, and crucially, job title. According to their data, female doctors make 29.2% less than their male counterparts, but that gap shrinks to just 4.6% after introducing the controls. This in part because women are more likely to work in paediatrics, while men are more likely to work in the better-paid field of surgery. A similar pattern exists for lawyers: women make 14.8% less than men, but just 4.1% less on an adjusted basis. Again, there are differences in the types of jobs taken by men and women: 8.7% of female lawyers work for non-profit outfits, compared to just 4.5% for male ones. The pay gap for all workers is 25.6% before such differences are controlled for, and 2.7% afterwards.

We think 2.7% is pretty much the end of the story. And certainly we cannot think of any government work that's ever managed to be any more accurate than that.

In effect, much of the gender pay gap can be thought of as the cost of having children.

Quite: fathers make more than non-fathers among men, mothers make less than non-mothers among women. Whether that's a cultural or an innate feature is another matter: but that's where whatever remaining problem is. And it's not entirely obvious that it's something that's amenable to anything other than the slow change of cultural practices, whichever of those two causes are responsible.

Rescuing the NHS

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The media would have us believe that, due to cost cutting, the NHS is in terminal decline when, in reality, it is thriving and has never had more resources.  Political spin aside, the real problems are that it is too big, too diverse, and over-managed. Suggesting that the NHS most needs the removal of political interference is hardly new.  The Bank of England has improved since Gordon Brown gave it independence.  It has not been privatised.  It remains a non-profit making public corporation acting, so far as it can, in the best interests of the country.  It would be inconceivable to make the BBC, also a public corporation, part of the Department for Culture Media and Sport.

Of course politicians should set the goals and priorities for the NHS and allocate the resources but continual interference in the way it is managed has demoralised staff and created patient dissatisfaction.  What qualifications do MPs have which can usefully applied to the NHS before other equally unqualified politicians reverse any changes as soon as they can?  The UK’s biggest organisation, by numbers employed, blows in the wind.

The NHS should have a long-term, not less than five years, charter setting out what it is aiming to achieve and the funds government will allocate.  Parliament should agree the mission but not how it should be achieved.  And NHS top management should certainly be held to account at the end of each charter.

The debates about “privatisation” exemplify why politicians should leave the NHS stage.  Left-leaning MPs claim that allowing anyone to make a profit, however small, in the supply chain raises the cost for the taxpayer.  This school of economics was once popular in Leningrad.  Now Russia, like everywhere else, recognises that even a public corporation cannot itself make everything it uses.  The Norfolk and Norwich Hospital does not take deliveries of iron ore to make their own scalpels.  The NHS should do for itself what it does cheaper and better.  When buying in services is cheaper and better, the taxpayer gains by so doing.  Whether someone has made a profit along the way is irrelevant.

Only local managers can do these calculations: they should be free (transparently) to buy in what makes better use of their resources and to do the rest themselves.

Secondly, prevention (health promotion), cure and care are three very different problems that need three solutions, not one. The NHS should focus on curing people and returning them, as soon as their health permits, to their normal lives or to state care if they and their families cannot cope.  Using curing resources for care is not just wasteful but ineffective, and even inhumane, as recent complaints about nursing and mental health institutions testify.

Moves are now afoot to bring care and the NHS closer together which is good in the sense of combining the two caring functions but bad in the sense that the managerially challenged NHS will not be able to cope with both roles. We should stop trying to cure the uncurable: the senile, and those suffering from dementia and many forms of mental health.

The National Care Service should be an independent organisation developing its own pride and professional standards.  The Hospice movement is a shining example.  It is noteworthy that general practice aside, the great curing institutions tend to shrink in number but grow individually as more specialities have to be accommodated whereas in care, the tendency is to move from large institutions to a multiplicity of small units closer to their communities.  Different problems need different solutions.

Finally, preventive health is in practice national publicity intended to reduce the net national cost by persuading us to adopt healthier life-styles.  Their effectiveness can be measured, and funded, by the reduction in the costs of cure and/or the benefit to the economy from our working productively for longer.  This role could be managed directly from the Department of Health or a separate quango but in either case, the performance measurement of the campaigns should be transparent.

