The Pin Factory Blog

Hope springs eternal that there's some method of socialism that will actually work and the latest example, something which is in the words of the author here a beacon of hope to the world, is called Marinaleda. A large village of just under 3,000 souls in southern Spain where they farm the fields in common. Parts of it sound awful:

The town co-operative does not distribute profits: any surplus is reinvested to create more jobs. Everyone in the co-op earns the same salary, €47 (£40) a day for six and a half hours of work: it may not sound like a lot, but it's more than double the Spanish minimum wage....(...)...

All work in the Marinaleda co-operative in shifts, depending on what needs harvesting, and how much of it there is. If there's enough work for your group, then you will be told in advance, through the loudspeaker on the van that circles the village in the evenings. It's a strange, quasi-Soviet experience, sitting at home and hearing the van drive past announcing: "Work in the fields tomorrow for group B".

Well, yes, quasi-Soviet it does sound like. And it sounds awful to me because I'm a city boy. It would be terribly, terribly, easy to sneer at all of this. All those Islingtonistas clinging to the hope that there's an alternative to capitalism even if they'd never actually join in it themselves. And as we can see there is an absolutely and entirely viable alternative to that capitalist ownership of land even if the Islingtonistas are never going to work in the fields for £45 a day. We might even point out that the reason they don't need the capitalists is because they simply stole the land that they're farming which does tend to cut down on capital costs.

However, rather than sneering we should point out the interesting parts:

In addition to the ubiquitous olives and the oil-processing factory, they planted peppers of various kinds, artichokes, fava beans, green beans, broccoli: crops that could be processed, canned, and jarred, to justify the creation of a processing factory that provided a secondary industry back in the village, and thus more employment.

More on that employment part in a moment but note what they actually do with these packed and preserved veggies: they sell them. They may well be a workers' cooperative and good for them if that's what they want to do. But they are still plugged into the market system and as I've often pointed out, it's markets that are much more important than the capitalism part of our economic system. That there is the division and specialisation of labour along with trade in the resultant production is far more important to rising living standards than the relatively minor question of who owns the productive assets.

But there is still one thing they've got badly wrong:

"Our aim was not to create profit, but jobs," Sánchez Gordillo explained to me. This philosophy runs directly counter to the late-capitalist emphasis on "efficiency" – a word that has been elevated to almost holy status in the neoliberal lexicon, but in reality has become a shameful euphemism for the sacrifice of human dignity at the altar of share prices.

Efficiency has nothing to do with capitalism, neoliberalism or share prices: or nothing to do with them that it doesn't also have with any other method of economic organisation. You still want to have the maximum output for the inputs you have available. That's how you maximise what can be consumed of course. And this village is relatively land poor (1,200 hectares) and labour rich (2,700 people) so of course they should be using a labour intensive form of agriculture. That would be true under any economic system, assuming that the entire village is going to try to live off the land. Given the constraints they're working with any economic system would lead to the same strategy (and do note, their constraints include there not wanting to depopulate the village to move into industry elsewhere).

What we've really got here is a workers' cooperative plugged directly into the market system. And good on them and let's hope they all enjoy it. What we don't have here is some radical vision of a different society. For as we well know, the liberal order both allows and encourage different forms of organisation as the customer coops of the Building Societies and the Co Op, the workers' cooperative of John Lewis and Waitrose and the shareholder owned parts of the economy show us. Marinaleda is simply another experiment and as always happens in market based societies, those experiments that work will spread, those that don't won't. Given that most people don't want to live as 14 th century villeins I doubt this will spread: even though that won't stop some people trying to impose it on us all.

The bit that we have to be very careful about is to make sure that this socialist fantasy doesn't get transfigured as it moves from reality into that pantheon of possible utopias. They've not abolished the market, tey really are simply a workers' coop. But such is the British left's disdain for markets (so close to "trade"!) that when it gets over here they're going to be calling for the abolition of markets and that's just not what makes this village work at all.

We've the news that the Chinese are to be allowed to put their hard earned cash into providing us with electricity through the medium of nuclear power stations. Something that I'm just fine with I have to say: I'm absolutely delighted when other people invest their money to provide me with things I desire. But it's worth mentioning something important about all of this:

$22 billion for two EPR reactors in Europe (France and Finland) is about triple the $7.5 billion for the two Chinese EPR reactors.

