Designing economic solutions is fine but we want the chaotic serendipity of undirected markets too

A piece in the New York Times from a designer. Bemoaning the manner in which all those little start ups aren't using design in their process of trying to solve economic problems. Par for the course from a designer, that more people should use design. As with hydraulic engineers wanting to see the economy as a hydraulic project and so on - we all view things through our own professional competences. 

She is also correct in part - we would like to use conscious design at times in order to work out what to do about certain economic problems. No, this isn't the same as the idiot idea of trying to plan the whole economy. But say we've a problem - pollution or emissions, possibly the existence of real destitution in our country. Yes, we should think about this and design solutions. In order there, Pigou Taxes and a bit of income redistribution perhaps. 

However, even given that it is wrong to decry the seemingly silliness of the undirected, undesigned, innovation going on:

Perhaps the main reason these frivolous products and services frustrate me is because of their creators’ insistence that changing lives for the better is their reason for being. To wit, the venture capitalist Marc Andreessen, who has invested in companies like Airbnb and Twitter but also in services such as LikeALittle (which started out as a flirting tool among college students) and Soylent (a sort of SlimFast concoction for tech geeks), tweeted last week: “The perpetually missing headline: ‘Capitalism worked okay again today and most people in the world got a little better off.’ ”

This is to completely miss what is going on here. To miss the value of what those undirected efforts gain us.

We start with the basic assumption that human desires and wants are unlimited. Further, that we have scarce resources available to sate them. Technology is, in one way of thinking about it all, the method by which we transform resources into sating those desires and wants. So, when technology changes we can sate more of them.

However, we don't know which. We don't know which in two senses. We don't know which on the list of unsolved desires humans would like to have solved next - we don't know utility functions. We also don't know which desires the technology can be used to solve. We must therefore experiment - and that is what that entirely undirected market activity is really doing.

Exploring the newly available technological space in order to see which desire or want can be sated and which people want to have sated.

A service that delivers a new toothbrush head to your mailbox every three months.

A service that delivers your beer right to your door.

An app that analyzes the quality of your French kissing.

A “smart” button and zipper that alerts you if your fly is down.

An app with speaker that plays music from within a mother’s vaginal walls to her unborn baby.

A sensor placed in your child’s diaper that sends you an alert when the diaper needs changing.

None of those look civilisation changing we'll agree although some do at least look fun. The derivative innovation of a new way to deliver a porno sound track could work.....

Someone has obviously already done Uber for Plumbers but what about Teenagers 'R' Us? The instant dispatch of a spotty youth to any young couple feeling frisky - to berate them as to why they don't understand anything and why all hate them. Should increase contraceptive usage, that one. 

Or to be serious - we face uncertainty here. Not just risk but proper uncertainty, we just don't know and cannot know. What can newly be done and what would people like to have done? Thus we need that chaos of the undirected market efforts to explore this new technological space. Design is just fine when we know what we want to do and are just figuring out how to do it. But design isn't enough.

Nice try Shirley but we don't think so, no, really.....

An interesting attempt at negating the Brexit referendum here from Shirley Williams:

Over the next two years, the consequences of our departure from the EU will become clear. Two things are crucial. First, we must see the committed involvement of those representing all sides of the debate in the UK, in the renegotiation of our relationship with the EU. Second, all parties represented in parliament should take part in a committee to oversee the negotiations.

Parties that supported staying in must be part of this committee including Labour, the SNP, the Lib Dems and the Greens, as well as the pro-Remain element of the Conservative party. Consensus has to be reached before any deal is struck and any proposed deal must be approved by the committee before it is submitted to the government.

An all-party approach is essential if the country is to be drawn together again. The result of the referendum was very close and a new round of battles could irreparably split the country even to the point where the UK might fall part. This would be a terrible price to pay for the referendum outcome.

As is well known the majority of the House of Commons is against the very idea of leaving the EU in the first place. Putting that group in charge of the negotiations is therefore not wise - for what would be negotiated would be something that was leaving in name only. 

It could be possible, in theory, to have the negotiations done by those who actually won the referendum. But that would mean bringing in all those Leave people and, horror of horrors, parts of Ukip, which is something that bien pensant thinking just isn't going to do, is it? 

All in all we'd say this is a nice attempt to nullify the referendum but not one that we should fall for.

Brexit allows us to make food markedly cheaper

As we've pointed out before leaving the European Union allows us to sort out, properly sort out, farming in this country. Sorting out means, in this context, disassembling the entire system of support and subsidy that so ensares the activity. To us disassembling means simply abolishing the lot of it, the New Zealand option.

