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.

The Guardian hasn't quite got this capitalism thing, has it?

Whether we call this capitalism or free markets is arguable of course but the headline writer here is insistent that there's something very wrong with this situation:

Why do we eat lunch at our desks? Because capitalism

Lunch as we know it today has evolved from its humble origins, but efficiency has always been its true calling card. Get ready for a future of sad desk meal-replacement beverage lunches

The actual writer seems less upset:

The power lunch has also been replaced with a slew of new, powered-by-technology lunch startups, all promising to spice up your workday meal. UberEatsoffers fast delivery from local restaurants, meaning that your options to go broke buying lunch have significantly expanded. New York’s Maple delivers a rotating menu of celebrity-created lunch options for a flat $12 fee. Arcade lets you order meals by text. Bots have also emerged as a new way to more seamlessly order lunch from within productivity platforms. Taco Bell, for example, has integrated with workplace messaging company Slack to offer an AI-powered ordering service. Users talk with the bot, order food and pay through Slack.

Then there are new lunch services that help you get you out of the office, even if just to pick up your food. MealPass, started by a founder of ClassPass, is a subscription-style lunch model that offers a daily selection of weekday lunch options for $119 a month, which works out to around $6 a lunch. You log on to the service before 9.30am, pick one of the options available near your office, and pop out to collect it at a designated time. I tried it out for a couple days and it definitely injected variety into my usual lunch routine – which generally consists of going to the nearest purveyor of foodstuffs and buying the same sandwich every day.

That capitalism/free market mix seems to be making things rather better really, doesn't it? Myriad new options sprouting up as the newly available technological space is explored.

This is not just true of desk based lunch options either. We're not going to praise the culinary excellence of the low end of the frozen pizza market but the mid-range of the supermarket prepared meal spectrum is markedly better than the mean, median or modal British cuisine of 30 years ago. We know because we were there eating that stuff.

It is indeed entirely possible to complain about what all this capitalism and free markets does to us all. Adam Smith himself pointed out that a too rigorous division of labour can leave a man as an automaton performing the same dreary task repetitively. But to complain that we've now the greatest choice of comestibles available to any group of humans ever, cheaper than anyone previously dreamed of before, does seem to be a strange whine about an economic system.  

That Brexit induced stock market disaster in full

The financial markets were of course going to go spare if Britain voted to leave the European Union. Armageddon, plagues of frogs, stockbrokers leaping from windows. That is of course how it turned out too:

A buying bonanza fuelled the FTSE 100’s remarkable rebound, erasing all of its post-Brexit losses in just two days.

London’s benchmark index enjoyed its best day in almost five years, soaring 219.67 points, or 3.58pc, to a two-month high of 6,360.06.

The rebound follows an 8.7pc plunge in the immediate aftermath of the Brexit vote. The blue chip index now trading up 0.5pc since the referendum outcome was announced.

That is ever so slightly a cheap shot as the vast majority of the revenue, and thus the profits of, FTSE 100 companies comes from outside the UK. A falling pound thus increases their profits when stated in sterling.

But it is only ever so slightly that cheap shot. Because of course the same effect applies to the whole economy. Everything British is now some few percentage points cheaper than it was. Yes, modern trade is complex and all that but economics really does happen at the margin. There will be some increase in what foreigners buy from us, some boost to the domestic production of things for domestic consumption. A stimulus to the economy that is.

We would also note that the fall in the pound has been rather larger than whatever tariffs the EU might try to threaten us with on their imports from us. Even if our exports do face the full barrage of that tariff wall we're still cheaper than we were before.

"British exports cheaper! Trade disaster looms!" just isn't a headline which works really, is it?

We prefer to think that it's because Spaniards are observant

A certain amount of headscratching over on the left as Podemos doesn't make the predicted breakthrough in the Spanish elections:

It was supposed to be a historic moment for the left in Europe. Podemos, the anti-austerity party founded barely two years ago, was set to become Spain’s second force in Sunday’s re-run of December’s inconclusive election and, perhaps, be in a position to enter government in a leftist coalition. The polls were unanimous in this respect. Some people even began to think that perhaps the pollsters were being coy and Podemos might just end up snatching the election from the jaws of the conservative People’s party.

It didn’t happen. Not only that but Podemos, which had taken part in the election in coalition with other political forces, suffered a severe setback, losing about 1.1 million votes. Even though the Socialist party also slumped, Podemos went nowhere near overtaking them as everybody had been expecting.

Why did the polls get it so wrong?

We don't insist that we are correct in this diagnosis but we would hope that we are. The result simply being that the Spanish voters had a look around the world and went "Naah, no thanks".