It really is true that the two reactors being built in Europe are three times the price of the two being built in China. So, at first pass, we might think that getting the Chinese to build ours will be cheaper. Sadly, that is to make an error. For these are not cheaper Chinese reactors being built at all.

In fact, the important thing to note here is that this is the same reactor being built four times in different places. It would thus be more sensible to assign the cost differences to where they are being built rather than what is being built. We've even got much the same engineering companies doing and or overseeing the work in the different locations.

At which point I'd offer an hypothesis. And it's only that, not a theory, only a little more than a supposition. I see it in my own day job too. If I were to wish to build a small plant (and I do mean small, processing a few tonnes of basic material a day) here in the EU it would take me perhaps 18 months to gain the environmental licence to do that. In that same time I've seen competitors in China go from idea to full production.

No, I don't suggest that we all adopt Chinese environmental standards, not at all: but I would just like to point to the costs that such have. And I think that what we're seeing here in the nuclear costs is very much the same thing. It costs two to three times more to build a reactor in Europe as it does to build the same reactor in China. And no, labour costs are not the reason why. And the reason is the way in which we here in Europe try to regulate the building of reactors.

Or, as a certain nuclear engineer of my acquaintance is known to say, the majority of nuclear building costs are regulatory, nothing else.

New figures out from ONS means that the newspapers have an opportunity to point to the inequality of lifespan in Britain:

A baby born in the North West of England will live on average two years less than a child born in the South East, new Government figures have revealed. The figures give a snapshot of life in Britain today and reveal the divisions between life-expectancy rates for people living in different areas of Britain.

The figures themselves are correct, average life expectancy does vary around the country and across socio-economic classes. But the interpretation put on them is not correct. For no one is measuring the life expectancy of someone born in a particular place. They are measuring the age of death of people in that specific place. The error can be seen in this second story inspired by the same ONS numbers:

Eastbourne has become the first place in the country to boast a population with an average age of more than 70. The Meads district of the famously genteel East Sussex town was identified by the Office for National Statistics as having the oldest residents in England and Wales. Named by officials as Eastbourne 012B, the well-heeled area has a population with an average age of 71.1, compared with the national average of 39.7.

We do not believe that all people born in Eastbourne have exceptionally long lives. Quite the contrary, we believe that people who live long enough to move when they retire go to Eastbourne. Which of course means that people who live long enough to move when they retire must move away from some other part of the country, lowering the observed age at death in those places.

A goodly part of the inequality of lifespans is simply that people move around. And we have parts of the country where older people preferentially move to. Thus, inevitably, we end up with concentrations of the long lived in some paces and a relative paucity of them in others.

Try this for an extreme example of the same phenomenon. Measure the average age of death in a children's hospice against that in a home for those with senile dementia. We will see a very great difference in average life span, a vast inequality. One that will tell us absolutely nothing at all about the average life expectancy of those people when they were born nor of the people who were born in the same area.

Geographic measurement of lifespan inequality reflects where people die and at what age, not the potential lifespans of those born in those places: for people do move around.

A disturbing Forbes piece reporting the latest IMF thinking. Which, shockingly, is that a) governments are so broke that even if they confiscated all the wealth of the richest 1% they'd still be broke; which means that b) they're going to come after everyone else's savings and pensions too; and c) that even then, governments won't be able to live within their means; so d) it will come down to all of the above, with debt defaults and inflation making up the difference.

As the Forbes piece says, the idea of governments living within their means, or getting their Ponzi-scheme pension and welfare systems under control, doesn't feature in the IMF thinking. it is more concerned about how to tax people who try to shift their wealth out of the grasp of the overspending politicians: "taxing different forms of wealth differently according to their mobility," as the Fund puts it, "...to make it harder for the very well-off to evade taxation by placing funds elsewhere."

Farewell, then, to the tax competition that might pressure governments to provide good value for their taxpayers' money. And farewell to the fiscal probity – the notion of governments living within their means – that the IMF once stressed. Instead, it seems that even the world's bank manager reckons it's OK for politicians to spend profligately and then steal the wealth of their citizens to pay the bill.