We're told by farming interests that the system as it is is part of the pursuit of a cheap food policy. This, of course, is not true:

At the same time, the EU’s agricultural products receive much higher protection than any other sort of goods: most dairy imports, for instance, attract a tariff of more than 50 per cent. This insidious regime survives because of the political power of French farmers. The rest of the EU would happily wind it down, but farmers are central to France’s identity. They vote as a block and no president dare ignore them.

Brexit will enable us to get rid of this nonsense and let our farmers compete in world markets just like our manufacturers, and farmers in sensible countries such as New Zealand and Australia already do. The vast majority of British people will benefit. That’s not just because the money that now goes into farmers’ pockets can go into the NHS instead, but also because Britons will pay lower food prices. According to a report by the Institute of Economic Affairs, food prices in the EU are 17 per cent above world market prices as a result of the CAP. Freer trade will also be good for farmers in developing countries.

A 17% fall in food prices is not a prize to be sniffed at. And why not simply buy the best produce in the world, whoever makes it, at the finest prices?

This is part and parcel of the very much larger point about Brexit that we all really must get our minds around. How Britain fares in the future depends not on our membership or not of the EU. Rather, on what we do with the freedom to decide our own path that we now have. And that path should include not doing a lot of the things which the EU has previously been insisting upon. Farm subsidies are only part of the story.... 

Sajid Javid is doing these trade agreements the wrong way

Obviously, it's most fun to see countries lining up to discuss trade agreements for the post-Brexit period. A bit of a turn up for the books after we'd been told that no one would ever trade with us again and we would be left bereft on our rainy little island.

However, we do think this is being done the wrong way:

The Business Secretary begins a round the world tour of Britain’s key trading partners today , as he flies to India with a view to forging new links across the globe after the EU referendum.

Sajid Javid will land in Delhi to begin preliminary trade talks with the world’s second most populous market, meeting with finance and industry ministers to outline what a future trading relationship between the two markets might look like.

We do not in fact want to have trade treaties nor bilateral agreements. Nor do we want to negotiate terms and conditions with people. For as we all know the only logical trade stance to have is one of unconditional and unilateral free trade. The whole aim of the game is to gain access to those lovely things that foreigners can make better or cheaper than we can. This is obviously something entirely under out control, we can simply not place barriers in the way of our getting those things.  Thus that is what we should be doing.

Britain's future trade treaty, and it is "a" not a "series of", is thus very simple:

1) We will have no tariffs or quotas on any imports. Imports will be subject to exactly the same regulation as domestic production.

2) You can do what you like.

3) Profit!

There's somewhere between 192 countries and 250 or so legal jurisdictions out there. Given modern communications systems it shouldn't be difficult to get that signed off by all of them by Monday fortnight. And the joy of unilateral free trade is that it doesn't matter whether they all sign on or even that none of them do. We will still be gaining all the benefit of free trade ourselves simply by sticking to those rules ourselves.

As Patrick Minford has been pointing out, at length, for a decade now.

A welcome and overdue change in the welfare state

We rather like reading The Guardian's letters page. It's a useful insight into whatever it is that the deluded are worrying about and thus a guide to what we don't have to care about. Alternatively, we find it useful to look at what is being complained about and that it is so is likely to lead us to considering it a very fine idea indeed. As with this about market rents on social housing:

So the high-earning techies of San Francisco are forcing up rents and pushing low earners out of their homes and their city (Report, 2 July)? Well, it’s about to happen here, and it will be government-induced. From next year, London council tenants with households earning £40k or more will be subject to market rates, having to pay an additional 15p in rent per week for every pound of income above £40k (£31k outside London). Some face rent increases of 350%. Tenancies will be fixed at a maximum of 10 years,

That all strikes us as a very good idea. We've no problem with the concept of a general whip around to house those who are incapable of housing themselves. There always will be those unable to deal with the vicissitudes of a free market economy and we're not averse to those sharp edges being blunted a little. We might argue about the methods used to do this but the general principle itself isn't one we argue too much about. Quite apart from anything else we know that it's going to happen so best to acknowledge that and steer matters in the least damaging direction.

But that's not what the British policy of social housing did. Yes, you only qualified for it by dint of needing it. But once you had qualified once then you had a lifetime tenancy at below market rates - at times those tenancies were inheritable. And we just never did understand why needing a subsidy at one point in your life then meant that the rest of us would be subsidising you for the rest of your life and beyond. 

