The Pin Factory Blog

The Guardian has another of those worthy snoozefests discussing how the concerned and enlightened can solve whatever problem it is that is this week the topic of discussion over the mung beans. This one is all about how we can "save" the Great British High Street. You can imagine the level of analysis, can't you?

so many high streets reflect a landscape created by extreme capitalism

Sigh. Actual suggestions are that perhaps people should do something else with those buildings:

a new genuinely productive economy based on making, caring and exchanging goods and services could create thriving high streets again. Youth services, libraries, creches and the like, .....with more niche stores and "click and collect" shops. But high streets must also become vibrant and welcoming places for people to visit. A modern high street should provide ample facilities for childcare and good social facilities such as restaurants and coffee shops

Seriously, more coffee shops?

making high streets more truly mixed in use. They should house elder-care centres and medical clinics, government bureaus helping the public and pop-up music or art venues. .......In the longer term, we need a proper industrial strategy for retail to promote multichannel retailing, combining online trade with vibrant high streets at the heart our communities.

Don't bother trying to match opinion to speaker: it doesn't matter. None of them grasp the basics so all are floundering. The basics being that we've already got a tried and tested system for dealing with problems like this.

At heart here we've a problem of technological change. Some 11 or 12% of shop space in the UK is empty. Some 11-12% of UK retail spending is online these days. The two facts are not unconnected. We simply need less retail space than we used to. Or to get this completely correct, we need less retail space at current prices than we used to.

For don't forget, there is no such thing as "supply" or "demand". There is only either at a particular price. Currently UK retail space is priced for when we desired to have more of it than we currently use. The solution to this is clear and obvious too. Do absolutely nothing. Given the oversupply at current prices those prices will fall. Which will increase demand and thus that 12% of empty shops will become property used for something or other again.

Exactly what they are used for, well, we've no idea actually. Might be coffee shops, could be OAP drop ins, creches: could be fabric shops, places to jailbreak an iPhone too. And we've got a method of discovering what will indeed work when we're all entirely clueless too. Called that market again. As shops get cheaper different people will try different things. Some will work and get copied, others won't and won't. And so we experiment our way to a solution of empty shop windows.

Which leaves us again with our solution: do nothing for the market will take care of it. Prices, if left alone, will adjust to balance supply and demand. And what that demand will be will is something that is emergent from the very process of considering the new prices.

For markets are both a pricing system and also a system of discovery. Change the prices and we'll discover what works at the new ones. Which, given that no one, not even the luminaries willing to chat to The Guardian for a few minutes, has the slightest clue what should actually replace the shops busted by the internet, seems quite useful really.

Not that there's anything new in this observation of course: King Log being the appropriate method of governance dates back to the Ancient Greeks at least.

Professor Dani Rodrik at Harvard University has offered up a challenge for free market liberals. He is openly, and unashamedly mercantilist: the very ideology that Adam Smith originally set out to defeat back in 1776. While rejecting the historical obsession with amassing precious metals, Rodrik proposes a mercantilist alliance of government with corporations towards common objectives like economic growth.

Swatting aside accusations of cronyism, he offers two reasons to be mercantilist. Firstly, he claims that it works: the recent Asian experience of modern economic growth suggests so, along with the fact that classical liberalism only became dominant in Britain around the 1840s, after it had already started to industrialise. But both of these claims are dubious at best. Regarding the Asian economies, most of them are experiencing catch-up growth, skipping stages of invention. For example, they needed only to import smartphone technology, rather than going through the painstaking process of inventing every single model of mobile phone from the clunky ancient ones to the iPhone. The adoption of capitalism they experienced was not the alliance of the state with business, but the openness to adopting ideas. Indeed, countries like Japan who have recently caught up now experience stagnation. The mercantilist structure does not seem to be quite so conducive to sustained, original innovation, and hence modern economic growth.

As for the British experience of the Industrial Revolution, the original technical innovators, Rodrik's claim does not imply that mercantilism is the better system. Just because the British state did not adopt a liberal attitude to innovation until the 1840s does not necessarily mean that pro-innovation liberalism was not already in action before the Establishment adopted it. If anything, the liberal view is the anti-Establishment view. It wasn't in state-subsidised or state-monopolised industries or businesses that the unprecedented innovation took place. If anything, the much-admired cotton industry of the time had to operate despite protectionist laws like the Calico Acts. Similarly, the invention and increasingly sophisticated application of steam power had almost nothing to do with the government whatsoever. We also have a useful comparison, as post-Revolutionary France was desperately intent on copying the British industrial experience. Yet despite massive subsidies, early attempts consistently failed.

Secondly, Rodrik says that under mercantilism, it is producers rather than consumers who are king. He claims that mercantilists subsidise liberals' vaunted consumption. The obvious question is "Why?" What is the purpose of production if not to satisfy someone's wants or needs? Even people who value work for work's sake are "demanding" the production of something that meets those values. What is the point of having an economy, of interacting and exchanging with others, if not to acquire value for yourself? This does not necessarily mean that you are some selfish miser, obsessed with money, but includes the whole panoply of values you can hold, from equality, to community, to family and to love. If Rodrik's mercantilist challenge is to have weight, he needs to explain what the point of production is, if not to satisfy demand.