Which just shows you how deep the rot has penetrated. But at the same time, as I read all this, I get the strange feeling that Atlas is beginning to shrug. 

On 16th October, the Government published the report commissioned from six UK business leaders on reducing EU business regulation.  This impressive document makes 31 recommendations under five headings: Reducing barriers on Competitiveness, Starting a company and employing people, Expanding a business, Trading across EU borders and, finally, Innovation.

Overall this is a step forward and the authors should be congratulated on a major contribution.  In particular, the authors are right to call for small and young businesses to be taken out of regulation altogether. Unfortunately, the report also has three serious failings.

First, it is not well informed on methods to curb further regulation.  Their main recommendation is a set of motherhood criteria for testing proposed regulations, i.e. the “COMPETE Principles”.  “COMPETE” is an acronym of the seven criteria. The last government tried several variations of this approach but none of them worked.  Bureaucrats are good at paying lip service to these things.  The second COMPETE Principle is “One-in-one-out”. The current government has a one-in-two-out policy whose effectiveness is not reported by the Regulatory Policy Committee (RPC) in its annual report, nor, to my knowledge, elsewhere. The demise of regulations have not caused dancing in the streets.  The only curb with some effect on the quality, if not the number, of regulations is the establishment of the RPC itself which can, and does, reject proposed new regulations which do not appear to be good for the country.  Although the COMPETE Principles are somewhat tougher than we have seen before, the moral is that people can block new regulation; motherhood criteria cannot.

The EU has, in theory, the equivalent of the RPC but it has gone native.  An independent team assessing proposed regulation needs to be given teeth and to report to a Commissioner determined to curb new, and remove redundant, regulation.  Audited and published impact assessments need clearly to show that (a) the regulatory goals are essential, (b) there is no less burdensome means of achieving those goals and (c) that social and environmental benefits clearly outweigh the costs to business,

Second, the authors pay no attention to those social and environmental reasons used by the EU to justify much of its business and economic regulation.  Business people may think that too much weight is given to these wider issues.  After all, who pays for all this?  But to win regulatory arguments in Brussels one has to show that the damage to business outweighs any social or environmental benefits.  One cannot win a case on financial costs alone when the judge and jury are as much, if not more, concerned with wider issues.

Third, the authors fail to understand the consequences of the single market they demand. A single market is defined by a single set of regulations.  Therefore we must have EU business regulation but we do not need UK business regulation on top of that.  In 2012, Whitehall approved 533 new UK business regulations, far far more than Brussels.  And this was by a government committed, supposedly, to reducing the flow.  Even the Blair government did not produce so many.  Business should consider EU and UK regulation together as it is the combination that creates much of the problem.

Praiseworthy as it is, I fear this report will just gather dust in Brussels and Whitehall.

Here's the New Statesman putting forward an entirely ludicrous idea. A very silly one indeed:

Yet whilst the financial sector likes to think of itself as the powerhouse of the UK economy, in terms of the tax it pays, it's more of a Wendy house. HMRC figures show a drastic reduction in Corporation Tax contributions since the financial crash – on average just £3.3billion a year, even when the paltry Bank Levy is included.

They are equating the value that a company or industry sector adds to the economy with the amount of tax that that company or industrial sector pays to The Treasury. Which is not just silly it's actively insane.

Quick question: how much tax does the NHS pay? None is I think the correct answer, yes? But we all do think that it's a pretty good thing to have a health care system around, yes? Perhaps not exactly this one, perhaps it could be tweaked or improved or replaced, but we do all agree that the value to us of health care is not reliant upon the tax paid by that health care system?

One of the few thinking lefties that remain notes that the New Statesman isn't correct here:

I’m under the impression that taxes are something you pay out of the contribution you make. The contribution you make being, if you’re a company, the profits you make and the wages you pay. That’s your value add. For finance the waters are muddied, because of TBTF etc., but the vast majority of the people involved in finance are doing work as boring and worthy as the rest. Employing over one million people counts as a contribution to me, so why is the New Statesman being so odd?

But sadly doesn't get the answer quite correct.

