Larry Summers and the Donald Trump problem


This may or may not surprise you but we can't say that we're overly keen on Donald Trump. A Great National Upchuck against the standard ruling classes and Beltway Bandits, yes, that has its amusement and joy to it. But the specific beneficiary not quite so much. What won't surprise you at all is that Larry Summers is just horrified:

While comparisons between Donald Trump and Mussolini or Hitler are overwrought, Trump’s rise does illustrate how democratic processes can lose their way and turn dangerously toxic when there is intense economic frustration and widespread apprehension about the future.

We tend to think it's more frustration about the past or the present ourselves. Something of a rage at the way ion which whoever gets voted in it always seems to be the same government in power. But that's not our point here:

The possible election of Donald Trump as President is the greatest present threat to the prosperity and security of the United States. I have had a strong point of view on each of the last ten presidential elections, but never before had I feared that what I regarded as the wrong outcome would in the long sweep of history risk grave damage to the American project.

The problem is not with Trump’s policies, though they are wacky in the few areas where they are not indecipherable. It is that he is running as modern day man on a horseback—demagogically offering the power of his personality as a magic solution to all problems—and making clear that he is prepared to run roughshod over anything or anyone who stands in his way.

Summers goes on to give examples none of which please us any more than they do him. But again we would identify the real problem as being much more basic.

That is the expansion of Federal power over the decades. for those who believe in the power of government to fix all ills it is of course obvious that government should have more power to fix said ills. But democracies do indeed elect oddities from time to time and a useful rule of thumb is that you should never grant a power to an office that your worst enemy might be occupying in a year or seven hence.

But that is of course what the liberals and progressives have done over these past decades. Ever more power is concentrated in Washington DC, ever more in the executive and this produces conniption fits when there's even a possibility that "not one of us" might end up occupying the Oval Office. The correct solution to this, given that not one of us is inevitably, over the course of time, going to achieve that office is not to give it that power in the first place.

If the Federal Government was the size it should be, back down to the 4 to 6% of GDP that the Founders thought it should be, with executive powers to match, then who would care very much about who got elected?

The same of course applies to our own polity. Various left wingers (including, obviously, the author of The Courageous State) insist that government should have more power to do whatever. Which could even be true but they are missing the vital point that if we have a government with those powers the Tories will get in one day and enjoy those same powers.

Donald Trump is this year's argument for minarchism.

Cut taxes, get money

It’s true: when you cut top tax rates, the rich pay more. UK Chancellor of the Exchequer George Osborne reports that his 2012 cut in the 50p-in-the-pound rate for top earners – to 45p – brought in an extra £8bn of revenue from those earning more than £150,000. It’s a prime example of the Laffer Curve (named after the economist Arthur Laffer): if you tax people beyond endurance, they will – one way or another – thwart you and pay less tax. And we have seen it all before, many times. In 1979 Chancellor Geoffrey Howe cut the UK's top rate of income tax from 83% (!) to 60%, Before the cut, the top 1% of taxpayers paid only 11% of the total take. By 1988 they were paying 14% of the total take. His successor Nigel Lawson cut top rates even more, from 60% to 40%, and receipts rose further. By 1997, the top 1% of earners paid a huge 21% of the total tax take.

Over in America, President Calvin Coolidge slashed top taxes too. As a result, revenues nearly doubled, and the share paid by $100,000+ earners rose from 28% in 1921 to 51% in 1925. Of course, top rates climbed again, but in the 1960s, President Kennedy slashed the highest rate from 91% (!) to 70%. As a result, the share paid by $50,000+ earners rose from 12% in 1963 to 15% in 1966, and total tax revenue grew from $69bn in 1964 to $96bn in 1968. Then in 1981, President Reagan introduced the largest tax cut in US history, cutting all taxes, and slashing top rates from 70% to 50%. In 1981, the top 1% of earners paid 18% of the tax take, but by 1988 they were paying 28%. President George H W Bush raised top taxes to help close the deficit: his move had exactly the opposite effect. But when George W Bush cut taxes, the economy powered ahead, and the tax take from million-dollar earners doubled from $132bn to $273bn in just two years.