On March 8th-10th, European Students For Liberty (ESFL) will present the second ESFL Conference, hosted by the Classical Liberal Students Association at the Catholic University of Leuven (15 minutes away from Brussels) in Belgium. Inviting students, graduates, and guests across the continent, ESFLC will feature lectures from scholars and activists in the liberty movement, free meals, books, pamphlets and campus swag for student groups to take back to their universities. Students will be able to connect with top liberty organizations to find information on internships, jobs, seminars and conferences at the liberty fair. Evening socials with speakers and students will top off Friday and Saturday nights in the Leuven area for lively discussions and good cheer for liberty.

Confirmed speakers include James Turk of the GoldMoney Foundation, Tom Palmer of the Atlas Network, David and Emily Skarbek of King’s College, entrepreneurs like John Chisholm and Daniel Model, and more. A lively student debate on rival concepts of liberty will give students an exciting and thought-provoking opportunity to engage with their peers. ESFL invites all students to participate and join the largest pro-liberty network among young people across Europe. With registrations currently spanning over twenty five countries, this will be a prime opportunity to forge new friendships, share ideas and further advance key debates and conversations about the philosophy of liberty. All conference details and registration information are located on ESFL’s conference webpage.

Seats are going fast, so those interested should reserve their spots sooner rather than later! We expect more than 300 friends of liberty to come to the ESFLC. The ESFL team is looking forward to seeing you and your friends in March!  Gathering the brightest young minds interested in liberty helps bring us one step closer to a free academy and a free society.

Check out last year's conference video.

When: 8th-10th of March 2013

Where: Leuven, Belgium. Located 15 minutes outside of Brussels

Conference fee: 30 Euros students / 45 Euros non-students (until 31st of January). Late registration: 40€/55€

Your registration fee includes: all meals provided, three days of speakers, Liberty Fair, networking, and awesome socials

Expected number of participants: more than 300

Conference website and registration link: ESFL’s conference webpage

For more updates please check out Facebook and Twitter.

Shale gas seems to be sparking an energy revolution in the United States, but has made little traction in the UK. In his column for The Scotsman yesterday, Peter Jones discussed the main problem with shale in the UK compared with the US:

The big reason was succinctly put by Charles Hendry MP, when he was energy minister: “The situation here is very different from that in the United States, where, for example, landowners own the mineral rights beneath their homes. That is not the case in this country, so there is not the same economic driver.”

Discussing this recently with two Scottish economists, Gavin McCrone and Donald MacRae, the answer suddenly occurred to me. Why don’t we create the economic driver?

Simply put, we could do that by changing the law so that the rights to minerals in the ground under our feet belong, not to the Crown (ie, the government) but to the landowner.

...in Scotland, why have onshore wind turbines multiplied? Partly, it is because the owners of the land on which they sit, mostly moorland with otherwise little economic value, get an annual rent with payments also often going to nearby communities. Without that income, I doubt that the onshore wind industry would be half the size it is.

By changing the law, the same could be done to popularise shale oil and gas.

It's an interesting idea. Of course (as Peter admits), it would be over-optimistic to hope that such a move would yield as much gas as it has in parts of the US, but it would give people more of a reason to look.

There is talk of Britain renegotiating its relationship with the European Union, and the ‘in’ and ‘out’ lobbies have been marshalling their troops. But a report for the Adam Smith Institute concludes that, whichever outcome it prefers, the British government needs to raise its game to get anything at all from the talks.

In Britain and the EU: A Negotiator’s Guide, City analyst Miles Saltiel says the Prime Minister should not rely on civil servants with EU ‘form’ but instead recruit ‘tag-teams’ of hardened negotiators who have ‘iron discipline’ and the stamina to survive gruelling late-night bargaining sessions. They will need the backing of experts in law, economics, politics and negotiating psychology;, and must be prepared to use not just the media and public opinion, but the ‘dark arts’ of every aspect of negotiationing too.

Saltiel asks how much commitment the government is willing to invest in the renegotiations. If the UK really wants to stay in, will it challenge the other side enough? Will its team be full of tough negotiators who can look at what’s offered objectively, or ‘old Europe hands’ who will easily fold? Will it be prepared to play hardball?” Will it threaten a referendum if deal-breaking conditions are not met?

Britain’s best negotiating chip is that it is not getting enough tangible benefits in return for giving up sovereignty. Specifically, the EU has not yet delivered a free market in services – crucial to the UK because of its large financial sector. Its negotiators should set a deadline on this, and other failures.

Saltiel, an experienced international negotiator, says that the government must be prepared to stand on the brink, even if it does not want to step over it. To strengthen its hand, it should hold two referendums. The first would provide a mandate to renegotiate, and would set a deadline to prevent the talks dragging on indefinitely. The second would seek voters’ approval of the eventual deal – or their permission to get tougher if the negotiations are stalled.

