"Politically Impossible" - the new Godwin's Law?

A think tank job provides ample opportunity for policy wonk talk. In doing so, I have come across a familiar frustration arising when conversations end with, “it would be politically impossible anyway”. I call it the policy wonk version of Godwin's Law.

This exasperation reveals the bittersweet warfare between politics and economics. As diluted, desecrated and debased the discipline of economics has become, nothing sullies it more than the visibly aggressive hands of politics. This is excellently outlined in William Harold Hutt’s ‘Politically Impossible’.

Hutt, distinguished economist of the 20th century grappled with the conundrum of economic wisdom, public opinion and politics to posit a strategy of effecting sound economic policy.

Economists’ ideas are often unpopular among public opinion, but this isn’t at all surprising; nobody serious would recommend a referendum, for example, on whether we should introduce a cash flow destination tax. Despite the pessimism about economics’ ability to affect change, public economic opinion is shaped by economists, be it at our schools, in our philosophies, or from newspaper op-eds.

Our political cultures too, are shaped by economists. So there must be at least some onus on the intellectuals of the time, to tell the truth about what they genuinely believe to be right, at least in description if not prescription. Hutt asserts that this is the most principled and practical position too; persuade the  “editors, the columnists, the television and radio commentators, the academics, the clergy and the teachers” and you’ll have persuaded the public before you know it.

The effect of becoming subservient to political leaders and the civil service and taming down, or outright denying economists’ convictions comes to the detriment of not only the economy but often the economic status of the poorest. It is the responsibility of the economist to refuse to appease ‘political’ whims or bow down to apparent political impossibilities.

This is because the role of a politician often comes with contradictory goals. This isn’t however, just whether to divide X or Y amounts of money between hospitals and schools or the police force or defence, as we are often made to believe. It is a centuries old occupational inhibition that Hutt calls the ‘voter acquisition process’ which tints the political lenses to the same prescription as their biggest voter base.

Economists, on the other hand are not faced with this pressure; the nature of their role is not necessarily tied to gaining votes as it is with politicians. They should never excuse their own silence on grounds that their prescription is politically impossible. In contrast, the more economists tell the truth, the more politically possible freedom becomes.

Often, those with ideas deemed ‘unrealistic’ are disparaged, softly humiliated even for attempting to bring to light such ‘idealistic’ policies.  We know this all too well at the ASI. As Madsen often likes to say, "we propose things which people regard as being on the edge of lunacy. The next thing you know, they're on the edge of policy”. Yet this perpetuates a vicious cycle. It is never absurd to attempt the difficult. What is foolish is to overstate the political costs of the policy by understating the benefits to the public.

The benefit of democracy is that it is an efficient way of getting rid of bad governments who rule in the interest of a few, but there are problems inextricably inherent:

"The vice is that, because the masses have not learned how to discern rulers who will legislate for their advantage but if I seem to be disparaging the electoral wisdom of 'the masses', I am in effect criticizing the people who create mass opinion, both from within and outside the political arena.”

Take a basic idea such as income transfers for example. It is expected that politicians would want to maximise the votes they have relative to the income promised to be redistributed. This is usually done by virtue-signalling and implications that redistribution is synonymous to charity.

Nonetheless, this is not the case. Sometimes, income transfers which voters deem deserving are neither for the ‘poor’ nor for ‘good causes’. A prime example is the farming industry. To paraphrase Professor Brozen, most agricultural programmes such as the notorious United States Agricultural Assistance Program are ‘a poverty programs for rich farmers'. Hutt points out how since all farmers are usually included in such government run programmes (which naturally is created to yield votes) it does not take into account that most transfers, at least in the case of the US example are enjoyed by those with incomes well above average. While the argument against farm subsidies is a whole other subject, it is a simple example explaining the demonstrable obstacle that comes with bad politics even if you accept good economics.

Whether distrust of experts comes from Michael Gove, or international bestselling economist Ha-Joon Chang (who kindly asserts that ‘good economic policy does not require good economists’) this is not new phenomena. So, while for some, Economics may well only be extremely useful as a form of employment for economists, it is naive to assume this is the case for all economists.  The “editors,  the columnists, the television and radio commentators, the academics, the clergy and the teachers” ought to be more receptive toward economists and their ideas - providing they are well thought through, of course - to continue Hutt’s legacy.