Yes, obviously there are possible problems with the taper here, with the impact of the change in marginal tax and benefit withdrawal rates. and yet the basic move makes total sense to us. When you're down we chip in to aid, not least because we're aware that we at some point might also be down. But once matters are sorted out that subsidy should also disappear. Which is what is happening - a darn good idea we feel.

The NHS needs to do more charging of patients

Yes, of course, The Wonder of the World it is, our National Health Service. Free at the point of use for all....well, except for things like drugs, spectacles or teeth of course. And being free at the point of use it has the usual problem of anything that's free at the point of use. That's it's free at the point of use means there's excessive demand upon its services. 

Thus there should be more charging:

Many years ago when I was a public servant the then Labor Government introduced a copayment for pharmaceuticals for pensioners. Up until then pensioners could get their scripts filled for free. After that there was a very small (two dollar) copayment introduced.

The then government had an estimate how much money this would save. And they were wrong. It saved more, much more.

It turns out that there were a surprising number of elderly women (and they were mostly women) whose idea of a social life was to go to a different doctor every day, get a different script filled every day and go to a different pharmacist. After all those young doctors really are handsome men.

Adding a trivial copayment drastically reduced these behaviors. It saved money and improved heath outcomes.

To get more rational use of healthcare you did not need to hit these people with the full marginal cost of their services. Just a little bit of market did most the work that market does.

And the lesson was learned, socialised medicine works better with just a little bit of market in it - just to make sure the incentives are lined up. Its a lesson I have held ever since.

I disliked the Abbott (conservative) government in Australia a great deal. But they did try to introduce a general copayment (five dollars) for visiting a doctor in Australia. It was howled down in political protest. Like a lot of Abbott policies it was a bit ham-fisted. The welfare effects could have been ameliorated by introducing for example a maximum number of copayments. But none of that was tried.

Those Nordic systems we're all supposed to admire so much do exactly this. There's a charge for seeing a doctor. Sure, the seriously sick pay only a few times a year as there's a cap on the number of payments you can be charged in any one year. The French system, the one that is routinely rated number 1 in the world, charges for everything. You might get the money back, from the government, from an insurance company, but you've got to pay it.

The charges aren't anything like the actual costs of providing these services. But they do get around that problem of things being free at the point of use.

We know what would happen if there were free coffee machines in the streets and we also know that even a purely nominal charge, 20 pence, would stop much of the resultant waste. Thus there should be more such charges in the health service even if they are of purely nominal sums.

We've got Meurig Raymond's new post-Brexit domestic agricultural policy right here

The NFU tells us that they're going to, post-Brexit, consult and formulate a new domestic agricultural policy for this newly sovereign nation of ours. What joy:

The NFU is launching an-industry wide consultation on the formulation of a domestic agricultural policy, following the decision of the UK to leave the EU.

NFU president Meurig Raymond described the forthcoming consultation, which the union hopes to have completed by September, as the ’biggest farming consultation in England and Wales for a generation’.

The announcement followed a ’spirited debate’ at today’s extraordinary NFU council meeting in London, attended by 90 farmers on the union’s ruling body drawn from across England and Wales and across the farming sectors.

We think we can guess the basics of that policy already. Give us lots and lots of money, possibly more than we already get, and we'll go back to only complaining about the weather.

Oh, look!

At this stage the council has agreed some basic principles on which to build a domestic policy, including demands for the ’best possible access’ to the EU market and ensuring support given to UK farmers is on a par with that received in the EU.

Gosh, that was a tough piece of divination, wasn't it?

We have an alternative policy framework to suggest. Let's just not have a policy. No subsidies, no payments, no department, no Minister, nothing, nowt, zippedy dooh dah. The New Zealand option. You've had it good for a century or more now there's yer bike and have a nice ride.

We would not swear that this is true but we have heard that it is so - British farming has long passed Parkinson's Event Horizon. There are now more bureaucrats "managing" farming than there are farmers farming. Let's not pay the farmers anything and thus we don't need the bureaucrats paying it - a double saving. Instead of £2 to £3 billion a year in taxes going to the farmers, plus whatever the amount again to pay it to them, we could just keep that what, £5 billion? And go and buy food from whomever.

Sounds like a plan really and we recommend it to all. Let's use Brexit to right some of the wrongs of our current system. One of those wrongs being the incessant whining and demands for bribery from the farming sector.