Dear Politicians.  Please stop bickering over the NHS: separate its three functions and then leave it to the professionals.

Power Up: The framework for a new era of UK energy distribution

The UK's energy market is unfit for the modern age, a new report from the Adam Smith Institute argues. The report, Power Up: The framework for a new era of UK energy distribution, argues that new technologies such as smart grids and distributed energy production can revolutionise old models of energy distribution and pricing, in the same way that apps like Uber are disrupting traditional models of transport.

In a world of expensive of energy prices, the report suggests regulators should encourage experimentation with new technologies, rather than cutting them off at inception. Regulating the market too heavily - often justified by claims that consumers are being 'ripped off' or overwhelmed by the number of tariffs available - closes down consumer experimentation and prevents technological and economic progress, which keeps energy prices high.

The paper envisions a world of choices in the energy market; where smart meters that relay real-time price changes to encourage better energy use are just the beginning. The author, Dr Lynne Kiesling, imagines consumers being able to see where their energy is coming from, and to choose what kind of green-grey energy mix they want.

Most important, Dr Kiesling argues, is for OFGEM to adopt a structure of 'permissionless innovation' - which allows companies to experiment freely without being granted permission from regulators. In the early days of the internet, no-one envisioned a world of Amazon, iPhones and Uber; but these inventions were able to thrive, as there were not limited by regulatory barriers. OFGEM, Kiesling argues, needs to adopt a more relaxed regulatory structure that dismantles the barriers that have been created.

Read the full press release here.

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@old.adamsmith.org | 07476 915072

To introduce you to an extended whingefest

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We wish that this was satire, or perhaps even the ravings of some poor deluded soul well outside the mainstream. Unfortunately it is neither: this whinge that Bill Gates really shouldn't be spending his own money how he wishes is meant to be a serious contribution to the debate:

Is the most effective philanthropist a dead one? It’s a morbid question, but also a pertinent one. Are large philanthropic organisations such as the Ford, Rockefeller or Gates Foundation able to achieve the most good with a living benefactor who is in the picture on a regular basis, providing expertise and political leverage? Or are they better off once a benefactor is long gone, permitting staff to operate free of the constraints of donors who, however well intentioned, may hinder effective decision-making?

To recast that question, which is the better organisational style? One of the most intelligent men of our generation (yes, Gates is, fearsomely intelligent) directing an organisation attempting to do good or the usual bureaucrats that fill up any organisation after a generation or two having meetings about whether there's sufficient diversity in the snacks offered at meetings to discuss which snacks should be served at meetings?

To pose the question that way is to answer it of course:

We need to challenge this silence. We need loudly to ask an uncomfortable question: do foundations narrow wealth inequalities or simply preserve them? Are foundations at their most radical when they exist to serve a benefactor’s hopes and whims – or when they’re emancipated from such an obligation?

After their founders had died, the “big three” foundations in the US – Ford, Rockefeller and Carnegie – started to sympathise with labour and civil rights movements. Detractors frequently criticised them for being too anti-capitalist; Ford’s grandson Henry resigned from the foundation in protest in 1977, stating in a revealing letter that “a system that makes the foundation possible very probably is worth preserving”. At least Henry Ford had the honesty to state which side he was on. We should challenge his modern successors to be as upfront.

The answer being that such organisations should serve the interests of the bureaucrats that run them not the wishes of the founder. The argument against Gates is that he doesn't allow that long march through the institutions its head, he insists that the organisation do what it was set up to do: alleviate disease and poverty in the most effective manner possible. That this doesn't suit the bureaucrats is why they hate him and it.

Just to illustrate how far the decline reaches the thoroughly sensible, originally, Joseph Rowntree bequests now fund Richard Murphy to think big thoughts in his shed.

It is for this reason that Warren Buffett has insisted that his, very generous, donations to the Gates Foundation must be spent immediately, before such institutional degradation into a home for the socially just happens. And why the Gates Foundation itself talks about specific tasks now that it wishes to achieve, rather than gabfests that will produce a "legacy". That is, let's get rid of all the money before the funds become "emancipated from such an obligation" to actually achieve anything, or even any oversight. As with the Oxford Committee for Famine Relief campaigning in the UK, where there is no famine, Barnardo's, a system of childrens' homes campaigning in a country without such private childrens' homes, Stonewall campaigning for equal rights long after equal rights have actually happened.