Only then can politicians sustainably implement such policies and we have the luxury of being able to disobey the policy wonk version of Godwin's Law.

Correcting Hubble’s vision

The Hubble space telescope was launched on April 24th, 1990. Unfortunately its main mirror had been ground incorrectly, causing spherical aberration. It meant the Hubble could photograph bright objects sharply, but the low light distant objects – the main purpose of its mission – were blurred.

Brilliantly, the scientists worked out that if new optical components were added, with the same error as the original one but in reverse, the problem would be solved. In effect they would be adding 'spectacles' to the Hubble to correct its aberration. A servicing shuttle mission was sent to do this, with astronauts performing long EVA sessions to fit the new parts. When the first photos later came in, they were sharp and clear, even of the faintest and most distant objects. Four more servicing missions went to repair, upgrade and replace Hubble's systems, including its five main instruments.

Hubble has been a spectacular success, revealing new knowledge about the earliest phases of the universe, and sending back a series of stunning and haunting pictures of distant and deep space objects. My own favourite is the Hubble "Deep Field," showing 10,000 galaxies, each with perhaps 100 billion stars, all contained within a tiny patch of sky previously thought empty.

One lesson to be drawn from this is that you do not necessarily have to get it right the first time. In many situations there is the possibility of later corrective action, or even of having another go. Progress is made by trial and error, by incorporating feedback from one trial into improving subsequent attempts. We learn from our mistakes.

Many successful people did not succeed the first time. Economic history reports many cases of entrepreneurs whose first attempts were unsuccessful, but who learned lessons along the way that were fed into their ultimately successful ventures. The same can be true in the arts, with authors sometimes writing several unremarkable books before finally hitting the big time with one.

You can spend years trying to perfect a plan, reluctant to try it out until you are sure it will work. But an alternative strategy might be to try what you think might work, observe where it falls short in practice, and use that information to modify a subsequent attempt. It usually brings success more rapidly.

The distressing inability of people to get business rates right

Business rates aren’t perfect by any means but they are rather close to the best form of taxation we’ve got, land value such. Which is what makes the pleas for special treatment under such taxation an error:

Pressure is mounting on the Government to offer childcare providers in England 100pc relief on business rates, following in the footsteps of Wales and Scotland.

Nurseries are struggling to survive in the face of rising costs such as staff wages, rents and business rates. As a result, fees are going up and this is putting pressure on household finances.

We have a scarcity of urban land where people would like to partake in economic activity. Which activity should take place on such a scarce resource? Quite obviously whichever activity adds the most value. It is by adding value that society advances and becomes richer of course. If nurseries are adding more value than other activities on that same land then they’ll be able to pay higher taxes than those other activities. If they can’t pay the higher taxes then they’re not adding more value.

No, not value as determined by the desires or hopes of those who would plan us all, but value as determined by the revealed preferences of those willing to pay for it. That being the only objective measure of value we’ve got.

So, theory tells us that if a nursery cannot pay business rates then said nursery shouldn’t be using that urban land it is not adding sufficient value to.

Another way to put this same point. We have that scarce resource, urban land. The price of it is the combination of rents and rates. The total of the two is going to be the same whether rates are high or low - business rates are incident upon landlords, not tenants. When we’ve reduced rates, as with business enterprise zones, rents just rose to fill the gap. That price of that urban land is the sorting mechanism used to determine who should be using it - those who add enough value to be able to do so. If that’s not nurseries then that’s not nurseries, is it?

Five things to help the planet

Environmental protesters make news when they block traffic and stop working people from being able to use public transport to get to work. When they do this in the UK, they are targeting the wrong country. In fact the UK is among those reducing their CO2 emissions fastest. Its carbon emissions are down 38 percent since 1990, and are still falling steadily. The UK's share of global emissions from fuel combustion is only 1 percent. Its decision to phase out coal-fired power stations has made a big contribution. China (28 percent), and India (6 percent) are bigger polluters, largely because they are both still developing, and polluting energy is cheaper than clean energy. The United States (15 percent) is also among the big ones.