The correct design of the new domestic agriculture policy is that there isn't one. And nor is there any funding for either it or its absence. In short Meurig, go away.

The fundamentalists disappearing up their own fundament

We've been watching the antics of the public health crowd over sugar with something of a wary eye. Amused at times as they make ever more ridiculous claims about this and that. Our favourite truly ridiculous one is that high fructose corn syrup is to blame for British obesity. For HFCS is hardly used in the UK while it is prevalent in the US - both have similar obesity problems. We've also had chuckles over the claims that we would all be thinner if we ate something like WWII rations. What was then considered to be a weight losing diet in terms of calories would today be some 30% higher in calories than the current average diet.

It's not just that they're not playing with a full set of facts they seem not to be have the full deck of cards available to inform their mental processes. 

But past that amusement there is also concern - this is clearly a crusade, a jihad, rather than a rational attempt to improve the public health. Which brings us to the latest:

Fruit snacks, yoghurts and smoothies are to be targeted by health officials under new guidelines being drawn up in the war on sugar.

Scientists working with Public Health England (PHE) have ruled that certain snacks and drinks contain harmful “free sugars” which are being blamed for the national obesity crisis.

The human digestion system breaks everything down into a chemical soup anyway meaning that there's really not that much difference here. But what is happening is what is common to most fundamentalisms:

The scientific panel decided that sugar naturally present in fruit and vegetable purees, juices, smoothies and other similar products should be treated as free sugars “where the cellular structure of the fruit or vegetable had broken down”.

But it also concluded sugar naturally present in stewed, canned and dried fruit and vegetables should be excluded from the definition of free sugars. That may add to confusion because fruit bars made from dried fruit will not be considered to contain free sugars, while fruit bars which are made from fresh fruit will. 

This is known behaviour among fanatics: today's Wolfie Smiths debate whether the dictatorship of the proletariat will come before or after Otherkin and Questioning are accepted as non-cis sexual identities without bothering to ponder the basic question of whether we have a proletariat left to dictate. The Deep Purple enthusiasts of our youth would debate exactly which bootleg of Smoke on the Water contained the definitive guitar riff in acrimonious detail rather than just agree that it's a nice bit of amplified blues but little more.

So it is with our sugar fanatics. The essential truth that we are all fatty lardbuckets because we consume more calories than we expend has escaped them. Thus these discussions of whether an apple chewed and dissolved into chemical soup in our stomachs is different from one blended before chewing and drunk so as to be that chemical soup in our stomachs. It is even remotely possible that there is difference to be measured but it's simply not important nor germane to the problem at hand, the dreadful aesthetics of walking down a summertime street where 50% of the people are fifty pounds too heavy for their shorts and tank tops.

Our reaction should be to put these disputants away where we put the Wolfies and the Purpleites. Teenage obsessions to be put aside when one discovers an accommodating and complimentary sex, cis or non-cis. The only real worry about them is the damage that might be done if we take them seriously.

For they are well off out beyond that angels on pins debate - at least that was about something interesting, are angels corporeal or non-corporeal beings? The current discussants are squabbling over whether there is a non-corporeal calorie or not.

How did Paul Mason get a job as an economics editor?

We realise that Paul Mason has stopped posing as an economics editor and is now positioning himself as a campaigning intellectual but really, how did he get that former job in the first place?

The danger is that there will be more retreats from transnational collaboration. When policymakers study the period between Invergordon and Hitler’s 1933 election victory, what they learn is this: in the 1930s, those who abandoned the global system first recovered first. The most depressing graph in economic history is of unemployment in Germany after Hitler takes power. It falls from 5.5 million in 1932 to half a million six years later. It shows the nationalist right has answers that, in the short term, often work better than those offered by democrats and globalists.

More normally Mason tells us that we should be borrowing lots so as to invest in infrastructure and thus provide a fiscal stimulus to the economy. Simple straight Keynesianism of course. and while we don't think that simple straight Keynesiansim is all that good an idea we wouldn't think of it as a preserve of the nationalist right.

For of course that is what Hitler did, borrowed the heck out of everything and spent the money on infrastructure (those autobahns as well as the Wermacht) which provided a fiscal stimulus to the economy. We don't generally call this Keynesianism because the great man hadn't written his book at the beginning of this policy so no one knew what they were doing. But it is what old toothbrush moustache did.

No, this isn't to call Keynesian stimulus a fascist or Nazi policy, even though it was one used by the Nazis. Rather, we're just puzzled by a former economics editor calling a policy he himself espouses some answer known only to that nationalist right.