It is a pity that, in 2012, George Osborne did not cut the top rate of tax from 50% to 40% – or even less – as we at the Adam Smith Institute advised him to do. He was still not confident enough to take on fully the ‘tax the rich’ arguments so deeply rooted in the psychology of envy. But the rich these days do not get rich from inheritance any more – check the Sunday Times Rich List to see that – they get it from building businesses that create jobs, customer value, and prosperity. A bolder cut would have raised even more revenue that enabled him to cut the deficit, and stimulated economic growth at the same time. Let’s hope he follows the evidence in his forthcoming Budget.

Understanding why the press is generally pro-Brexit


That the British press is generally pro-Brexit is true. But as so often The Guardian manages to take the wrong lesson from this observation:

In 1975, the last time the UK went to the polls over the issue of EU membership, the yes vote won by a very comfortable margin – 67.2% to 32.8%. On that occasion, however, the entire national press was vociferously in support of staying in. The Daily Express, Daily Mail, Daily Telegraph, Times, Guardian, Sun, Mirror and Financial Times all spoke with one voice: it must be “yes”.

Those committed to keeping Britain in the EU can only dream of such a day this time. While most of the papers are yet to formally declare their position, Europhiles can confidently count on a much smaller number of supportive front pages on newsstands on 23 June.

The mistake is to think that newspapers (or other media outlets) lead or form public opinion. That's not what they do at all: they follow it. It is not true that the highly paid staff of the Daily Mail believe that everything either causes or cures cancer, nor that everything including cancer affects house prices. It's that they believe that's what their readership think and or are interested in.

So it is with more political things such as British membership or not of the European Union. Newspaper editors simply are not pondering the subject and then thinking about what they should persuade their readership of. Instead, they're trying very hard to work out what it is that their readership already believes and then pander to those beliefs. As the above notes, they got it largely right in 1975. The majority of the country was pro-EU and so was the majority of Fleet Street. Similarly The Sun does not consider the relevant manifestos before plumping for Labour or Tory. Instead, it tries to work out what the readership of that paper is likely to vote for.

So it is now: the papers can see that there's rather more opposition to the EU than there used to be and are thus trying to get out in front of their own market.

Please do note that we are not calling this one way or the other: nor, despite the well known views of some of us are here here advising either way. This is simply an observation about how the media works. They attempt, as best they can, to reflect the beliefs they think their market already holds. Thus some majority of them being pro-Brexit means, and this is all it means, that those running those newspapers think that some substantial portion of the population is pro-Brexit.

Standing has not been the cause of most football stadium disasters


The main—close to the entire—case for the English & Welsh government's ban on standing terraces in football stadia in the top two tiers is that standing is unsafe, pointing particularly to disasters where many lost their lives. Previously, I pointed out that standing in seated areas (which is an accepted part of the current system) has its own risks. Here I want to point out that many of the worst footballing disasters have not been associated with standing at all. Of course, the 1989 Hillsborough Disaster was associated with fans in standing pens, but though the Taylor Report into the disaster recommended all-seater stadia as a solution, it did not actually blame standing for the tragedy itself. Instead, the report points at poor organisation as the main problem, both in ticketing and crowd management.

The immediate cause of the gross overcrowding and hence the disaster was the failure, when gate C was opened, to cut off access to the central pens which were already overfull.

They were already overfull because no safe maximum capacities had been laid down, no attempt was made to control entry to individual pens numerically and there was no effective visual monitoring of crowd density.

When the influx from gate C entered pen 3, the layout of the barriers there afforded less protection than it should and a barrier collapsed. Again, the lack of vigilant monitoring caused a sluggish reaction and response when the crush occurred. The small size and number of gates to the track retarded rescue efforts. So, in the initial stages, did lack of leadership.

In their excellent 2007 report on the topic (pdf), the Football Supporters' Federation takes this further, pointing out that in the biggest disasters since Hillsborough—in Harare in 2000, Johannesburg in 2000 and Accra in 2001—all occurred in all-seater stadia. The same is true of most disasters preceding Hillsborough, including the infamous incident at Heysel.