There are several things that could help the planet. Many, if not all of them might be opposed by those who affect to campaign on behalf of the planet. It could be that the aforementioned campaigners are in some degree technophobes, longing for a simpler, slower life. In wishing people would live more simply and limit their desires, they distrust technologies that might enable people to cope with what the modern world is, and is becoming, and which might enable them to fulfil, rather than to limit, their desires.

1. Nuclear power

Nuclear energy does not use fossil fuels and does not release noxious gases into the atmosphere. It is carbon friendly, and the newer pebble bed reactors are safer because they cannot melt down. The older type of reactors use multiple, redundant, engineered shutdown, cooling, and containment systems, whereas pebble bed reactors are safe because the basic physics increases neutron absorption if the temperature rises. Furthermore, they are cooled by helium gas, which is chemically inert and not radioactive, so the high temperature helium gas can directly power turbines to generate electricity at 45 percent efficiency, compared to typical 33 percent efficiencies in the older types. Nuclear power can give the world a significant proportion of the energy it needs, and in an environmentally friendly way.

2. Genetic modification

Quite apart from the huge benefits that genetically modified organisms will bring into medicine, their impact on agriculture will be huge and benign. GM crops can be made saline and drought resistant, able to grow in places that conventional crops cannot. Varieties can be made that will be pest-resistant and self-fertilizing, reducing the impact of pesticides and fertilizers on the environment. Crops can be made to yield more food per acre, reducing the pressure to cut down rainforest land in order to grow more crops. It is a technology that will enable us to increase food production at a faster rate than global population is increasing, with less impact on the planet than conventional crops have. It heralds a second 'green revolution,' one that will enable us to feed ourselves with a smaller footprint on the planet.

3. Hydraulic fracturing

Hydraulic fracturing, colloquially known as fracking, offers many benefits. It can make Western nations less dependent for their energy on unstable or unpredictable parts of the world such as the Middle East and Russia. Its main benefit is the reserve supply of natural gas it allows access to and production of. While natural gas is indeed a fossil fuel, it is a relatively low-polluting one, putting out fewer emissions than oil, and far fewer than coal. This means that as coal-fired power stations are phased out and replaced by gas-fired ones, pollution is cut dramatically. The same is true, albeit to a somewhat lesser extent, when oil-fired power stations are replaced by gas. Gas from fracking is thus an interim measure that can replace the more polluting methods of power generation until renewables such as solar can carry more of the load.

4. Cultured meats

Cultured meats, known in media shorthand as "lab-grown" meats, are those produced without animal husbandry. Instead of rearing animals for food, cultured meats are produced by taking a few animal cells and growing them in a culture of nutrients. Techniques have been developed to give the resultant meat the texture of animal meat, and to incorporate cells from blood, collagen and fat, as well as muscle, so it has the taste of animal meat as well. When the first cultured burger was unveiled in 2013, it had taken 2 years and cost $300,000 to produce. By 2017, this had dropped to $11.36, and is still falling. It will soon be as cheap, then cheaper, to produce than traditional meat. It has much less environmental impact, since no methane expelled from animals is involved, and no antibiotics are used, leading to less risk of antibiotic-resistant bacteria. Of course, far less land is needed for cultured meats, and it need not be fertile land involving the destruction of rainforests. As the world becomes richer, the demand for a diet that includes meat is rising, but cultured meats can meet this while simultaneously having lower environmental impact, and using much less land.

5. Neoliberalism

Neoliberalism can help the planet because it produces wealth, and wealth enables people to afford to produce more cleanly and to afford to do what it takes to have a smaller impact upon the Earth's systems. Neoliberalism has, in the past few decades, made the people of the world richer than they have ever been. It has made wealth more evenly distributed, with the poor gaining most. The idea that "the gap is widening" is completely false; it has never been narrower. There is a Kuznets Curve for development, in which poorer nations pollute, but do so less when they become richer. The wealth generated by the pursuit of neoliberal policies has done more than lift billions from poverty and subsistence; it has funded the research and technology that are providing solutions to environmental problems, including the technologies covered above.