Our assumption is that Mason simply doesn't know what he's talking about here which is why our question in the headline. How did he get a job as an economics editor?

What comes next?

Getting a good deal with the EU will be priority number one for whoever our next Prime Minister is, but as important as that is, they shouldn’t lose sight of the huge opportunities that being outside the EU will give us. Big reforms to trade, farming and fisheries will be open to us no matter what deal we go for with the EU, so we should get moving on them right away.

  • We should sign free trade agreements, based on mutual recognition, with as many countries as possible. I’m torn between unilateral free trade, which cuts prices for consumers, and free trade deals that get other countries to cut their tariffs in exchange for us doing the same. But, thanks to the WTO, tariffs are a relatively small part of the picture nowadays – regulatory barriers to trade matter much more. The UK should get talks started to sign Mutual Recognition Agreements with every other OECD state that is interested. Mutual recognition is a more flexible and widely-used mechanism for bringing down regulatory barriers to trade than harmonisation, which the EU prefers internally. It will take time, but it could open up huge new markets and substantially reduce prices for British consumers. I also like Matthew Lynn’s idea to try to join existing regional trade deals like NAFTA and the Trans-Pacific Partnership. In the longer run, Roland Smith's piece about 'agile trade', where sectoral agreements move much more quickly than comprehensive deals, may outline the way forward.
  • Establish an “Everything But Arms” protocol for trade with as many developing countries as possible. The EU exempts most imports from “Least Developed Countries” (mostly in sub-Saharan Africa) from tariffs and quotas, though a lot of countries that are still very poor aren’t quite poor enough to count. We should establish the principle that imports from developing countries under a given (and more generous than the EU's) Human Development Index threshold are exempt from all import restrictions that aren’t related to security or safety. These countries are not large export markets for Britain, so the case for unilateral free trade to boost development there is much stronger. Ultimately this may not do a huge amount of good compared to those countries improving their own regulations and governance, but it's a start.
  • Follow New Zealand in phasing out agricultural subsidies. New Zealand’s Labour government had to deal with an uncompetitive farming sector that was dependent on state income supports, price floors, tariffs and direct subsidies to survive. Rather boldly, they cut almost everything in the space of a few years – “Support to pastoral agriculture, expressed in PSE terms, fell from 34% in 1984 to 23% in 1987 and 3% in 1994 (Sandrey and Scobie, 1994). As a proportion of public expenditure, support to agriculture fell from 9% in 1983 to 7% in 1985 and 1% in 1989.” The result was a doubling of agricultural productivity growth (from 1% to 2-2.3% per annum) and farm profitability beginning to rise steadily. 11% of farm labour jobs were lost, but because of increased automation, not because farms were competed out of existence; only one percent of farmers couldn't adjust themselves.
    It would be rather brutal to pull out the rug from small family farms overnight, and they of course are not the biggest beneficiaries of agrisubsidies – according to the BBC, "about 80% of farm aid goes to about a quarter of EU farmers - those with the largest holdings." To protect smaller farmers from being harmed by these reforms, we should pay a five-to-ten year "transition allowance" equal to their average subsidy receipt over the last five years to family-scale farmers.
  • Harness incentives to restore Britain’s fisheries. Fisheries have to be managed somehow, to avoid a tragedy of the commons where no individual has an incentive to preserve stocks. The EU’s approach is to micromanage things: specifying total allowable catch numbers, for instance, which until recently meant huge numbers of caught fish would be thrown back, dead, into the sea. Since “Hugh’s Fish Fight” this discards problem has been addressed by the EU – with a ban on discards, which might just add to the problems we have.  
    A better approach might be to bring in “Individual Transferable Quotas” (ITQs), which basically is cap-and-trade, but for fish. A government agency sets a total allowable catch for a season for a given part of the sea, and owners of ITQs get to bring in whatever percentage of that total their ITQ gives. ITQs persist over time, and 2% of ten tons is less than 2% of twenty tons, so fishermen have a direct incentive to hold back from overfishing to allow the stock to grow. A review of over 200 studies of ITQs found that fishermen participating in schemes like this break the rules less often and often lobby for lower total catch numbers to boost the long-term sustainability of these stocks. It’s property rights in fish, and it seems to work much better than central planning.

It's understandable to be nervous about what Brexit means, but with a sensible deal with the EU and a willingness to be bold, some wonderful opportunities may lie ahead.