It is indeed true that the contribution of a company to GDP roughly equates to the wages paid plus profits made (not entirely exactly, but it's a very good estimate). However, this is not the value to us all of that company's (or industrial sector's) existence or work. For example, the wages paid are, while a contribution to GDP, actually a cost to us of what is produced. For if there's a million people doing banking then there's a million people not wiping babies' bottoms. One must never, if one wants to keep ones' economist secret decoder ring, forget about opportunity costs after all.

What we really want to know is whether having a million people doing banking makes us better off than having a million people doing nappy duty: which means wondering whether the output of the banking sector is more valuable to us than dry and smiling babies. At which point it becomes obvious that the value of a company, and industrial sector, is the value to us of the output of that company and or sector.

Thus the value of banking is that we get to have a banking system. The value of the NHS is that it (occasionally) cures more people than it kills. The value of Google is that we get to Google.

The value or contribution to us all of what people are doing lies not in the taxes they pay and not even in either the profits they make or the number of jobs they create. It is in the value to us of consuming their production. Any other measure of value will inevitably lead to the sort of nonsense that the New Statesman is peddling here.

Something that Adam Smith pointed out 237 years ago when arguing that the correct labour theory of value is the one that measures the value in use of something that has been produced: something we would rather hope that people would have grasped after all of this time.

The fact that the American government is up and running again is very bad news. Not for the obvious reason that the American government is bloated, self-serving, unproductive, and completely incapable of spending the nation's money efficiently. But for the fact that the budget deal simply postpones problems that should be squared up to.

The fact is that, with a $17 trillion debt ceiling, the American government is really deep in debt. Britain's £1.2 trillion debt looks positively virtuous (which it isn't). But is Congress slicing up its credit card, reining back on its spending and cutting out luxuries, like everyone else has to do when we get into trouble? Not a bit of it. The American government is still living far beyond its means.

The deal hasn't even bought much time. It will keep the government running only until 15 January, and there will have to be more discussion (or horse-trading) on the debt ceiling from 7 February. It doesn't 'solve' anything.

If 'America' (notice how so many commentators say 'America' when they really mean its government) is determined to carry on spending as it does, then it will have to carry on adding to its debt. The only other option is to print the money it needs – in other words, more quantitative easing. And that, of course, is very good for markets – because the new money comes in through the financial institutions, and quite a bit of it tends to stick in the asset markets, inflating the prices of stocks, businesses, houses and the rest. So investors see the benefit even if the rest of us don't.

That might explain why the markets are so sanguine about something that is, in fact, a complete denial of financial prudence within the American government. The trouble is, as we discovered in 2008, you can put off the day of reckoning for quite a time, but eventually your imprudence catches up with you. You can carry on a bit longer by putting everything you can on the credit card, but eventually something messy is going to happen. Nobody knows when that might be. Perhaps a default in the New Year might not be such a disaster, but would make Congress realise that the books have to balance. For long-term American investors, that might actually be cheering news.

Labour's economic team—led by Ed Balls—is either confused and economically ignorant, or deliberately misleading and opportunistic. After Tuesday's inflation release, they hit out at the government for the continued above-target rate (2.7% over the year to September, the same as over the year to August), as part of their new "cost of living" strategy. Spokesperson Catherine McKinnell said:

This is yet more evidence of the cost-of-living crisis facing families across Britain after three years of this Government's failing policies. Prices have now risen faster than wages in 39 out of 40 months under David Cameron and now we learn that we have the highest rate of inflation of any EU country.

At the same time, shadow chancellor Ed Balls has repeatedly attacked the Tories' fiscal austerity policies, blaming them for the extremely lacklustre recovery from the recession and even suggesting they may have been self-defeating. But at the same time he has also blamed above-target inflation for squeezing living standards.

But which is it? If the Tories were wrong to cut spending, it's because the recession was driven by nominal factors, and cutting spending will further cut aggregate demand, only worsening the pricing mismatch that is leaving resources unemployed and output below potential. But we also know from our basic AD/AS model, the same one that we use to generate the result that falling aggregate demand is bad for output and employment, that higher AD means higher inflation. So if Ed Balls really wants more government spending, any of the models he's relying on would also tell him he'd have to have higher inflation as well. You can't criticise austerity and inflation.