Those who block the streets and glue themselves to trains like to dramatize the idea that the world is headed for extinction. It is not. We don't need their theatricals to draw attention to the problems. We already know about them, and are in the process of providing solutions to them. There will be other problems, of course, and we will solve those, too. It's what we do.

Charles II and New Coke

It might seem that there is little to link King Charles II of England with New Coke, but there are strong parallels. On April 23rd, 1661, Charles II was crowned at Westminster Abbey, confirming the Restoration of 1660. On April 23rd in 1985, Coca-Cola launched its new brand, New Coke. What linked the two, apart from the coincidence of the date, was that both were cases in which a mistake was made, and subsequently corrected.

Cromwell had led the revolt against King Charles I, and had the king executed in 1649. People thought they were gaining liberty by supporting this, but instead they gained a brutal dictatorship. Cromwell forcibly dismissed Parliament in 1653 and ruled as ‘Lord Protector,’ until his death in 1658. He was brutal against Roman Catholics, and exceptionally brutal against the Irish. When his son succeeded him, as is common with dictators, people decided they’d had enough and restored the monarchy in 1660. It is significant that Parliament, ignoring what the people thought, as they do now, erected a statue outside Parliament of the only man who ever abolished it. After the Restoration, people could enjoy themselves again, and Britain boomed. The ‘Protectorate’ became an unpleasant memory.

By the mid 1980s, Coca-Cola had seen Pepsi, a sweeter tasting rival, eat into its market. Young people, in particular, seemed to prefer the sweeter taste. Coke introduced its response in the form of New Coke, a sweeter version of its original product. It was a disaster. People rejected and mocked the new product, and Pepsi edged ahead for the first time. Coke’s response was rapid. Within 3 months they reintroduced the original formula, rebranded as “Coca-Cola Classic.” The public took to it in droves and Coke’s sales shot up. New Coke went into history’s dustbin, and the ‘Classic’ suffix eventually disappeared.

In both cases a change had been made in the expectation of a positive outcome, and in both cases it brought disaster. The key fact is that in both cases people went back to the original and corrected their mistake. If there is a lesson from the two instances, it is perhaps that people can learn from their mistakes, and go back to undo some of the damage they have caused. They should never be afraid to do so, despite all the charges of being backward-looking. Always the current status looks like an advance on the past, and it takes boldness to recognize that it was a mistake and to set about reversing it.

As so often, new government is unpicking the mistakes of old government

As we’ve noted a number of times around here much of what government does is an attempt to manage the problems caused by earlier errors of government. Further, it never does take the form of stopping making those earlier mistakes of government, but instead piles on more layers of potential mistakes from governance.

An example here with new laws being considered in one US state concerning funerals. Perhaps, more accurately, corpse disposal:

Washington state is on the verge of becoming the first in the US to allow humans to be turned into compost, amid a surge in demand for sustainable and 'positive' funeral services.

State representative put the final touches to a bill on Friday which legalises two sustainable death care options - a chemical process of alkaline hydrolysis and a natural process of organic reduction.

We’ve long had an available method of organic reduction. Nothing so exotic as sky burial - popular though that was among certain Amerind groups - or being prepared for the birds - Zoroastrian. But that’s as good a description of burial in the earth to become worm food as we’re likely to get, organic reduction.

Given the historic nature of this form why would we need laws to allow it?

“It is an understandable tendency to limit the amount of time we spend contemplating our after-death choices, but environmental realities are pressing us to develop alternatives to chemical embalming, carbon-generating cremation and the massive land use requirements of traditional cemeteries,” she said.

As Jessica Mitford famously pointed out there are any number of American rules that lead to it being near impossible to bury without embalming. In her reading of it rules brought in to benefit the funeral directors who get paid to do it and then justified on spurious public health grounds.

Government is bringing in rules to allow exactly what previous government rules expressly disallow. Without doing the sensible thing of just cancelling that earlier government intervention which is causing the problem we’re currently trying to solve.

There is even a certain non-spuriousness to the public health argument in that shallow graves untreated will make the cemetery a noisesome place but then we’ve also already solved that. 6 foot under is common parlance for good reason.

As is so often true, new government is trying to deal with the problems caused by old government - without ever revoking the rules causing the error we’re trying to deal with.