Since their paper is now almost nine years old, I did a quick review of all of the other recent stadium disasters I could find, and most of them were unrelated to standing or happened in all-seater stadia as well.

All seater:


There are other examples which are harder to categorise, but which rarely or never look like failures of standing. In most of the tragedies I've deemed unrelated to standing, the crush came when people exited, or when police tried to control crowds by firing indiscriminate tear gas, causing a riot. Others are down to fake tickets and over-attendance. But it's clear that standing has played only an incidental role in most disasters—the case against standing per se is weak.

The 2016 Financial Advice Market Review


The Financial Conduct Authority is due to publish their Financial Advice Market Review within two weeks. The FCA took charge of regulating independent financial advisers with a brief, broadly, to get more consumers to have better financial advice at more competitive rates. Unfortunately the FCA’s mindset is regulating large corporations, not sole traders as IFAs are. It is, or should be, a truly competitive market with quality and price determined by informed (and there’s the rub) consumers.

The result was a complicated set of rules. James Cartlidge MP described in the House of Commons (Hansard 1st February 2016, p.738) his own IFA experience: “We had a famous document called MCOB—the mortgage conduct of business rules—which was the size of a doorstep, and none of which made sense to anybody. I think it is the assumption of the regulator that small practitioners have armies of compliance officers, just like the banks. Of course, nothing could be further from the truth.”

One of the worst new rules is the unbundling of advice from the financial products. Under this, the consumer pays the IFA up front for a lifetime’s advice and then receives the benefits in due course (or not of course). This may seem sensible at first blush but it is like paying Kelloggs for the lifetime value of their expertise to you and then buying cornflakes and Rice Krispies at cost thereafter. Consumers simply do not want to do that.

Cartlidge referred to the consequential claimed “loss of about 13,500 independent financial advisers” (15%). Senior industry figures reckon the use of IFAs has decreased by as much as 47.5% and, of course, the Treasury saw the figure as too low to start with.

Whatever the precise numbers it is clear that the FCA is failing in its mission to make the financial advice market more competitive. By increasing costs and complexity it is driving sole traders out and thereby reducing competition and value for consumers. The FCA cannot point to improvements in the quality of advice and consumers do not like the new charging arrangements. Most would rather muddle along on their own than take professional advice.

The FCA should see IFAs as potentially constructive partners in a joint effort to meet UK financial consumers’ needs, rather than wrong-doers needing to be policed. This would require a reversal of their current attitude. The 2016 FAMR is likely to add Pelion upon Ossa in terms of bureaucracy and cost, compounding the strategic problem.

I hope I am wrong.

You've got to pay the market price not just whine about nationalism


To the economist the definition of rent seeking is rather wide. It's really the attempt to secure a privilege in some manner, a way to corner something, free from that awful competition of the market. It being, of course, that awful competition of the market which reduces profits, thus seeking that protection leads to increased profits flowing to those who achieve the protection. Our example today is French vignerons.

As an official sponsor of France's Tour de France, there might seem worse choices than a wine named Bicicleta. But its discreet "Made in Chile" label has struck a sour note with French winemakers, who are threatening to block the three-week bicycle race unless it is replaced with a home-grown beverage.

One amusement to note:

The sponsorship contract has been in place for the last two years, with Bicicleta wine promoted in Britain at the opening stages of the 2014 Tour, and in Holland and Belgium last year during stages in those countries.

But Languedoc-Roussillon winemakers said they had only very recently become aware of the deal.

Light may have a certain speed, news travels rather more variably. And there's good reason why the French regard this region in the same manner we do darkest Dorset or the nether regions of Norfolk. Somewhat rural might be the polite way to put it.

But to the claim:

“It is unacceptable to allow the Tour de France organisers to promote a wine from Chile," the Young Farmers group (JA) said on its website. "They should be supporting only French produce."

The Tour is an entirely commercial operation, the sponsorship an entirely commercial matter. What the wine makers are insisting is that, on those grounds of produce nationalism, foreigners should be banned from such contracts meaning that locals can get them at cheaper prices. That is, this is rent seeking on nationalist grounds.