Analysing the arguments and counter-arguments that will be raised on the key issues, Saltiel says that the UK needs to marshal its opening, fallback and hardball positions, and will achieve little if it is not prepared to play hardball.

But would a hardball threat to pull out of the Union be credible? There would be disruption in terms of diplomacy, trade, investment, business and consumer confidence, he warns. But on most fronts, he concludes, Britain could survive out of the EU, given “good luck and good management.”

Download the report

The ASI's Sam Bowman has topped Lib Dem Voice's poll to select "Liberal Voice of the Year," beating off stiff competition from rivals such as Hugh Grant and Rowan Williams.  While this is by no means a Nobel Peace Prize (such as was won by Al Gore, Barack Obama and the European Union), it is nonetheless important recognition of Sam's brave stance for free market social justice, immigration, drugs law reform, equal marriage, and his opposition to bank bailouts.  Sam has tirelessly appeared on numerous radio and TV programmes as the voice of liberal sanity and decency amid a cacophony of intolerance and pack-hunting populism.  It is recognition, too, for the ASI's continued commitment to a libertarian free-market stance at a time when others pursue witch-hunts against business people and other wealth creators.  Bravo Sam; it's a well-deserved honour.

The new state pension arrangements announced this week follow the recommendations of a 2004 Adam Smith Institute report by the actuary Alan Pickering. We had to wait eight years, but at last the bureaucracy has got there.

The current state pension system is absurdly complex and out of date. It has two different components, a basic pension and an earnings-related pension. You might think that the idea of the state pension is simply to keep retired people out of poverty and give them a decent income. But no. If you earn more, you pay in more and get a bigger pension. Nice for the higher earners. But even with that supplement, your pension still won't be enough to live on and you are forced to supplement it with welfare. If you save for yourself, you will of course lose that welfare supplement because of means-testing. It's a system that seems almost designed to trap people in poverty and make saving pointless.

Meanwhile the arrangements for women also reflect a postwar world in which women were expected to be dependent on their husbands. This has disadvantaged women who take time out to look after children or elderly relatives: without a full set of national insurance contributions, they get an even smaller pension.

Oh, and actually higher earners can contract out of the earnings-related bit and do their own thing instead. Simple, huh?

The new arrangement, starting in 2017, will provide a simple flat-rate pension that will be higher than the means-tested welfare floor. So if you save for yourself, you will get the reward for doing so. There are credits for those who cannot pay national insurance contributions because of their responsibilities as carers. It is a lot simpler, and it does what the state pension is there for: to make sure that people save enough during their working lives to allow them to live decently and not have to rely on the welfare support of taxpayers.

Generally the state should not force people into saving – it should be their decision – but when you have a welfare system, problems arise if you do not. If you are going to force people to save, you should do it in a simple way that does the job and no more. The new system will be very much simpler and will achieve the basic aim without trying to do more and getting everyone in a bureaucratic model.

So, from 2004 to 2017…by current standards, thirteen years is pretty short time for a good idea to actually come into effect in legislation. Bad ideas usually get through a lot quicker. A muted cheer.

Fund manager and commentator Liam Halligan argues much the same as we do in a paper by Robert Miller due out later this month – that the first bouts of Quantitative Easing might have been wise, but any more could prove highly destructive.

The argument actually goes back to Hayek, who of course devoted many years of his career to the study of boom-bust cycles. These cycles, he concluded, start with the central bank easing credit – say, by keeping interest rates too low. That makes loans and mortgages cheaper, so householders buy bigger houses and businesspeople invest more on plant and equipment. But at the same time, low interest rates put off savers, and the funds needed for all this investment dry up. There is a crisis, and then a painful recession as investments are written off, house prices fall and productive equipment is sold for scrap.

What Miller explains elegantly in his forthcoming paper is how the banks amplify both the boom and the subsequent bust. That is because of the 'fractional reserve banking' system. When you pay money into your bank account, the bank keeps only a tiny amount on hand and lends out the rest to businesses. When those businesses buy equipment (say) from their suppliers, the suppliers pay that money into their account too. The bank keeps only a tiny amount on hand and lends out the rest to... well, you get the idea, it's a spiral. In fact, if the banks keep on hand just 3% of each deposit (as the Basel rules allow), then your original £100 turns into £2,219 of deposits after just 36 cycles. And when things turn sour and they start those same loans, exactly the reverse happens.

So the banks can create money out of thin air – and destroy it again – exaggerating the boom and the bust. That is why the Bank of England and the Fed reached for Quantitative Easing to repair the sudden post-crisis fall in the quantity of money. In so doing, they might well have saved us from a damaging depression.

So if Quantitative Easing can stop us going down, can more of it float us upward? No, says Hayek. In the boom, people invested their capital in the wrong places. More money will not do any good until productive assets are re-shuffled into more realistic uses. It just prolongs the problem. So if you see the authorities reaching for Quantitative Easting again, you can be sure that things are going to get worse, not better.