Fibre optic cable in communication

On April 22nd, 1977, fibre optic cable was first used to transmit telephone messages. It was a significant milestone because of what it portended. Previous communication had been along metal wires, usually copper. Fibre optic cable is an advance, not least because it is made of silica, available in plentiful supply. It is drawn out to a diameter slightly thicker than that of a human hair, and can be used to transmit light for use in fibre optic communications. It can do so over longer distances and at higher bandwidths (data rates) than electrical cables. Moreover, the signals travel along them with less loss, and are immune to electromagnetic interference.

This was an important step because it gave a classic lesson in substitution. When resources grow scarce in supply, people develop and use alternatives. Although some environmentalists suppose that we carry on using scarce resources until there are none left, the world doesn’t work like that. If resources become scarce, the price rises so it becomes economic to use less by turning to substitutes, ones that might previously have been more expensive. The price further signals to people that it is worth extracting further supplies that might have been too expensive at the old price, but are now economic.

In the 1970s, some people thought that we were running out of copper. It was one of the five resources chosen by Paul Erlich for his famous wager with Julian Simon. I believe the reserves of it were then estimated at about 7 years. In fact, over the 10 years of the bet, copper fell in price, and Simon won his wager on all five resources. The main reason copper prices fell was that demand shrank as people turned to fibre optic instead.

People now use substances like carbon laminates instead of steel to manufacture things such as automobiles and aircraft. Governments could tell us to develop and use substitutes, and young people could campaign in the streets to push them into doing so, but this is far less effective a motivator than price. When the price of a resource rises, people use less of it and turn to alternatives because it is more efficient to do so.

Copper reserves are far greater now than they were in the late 1970s when it was thought to be “running out.” Current estimates suggest we now have 40 years of copper reserves and over 200 years of resources left. And we are not likely to run out of silica (sand) with which to make fibre optic cables, unless and until someone nationalizes the deserts.

Numbers are important but concepts even more so

One of the trailing - but imminently to break through! - Democratic runners over in the US is Andrew Yang. He’s arguing in favour of a universal basic income over there. Our own views on such differ among us with at least one of us simply arguing that it would be better than the current disincentives of the extant welfare state.

Yang’s shtick is that he can do math and that this is important. Which, of course, it is. But getting underlying concepts right before doing the sums also matter, which is where there’s a bit of a failure.

A Value-Added Tax (VAT) is a tax on the production of goods or services a business produces. It is a fair tax and it makes it much harder for large corporations, who are experts at hiding profits and income, to avoid paying their fair share. A VAT is nothing new. 160 out of 193 countries in the world already have a Value-Added Tax or something similar, including all of Europe which has an average VAT of 20 percent.

It’s true that the great difference between the US Federal tax system and those across Europe is the absence of a VAT. Also that anyone desirous of increasing the size of that Fed stuff to European levels will have to have a VAT or equivalent. It’s not possible to tax the rich enough to pay for such an expansion.

And yet, VAT is not a tax upon production. Sure, it’s producers who collect it but that’s not where the incidence is at all. As every economic textbook will tell you it’s a consumption tax. The people actually paying it are consumers. Us that is.

It might well be true that a UBI is the way to go and the numbers don’t look all that off. But concepts matter too - it’ll be US consumers paying the VAT to fund the UBI. Best to tell them that, eh?

Venezuela Campaign: Chavez versus the workers

The contempt of Chavez and his followers for the organised working class can be seen clearly in the fate of Ciudad Guyana, Venezuela’s industrial heartland.  A hub of giant steel mills, coal and bauxite mines, iron smelters and aluminium plants, this is where the bulk of Venezuela’s heavy industry was built. This city is home to a million people, and was once Venezuela’s best hope of escaping its dependence on oil exports.

Instead, Chavez nationalised factories not already under state control, installing inexperienced political acolytes as managers who were only interested in ideological conformity.

Ideological schools were set up in factories, investment halted, maintenance was forgotten, and markets in the West were abandoned in favour of politically-aligned ones. Corruption became rampant, products were stolen and sold on the black market, and managers would buy trucks from Belarus just in order to take a cut on the contract.