C. Northcote Parkinson really did have a point, the prime purpose of any bureaucracy is to make sure that the bureaucracy itself survives. All else is subservient to that. At which point we might suggest Worstall's Corollary to the Peter Principle: all useful philanthropic work is done before the socially just or the bureaucrats take over the charity.

Break the monopoly on liquor in Virginia

Our Deputy Director, Sam Bowman, is currently out in Virginia taking part in the Atlas Network's Think Tanks MBA, where he has started campaigning for the state of Virginia to release their monopoly hold on the sale of liquor. Watch the video below to find out more.  

The campaign tweets from @PrivatiseVABC and can also be contacted through their website here.

Shocker as Guardian letter writer doesn't quite get it

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We find this extract of a letter to The Guardian as being a very fun example of people not quite getting it:

The decision to remove availability of tax reliefs for community energy projects (Government to cut tax relief for community green energy schemes, theguardian.com, 28 October), coming at the same time as it is clearing the way (contrary to pre-election pledges) for privately owned, profit-driven fracking businesses to operate wherever they choose, makes explicit the governent’s preference to allow private equity, venture capital and hedge funds to profit rather than allow individuals and families to invest in their own communities.

The not quite getting it bit is of course that those community energy projects were driven by exactly the same profit calculations as those for profit fracking companies are using. After all, all a company is is a group of people banding together to achieve a task: just as a community project is a group of people banding together to achieve a task.

Well, at least we assume that the community projects were motivated by that same calculus: we don't think the British people are stupid enough to do things which don't make them better off.

And the fact that tax reliefs are considered important shows that money is indeed considered to be important. If people were doing these community projects purely for the love of Gaia, with no regard to gelt and pilf, then they would not be concerned about the tax position, would they?

Further, the removal of those special tax reliefs leaves such community projects free to compete with profit driven groups upon entirely equal terms. And, if as could be possible, people are more motivated by stupidity Gaia than by profit, then they'll even have an advantage in the financing of their fracking rigs.

And we are really sorry to have to point this out but creating a level playing field does not prevent anyone from joining in the game.

This sounds terribly logical which is why people are complaining

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We have the delightful arrival of a government plan that is actually sensible. That being, of course, why it's unlikely to get through and also why there is much a'wailin' an' a'cryin' about it all. For to some people government isn't there to do sensible things it's there only to protect their own interests. The sensible thing is that places which have planning permission will be regarded as having planning permission. Which, given that the point and purpose of having a system of planning permissions is to indicate where people have permission to do the planned thing sounds very reasonable indeed to us:

Tens of thousands of new homes in greenfield areas in England will be given automatic planning permission amid fears that communities will have inappropriate developments forced on them. Ministers have quietly given developers the right to be granted "planning in principle" in areas that are earmarked for new housing schemes.

So there we have it, that is the change being mooted. That places where it has already been decided that houses should be built should be regarded as places where houses can be built. There are, of course, those a'wailin' an' a'whinin':

Rural campaigners said the new powers will restrict the rights of council planning officers to ensure that the design, density, size and location of homes is in keeping with local areas. Shaun Spiers, chief executive of the Campaign to protect Rural England, said: "“The country needs more house building, but the way to achieve this is through well-planned developments that win public consent. Imposing development without local democratic oversight is a recipe for discord.

No Mr. Spiers, it is precisely you and your ilk that this change is meant to defeat. We do not need that sort of detailed planning: just as we do not need Whitehall deciding how many tonnes of steel are made, of what type, and by whom. Nor wheat grown, shoe styles determined nor how people coif their hair, all things which various governments at various times have tried to dictate.

We ourselves favour no planning system at all, the complete abolition of the Town and Country Planning At 1948 and successors. But if that's not going to happen then we're quite happy with the idea that the level of the current system where the NIMBYs and the BANANAs stick their oar in be abolished. We're perhaps BANAs, build anything near anyone, but in the absence of that we're quite happy with the idea that if a piece of land has permission to build upon it then the general assumption is that permission has been granted to build upon that piece of land.