And, as with all other forms and types of rent seeking, there is only one correct answer: on yer bike sunshine.

Obsession with migration undermined serious reform of Europe


David Cameron’s renegotiation of Britain’s relationship with the European Union is not widely regarded as a resounding success. The ‘red card’ system allowing a 55% majority of national parliaments to scupper EU legislation, may, never be used as it is unlikely that a measure that gets through the legislative process would provoke such inter-state opposition. The Commission’s commitment to ‘try’ to reduce red tape could translate into little to no actual results. Freeing Britain from the commitment to ever-closer union and the official recognition that currencies other than the Euro exist may be merely symbolic.

The greatest ire-magnet has been the ‘diluted’ migration proposals agreed by Cameron and Donald Tusk. To the chagrin of opponents of ‘mass migration’, the proposals to limit in-work and child benefits for new migrants falls far short of the desire to ‘regain control of our borders’.

This was inevitable. For many Eurosceptics uncontrolled migration is the issue with the EU. Although demonstrably false, the perception that migrants ‘steal jobs’ and live off benefits are articles of faith. Equally, free movement of labour is so essential to the EU’s purpose and ideological priorities that the euro-elite would never grant any serious curtailment of migration between Member States.

Had migration not been the main emphasis of renegotiation, much more could have been achieved. Rather than quibbling over benefits, forcing Europe to confront its two-tiered reality should have been the primary focus of reform. Although the measures do not go far enough, weakening the commitment to ever-closer union, and even marginally restricting the quixotic euro-project’s ability to dominate EU policy, is a step in the right direction.

Whilst greater political integration has always been a feature of the European project, the EU’s real purpose and success has been the development of a single market where labour and capital move freely. For many Member States, and from an economic perspective, it is the latter that is the real attraction of the EU. Federalism and the Euro need not define the Union. Britain should be established as the leading voice for a looser, wider, trading bloc, which could be institutionally protected as existing in tandem with an increasingly politically integrated Eurozone.

Obsession with migration, and the perception that Britain is hostile to Europe, has directly undermined greater progress. In particular, countries such as Hungary, Slovakia, and Poland, who should be allies in reform, have mostly been on the other side of the negotiation table. Denmark, Ireland, the Netherlands, and Croatia, are sympathetic to a Single Market that is both deeper and less regulated, but have been wary of Britain’s apparently antagonistic approach.

Not only has Cameron secured weaker reforms than he may have done, Britain’s position in Europe will remain less central than it could be. Rather than being an essential counter-balance to quasi-hegemonic Germany, protectionist France, and integration-infatuated Belgium, Britain is at risk of having exhausted its political capital on insufficient reform.

The EU: A View from Florida


The EU is already a Federal State in all but name. It has a Parliament, embassies, the right to speak for all the component states and to over-rule those that fail to fall in line. It cannot give the UK the right to be different because then all the other member states would want to be different too and there would be no EU. The difference between the EU and the USA, and maybe the only difference of importance, is that the USA has a constitution defining the matters for the federal government – all others being left to member states. That constitution is stoutly defended by their Supreme Court, notably by Antonin Scalia who died this month. The EU has treaties but no constitution. The treaties, notably Maastricht and Lisbon, say that matters that do not have to be decided by the EU as a whole, should be left to member states (“subsidiarity”) but Brussels has blocked any attempt to define either EU or subsidiary matters or to limit its own area of responsibility. The European Court of Justice, per contra to the US, routinely promotes centrism over subsidiarity. If Brussels decides to determine the right size for strawberries in Sweden, it can and does do so.

“Subsidiarity” is derived from the German word and came to prominence in European discussions of the US constitution in the 19th century. Strangely, the German Federal Republic has no constitution and maybe that’s why the EU has none either. German law rests on the “Basic Law” devised in 1949 by the Western Allied occupying powers, which is similar to a constitution in many ways, but was seen as a stop-gap until Germany could be re-united. In essence, the EU has neither constitution nor the practice of subsidiarity nor the defence of subsidiarity because Germany sees no need for these things. Power, to be effective, should, in this Weltanschauung, be centralised. No one gets more annoyed than Berlin when the Greeks, or whoever, step out of line on migrants or economic matters.