But it goes deeper than this. What Ed Balls is missing is that actually the UK's overall economic policy wasn't particularly austere at all. Certainly at points it could have standed to be a bit easier, especially in the crucial 2008-2009 crash. But basically Ed Balls completely ignores monetary policy, which, in the final analysis, determines demand. The monetary policy committee, which sets rates and quantitative easing (QE) can choose whatever it wants demand in the economy to be. They use a faulty indicator, the consumer prices index. But they interact with the economy by constricting or expanding demand based on their policy goals (inflation close to 2%, stable output and employment).

Imagine the government decided to cut spending by £100bn (an illustrative number). If this was going to bring inflation down to 0%, from 2%, then the Bank of England would be changing its monetary policy if it allowed inflation to fall there. The Bank, knowing this, will manipulate interest rates and asset buying policy (QE) to make sure their goals are met. This is true even though the Bank's current framework leaves so much to be desired. In 2010 and 2011 the Bank allowed inflation to go all the way up to 5.2%, meaning that they more than counteracted the effect of austerity on overall aggregate demand.

What this means is that Ed Balls, were he to slow down the pace of fiscal contraction and nevertheless bring inflation down to 2% now, would worsen the nominal recession, and yet redistribute yet more resources to state control. He may not know this—despite his economic education—or he may be staking out a deliberately misleading and opportunistic set of policies, playing on the public's ignorance of economics.

As regular readers will know I have something of a bee in my bonnet about the costs and benefits of jobs. To those who have a job it is a cost of gaining the income which they desire from having a job. To those actually doing something having to hire people to do a job is of course a cost of getting that thing done. Jobs are, on both sides, therefore a cost, not a benefit of something being done.

Unfortunately those who pretend to rule us are entirely ignorant of this simple fact:

Shale gas drilling across Britain could create just a third of the jobs David Cameron hoped for, the government has been warned. The Prime Minister insisted the country could benefit from 74,000 new jobs and could not afford to miss out on ‘fracking’, the controversial process used to release gas trapped deep underground. But a study produced for the energy department suggests that just 24,000 full-time roles could emerge even when the industry is at its ‘peak. The prediction could be a major blow to Mr Cameron’s argument in favour of shale gas.

Whether you want to think that it is the Daily Mail that rules us, David Cameron or the energy department makes no difference here. All three are arguing exactly the wrong way around.

That fracking for shale gas will produce fewer jobs than was formerly thought is good news. For it means that the costs of fracking for shale gas have just gone down. This is therefore an argument in favour of fracking: we will get more energy for a lower cost.

Hurrah! and drill baby, drill.

Which leaves us with only one question. Whichever of the three of them you do think rules us on this matter, why is it that none of them know enough economics to be able to negotiate their way out of a wet paper bag?

For those not living in or around the London area it can be difficult to attend the top events on the libertarian calendar. It makes sense for the capital to be our focus, but it doesn’t have to be to the detriment of elsewhere.

The Liberty League is currently organising its first one-day regional conference. It takes the best quality speakers to create a day-long event much larger than the average libertarian society social.

Our first one will be held in Manchester on Saturday, the 26th of October. This city was a natural choice given its liberal heritage and the emergence of a strong libertarian society in the last few years. The conference is open to all not just students and we're sure that the bargain ticket price of £4 and brilliant speaker list will be a big attraction.

Make sure to put the date in your diary as we have:

Jamie Whyte on 'Tax Evasion and Democratic Predation’

John Meadowcroft on 'Prostitution: for and against'

Kevin Dowd on 'Private Banking’

Steve Davies and Tim Evans: A panel discussion on the case for private healthcare

If that isn’t enough we have a room with a buffet dinner included in the ticket cost and a final speech from the ASI’s very own Sam Bowman. Tickets are available from UKLibertyLeague.org.

It’s important to keep reaching out to those on our periphery. Part of doing this is making libertarian events as accessible as possible to as many as possible, and Liberty League is committed to helping to do so. These one-day events are a great way to kick-start libertarian groups in towns or cities and refresh those that are not as active. We need a strong broad and inclusive movement right across the UK, and the more chances people have to network and interact the better.