Nearly all the country’s electricity was generated at Ciudad Guyana, but when nationalisation and mismanagement of the electricity industry led to a power shortage in 2009 – the first of many - Chavez shut down heavy industry rather than cut off supply to potential supporters in Caracas. 400 vital electrolytic cells in CVG Venalum and 200 in CVG Alcasa were terminated, never to start again. These cells effectively implode when denied power for more than two hours.

In 2009 workers went on strike to protest the damage being done to their livelihoods.  The result? The strike leader, Ruben Gonzalez, was imprisoned for seventeen months for incitement, unlawful assembly and violating a government security zone. He was subsequently sentenced in 2011 to another seven years in prison.

By 2014 Ciudad Guyana’s decline had considerably worsened. Investment was next to non-existent and labour disputes had further spread.  In August of that year troops shot at protesting steelworkers, injuring three. The huge steel-making company Sidor, at the heart of the Ciudad Guyana initiative, was shut down as a result of strike action. It produced 4.3 million tonnes of steel a year before it was nationalised by Chavez in 2008. But by 2014 its production was less than 700,000 tonnes per annum. Striking workers complained of poor wages, harmed by increasing inflation. 25-year Sidor veteran Wilmer Salazar said that while he used to be able to buy a new car with 3 months of wages, “now everything I earn goes to buy food for my family, and it’s still not enough.”

In 2019 the nation-wide power cuts dealt a final blow to Ciudad Guyana. At the country’s two remaining aluminium plants, the electrolytic cells went out for the last time – 59 at Venalum and 14 at Alcasa.

As a result, 5,000 Alcasa and Venalum employees were sent home. In March 2019 Sidor closed its doors for the last time and ceased production permanently.  13,000 employees lost their jobs.

Ciudad Guyana, once the great hope for Venezuelan prosperity, is now a ghost town. It is no surprise that of Venezuela’s six unions, five back interim President Juan Guiado against the Maduro regime. But it’s dangerous for workers and the leaders to oppose the regime.  Ruben Gonzalez has been arrested yet again for leading another protest, and when workers criticised the regime’s incompetence, corruption and neglect of the national power grid, they were taken away by the secret police and haven’t been seen since.

Once democracy is restored in Venezuela, a major challenge will be to rebuild its industrial base that has been so comprehensively destroyed by Chavez and Maduro. Workers and trade unions should have their rights re-instated and be valued partners in that endeavour.

More information on the Venezuela Campaign can be found on their website. 

Long to reign over us

April 21st is not just Easter Sunday this year; it is also the 93rd birthday of Her Majesty, Queen Elizabeth II. She came to the throne at the age of 26 upon the death of her father in 1952, and has reigned for 67 years, the longest reigning monarch in our nation’s history.

She acceded to the throne when Britain was still recovering from World War II, and presided over the UK’s relinquishing of its colonial status and the assumption of its position as a Commonwealth Power. The Queen has always set great store by her position as head of the Commonwealth, believing that it brings together diverse peoples and is a force for good in the world. During the decades when Britain seemed to be leaving its old friends to join forces with Europe, she continually highlighted the importance of the Commonwealth.

She witnessed the decline of the UK’s great power status as the postwar world came to be dominated by continental powers rather than individual countries. She also saw the decline of Britain’s economic position, as the resources that could have provided the investment for regeneration and renewal were spent instead on welfare progammes and nationalization.

The rebirth of self-confidence and the economic revival that followed the abandonment of the Keynesian postwar consensus from 1979 meant that she was now head of state of one of the top economies of Europe, rather than of the bottom one.

She has shown careful and considered restraint, taking care to remain above politics and to accept and work with whatever governments her people chose to elect. Her continued popularity derives in part from her status as a national symbol who takes no part in the issues of the day that sometimes divide her subjects.

On a personal level, she is known to be both intelligent and well-informed. In her visits around the country she meets and talks to people from diverse fields and takes on their information. She is briefed weekly by the Prime Minister and at Privy Council meetings, and reads her ministerial red boxes every day. She is by no means a mere figurehead, though she is careful never to reveal her own views, in order to preserve her impartiality.

Thanks to the Queen, constitutional monarchy remains popular and firmly entrenched in Britain. We join the nation in congratulating her and wishing her a happy birthday, and more years of wise oversight of her realm.