We do not, by any means, back the idiocy that euro membership has forced upon Spain as economic policy. As with Greece the correct policy to have followed was that devaluation that could not be done.

However, the plan on offer from Podemos was alarmingly close to those policies which have worked so well in Venezuela. And do please note that the shortages and rationing there started well before the oil price slide. This is not controversial by the way, Podemos, as with Owen Jones and others, were praising Bolivarian socialism well past the point that it had started to implode even if they're now viewing events with a "Who, me?" insouciance.

What that Venezuelan experience has told us is that we do indeed have a spectrum of economic policies available to us. Ranging the entire spectrum from Hong Kong style laissez faire free markets all the way through to tax and benefit heavy free markets like the Nordics. where you want to be on that spectrum will be a matter of your trade off between equity and efficiency - we go for the efficiency side of that as we think that equity should be considered inter-temporally. Increasing equity today at the cost of making the future poorer is not justified beyond a very limited amount. But we understand that not all moral compasses are as firmly butted as our own.

The importance of this all being that non-market systems simply do not work. Yes, of course, there are areas (externalities, public goods, there's a list in every textbook) where pure free markets don't work well if at all. But the general basis of a workable society simply does have  to be market based. If that's a lesson that all take away from that Venezuelan disaster then that, even if not the disaster, is a good thing.

And our suspicion about the Spanish result is that people are grasping that.

How to ensure the UK’s EEA membership

I voted to Remain in last week’s EU Referendum. As attractive as the “liberal leave” agenda of internationalism, deregulation, and freer trade was, there was too great a risk that the driving forces behind a Leave vote would be anti-globalisation and anti-migrant sentiment.

I also feared that Europe’s leaders would harshly punish the UK to disincentivise anyone else from departing. Although Project Fear was hyperbolic, the concerns over our place in the Single Market and the threat to business, finance, and trade were real.

My worries have not been put to rest. Asides from the appalling upsurge in racist incidents, the referendum result has produced ambiguity, uncertainty, and instability. Still, a few things seem clear. We will leave the EU within the next five years. Leave supporters have divergent agendas and expectations. There is some (limited) flexibility for how the UK responds. And an attractive liberal position, namely remaining within the European Economic Area, may actually be viable.

If the Conservatives can select a reasonable leader and assemble a cabinet containing leavers and remainers, they can unite around ensuring the UK remains within the Single Market. Europe will not compromise over free movement of labour. But, given the enormous damage the UK’s withdrawal from the EEA would do to their economies and the electoral repercussions of this, the leaders of the remaining 27 EU Member States will not make the mistake of rejecting this option if the UK accepts free movement.

It is true that this may require a struggle between the elected European leadership and the more vindictive and vengeful EU bureaucracy. However, so long as Britain capitulates on free movement, this should be sufficient to demonstrate that you can only be in the EEA if you abide by all the rules, and could serve to take the wind out of the populists’ sails by making it unambiguous that rejecting migration means embracing economic collapse.

The only question the referendum asked was whether we should leave the EU. The Single Market and immigration were not on the ballot. Nevertheless, is a UK government now in a position to save free movement, given that supporters and resentful opponents alike are trumpeting the leave vote as a definitive victory for nativism and closed borders? Before the referendum, I would have said no, but the political landscape has changed dramatically overnight. 

In particular, the Labour Party has completely imploded. The unprecedented resignation of almost all of the front bench and the no confidence motion in Corbyn’s leadership means that Labour has no short-term future. Either Corbyn goes, leaving a large part of the grassroots feeling betrayed. Or he stays, and Labour faces a bitter split or continuing as an emaciated, divided, and confused husk.

This situation provides an opportunity. If the government negotiates anything resembling a sensible deal, many leavers will attack them for ‘selling out’. Nevertheless, in the absence of an opposition, the fallout from this can be minimised. It would probably mean a few more UKIP MPs at the next General Election, but this may be a necessary price to pay for preserving trade, stability, the position of the city, and, indeed, migration.

The other problem is the difficulty of persuading remainers that good could, or even should, come from leaving. The Scottish Nationalists are poised to exploit this to ensure independence, and some on the left seem to want Brexit to result in economic collapse, isolationism, and legitimised racism, so that they feel vindicated. 

These risks can be navigated. Sturgeon is calculating and canny enough to appreciate that, so long as Single Market access was assured, remaining may be easier than fighting another referendum and struggling through a separate set of harder negotiations in Europe. I also expect that remainers will come to appreciate the necessity of realigning to work with liberal leavers to ensure that post-Brexit Britain can remain open, prosperous, vibrant, and tolerant, and is stopped from descending into nationalism, protectionism, and isolation.