The lack of recognition of subsidiarity renders the EU unfit for purpose and ultimately it will founder. That was the windmill against which Cameron was tilting and it is no surprise he got nothing but a broken lance for his pains. But that is not the issue. One can take the view that the Germans are going to win on penalties anyway, and join them. Or that we have the political players talented and strong enough to exploit the EU’s weaknesses.

Or, and this is my favourite, play the “Irish Bluff”, i.e. vote to leave now and then vote in the second referendum to accept a better deal.

Apple vs the FBI: Why Tim Cook is right


Nice to see someone in business taking a principled stance on a basic issue of individual liberty. Apple boss Tim Cook is standing up against US government officials' attempts to ride roughshod over the public's right to privacy. Apple is opposing the US Department of Justice in at least ten cases. The FBI wants them to help to hack the iPhones of known or suspected criminals, while the DoJ wants Apple to create a 'master key' on its devices so that such hacking can become routine.

Apple has been fighting a legal (and PR) battle over the iPhone of Syed Farook, who gunned down 14 people in San Bernadino three months ago. The FBI argue that the information on Farook's phone may help prevent another such act of terrorism. Cook argues that the very real dangers of compromising Apple encryption – which could expose people to criminal, as well as government, assaults on their data – outweigh the possibility that something "might be there".

The US government's efforts to enable themselves to conveniently hack whosoever they deem fit start, as usual, with cases like this. Nearly everyone would say that murdering swine like Farook should have no secrets from the police, especially if other lives might be at risk. But even universal agreement does not necessarily make it right.

Once such a principle is conceded, there is no obvious limit to the assault on justice. Exactly what crime does someone have to commit – or merely be suspected of – before the police can legitimately hack their data? Once the power is there, it will elide into wider and wider use – as the many abuses of 'anti-terrorism' legislation in the UK and 'racketeering' laws in the US demonstrate all too clearly. Quicker than you think, anyone's data will be up for grabs. And public officials are not angels: would you really trust some junior police officer to preserve the confidence of your personal data?

And it is another invitation for government officials to go on a fishing trip. If our data can be hacked because some junior government officer declares that there is a 'suspicion' that we are up no no good, what judge would resist the application, and which of us would be safe from random searching?

Tim Cook declares that there are things that are difficult, and things that are right, and he figures that his stand against the authorities' demand to access personal data, even of utter scumbags, is both. He is right.

As we've been saying, it's all about land prices


Or as we've been saying in rather more detail: the price of housing in Britain is really about the price of the chitty that allows you to build a house on a certain piece of land. For there's no real other reason that housing should not be at about the cost of building a house. As this builder is showing:

The company uses figures from the annual survey of hours and income to work out where it can build, and has identified other parts of the UK where it could construct affordable two-bedroom semis for couples. Across the north of England it thinks it can build homes affordable to those on a household income of just £23,000, and going further south, including Kent, believes it can sell to those earning £27,000. Harrison says this would require a different approach, possibly involving local authorities selling the land at a lower price but keeping some equity in the houses.

The actual build cost of a two bed semi is in the £80k range, that for a larger 3 bedder perhaps £100k. So, why isn't it possible for people to build to that price in the South? And ifthey were, why aren't we inundated with firms looking to make the 75% margins that would come from doing so?

The answer being that we've an idiot planning system which determinedly, purposefully, with malice aforethought, refuses to licence land for building houses upon anywhere near people would like to have a house to live in.

We're not going to solve the housing problem until we solve this problem. The correct answer being to tear up the Town and Country Planning Acts and go back to what prevailed the last time the private sector managed to house Britain, a free for all. The thing being that we really did learn this lesson last century: markets work and planning doesn't. The Soviet Union's economy collapsed into rubble because they tried to plan the whole economy. The parts of our economy which don't work are those subject to that very same mistake of planning.