Please Sir, can we be oppressed some more?

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An interesting little example of what happens when you grant privilege to certain groups within a society. And this is to use privilege properly, as Sir Pterry told us it was to be used, meaning a private system of law, one that only applies to that specific group. For when some or other group does gain such privilege then people will clamour to be part of that group that enjoys said privilege:

In the reverse of the usual desire for upward mobility in life, young people from a populous Indian caste long regarded as prosperous and privileged have been staging violent protests as they clamour for a downgrade to “backward” status. The agitation by the Patels has so shaken the government in Gujarat – the home that they share with Narendra Modi, the prime minister - that the authorities been rounding up key organisers.

So why would an entire (or at least, enough of that caste to produce a crowd of 300,000 people) wish to do that?

At stake in the unconventional class struggle is access to millions of government jobs and free college places allocated to lower castes under the “reservation system” of affirmative action to counter ingrained discrimination. Up to 50 per cent of such positions are ring-fenced for Dalits (previously known as the “untouchables”), tribal peoples and social groupings designated together as “other backward classes” (OBCs), whose ranks include Mr Modi, a tea-seller’s son.

Perhaps best not to create those privileges in the first place, eh?

But of course we do not do that, all are equal in the British system. Except we can't help wondering about those stories of well to do, upper middle class even, children who are taken out of grammar and private schools to do their A levels at Tech and Further Education Colleges. Because, so the story goes, university admission systems think that those who have gone to such educational establishments are underprivileged and thus should be judged more kindly upon their A level grades.

People really will manipulate any such system of privilege. So, perhaps best not to have private systems of law for certain groups then, eh?

Aye, well, there's the rub, isn't it?

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An interesting point made in a letter to The Observer:

At the risk of prompting incredulity and ire in equal measure in these days of a “low welfare, low tax, high wage” economy, I, for one, would not be opposed to higher taxation if I were able to feel that the revenues thereby accumulated would result in improved public services and in the amelioration of the increasing inequality that blights our society.

We would all be willing to pay more if what we received were better matched to our desires, if what we received increased our utility more than the cost to us in cash. However, the problem is that government has already exceeded its ability to work this magic for us.

There are undoubtedly things that both must be done and which only government can do. Thus the herding of us into the taxation net to pay for the national defense (of whatever size that may be, however organised), a criminal justice system (of whatever size and however organised) and so on through that list of things that must and can only be done by government is fair enough. We are, after all, around here minarchists, not anarcho-capitalists.

However, when marginal tax revenue is earmarked to pay for train sets to the Midlands, train sets that don't even pass their own cost benefit analysis, or barrages in that gaping chasm between Wales and England (although that is to be paid for by gouging us through our energy bills, not our tax ones), or an expansion of that outdoor relief for the dimmer scions of the upper middle classes that is Official Development Aid, it's not entirely obvious that, at this stage, more government is in fact worth the extra money we must pay for it.

The question then becomes, well, how can we increase our utility by deploying our cash, our accumulated effort, in a better manner? And the answer is that if government cannot manage it, as it cannot at this size, then we should be shifting more of our spending to market based methods, not filtering it through the preferences of the political class.

For example, if someone, like our letter writer, feels that inequality is too high and that he should be paying something to reduce it then the answer is in his own hands. Take some of the money he has and give it to a poor person. Inequality is thus reduced without the politicians splurging the cash on train sets, recreations of Offa's Dyke or gap years for Johannes and Jocasta.

The answer is thus in our own hands, not that of the tax system. For we cannot in fact, given who ends up in politics and deciding how that extra tax revenue is spent, make sure that more tax is indeed spent on what we desire it to be spent upon. Thus don't give them the money, deploy it instead as you would wish.

Of course, it is possible that someone, somewhere, has some clever plan to being the spendthrifts to heel in which case answers on a postcard to one G. Osborne, 11, Downing Street please. It's just that no one ever has cooked up such a plan, not in all the recorded history we have available to us for study. Thus we reach that tentative conclusion that it's simply not possible, although we're willing to entertain potential solutions. Just as we are for those flying jet packs we were all promised. But we do fear that it's something, like the jet pack, beyond the laws of reasonable physics and human nature.