Sadly, The Guardian cannot even get free trade right

For a paper with its antecendents this is not a good look:

Do trade deficits matter?

Many economists would argue trade deficits are an irrelevance, although surpluses are often seen as economic virility symbols.

Persistent deficits require funding via international borrowing, which becomes harder if confidence in a country falls.

No, absolutely not, go to the back of the class. Given the paper's history this is bad too. For it was founded, as the Manchester Guardian, to argue against the Corn Laws. That is, in favour of free trade.

It is entirely true that a trade deficit must be financed but that it requires borrowing is a horribly misleading untruth. Any current account deficit must be - and will be - offset by an equal and opposite capital account surplus on the grounds that the balance of payments really does balance (yes, it's more complex, but really, this suffices).

OK, but doesn't this require that we borrow money from foreigners? Nope, no it doesn't. It requires that foreigners send their capital into the country. And they can buy stuff. Or even build it. Foreign Direct Investment for example, say a Japanese car factory built Oop North, or some Johnny Foreign buying a flat in London to leave empty. This is capital flowing into the country this finances that trade deficit £ for £ because that's just how that balance of payments thing works.

Of course, we might end up selling the entire country, as Warren Buffett has posited with his Squanderville idea.

The UK trade deficit is some £30 billion a year. Hey, why not exaggerate, let's call it £100 billion, whatever. We must therefore sell that amount of our wealth to finance it each year - in the most restrictive version of this story that is. How much wealth do we have?

Aggregate total net wealth of all households in Great Britain was £12.8 trillion in July 2014 to June 2016

Oh, we can do this for a pretty long time then. A century and more before we're broke.

up 15% from the July 2012 to June 2014 figure of £11.1 trillion.

Actually, we can do this forever. Note that households do the consuming so yes, household wealth is the correct stock we've to use to pay for it. We're creating new wealth at some £1.5 trillion every two years, £750 billion a year say. Of which we've got to flog off £30 billion (hey, why not, call it £100 billion!) to foreigners to finance the trade deficit.

We can not only do this forever, as we do so foreigners will end up owning an ever smaller portion of the capital owned by the people of the country. For we're creating the wealth faster than we spend it.

So, err, yes, trade deficits are an irrelevance. Free trade it is then.


Perhaps £2 million is too much for one unit of affordable housing

We don't know for certain that this is so but we'll push it out there for consideration. Perhaps £2 million is a bit much to pay for the one single unit of "affordable" housing in London? Yet that does seem to be the demand being made here, that this price should be paid:

The developers have also ensured that residents won’t have to share walls with anyone on a modest wage as they made a not-uncommon agreement with Westminster city council and the mayor of London that the half-a-billion pound development overlooking Kensington Gardens should not include a single affordable flat despite the “housing crisis” gripping the capital.

The City bankers behind the Park Modern development – which is being built on the site of one London’s few remaining hostels – hope to bring in £450m selling all of the 57 apartments in the block to the super-rich. The cheapest 1,000 sq ft apartment at the back is being marketed for sale at £2m. At the top of the nine-storey block, a double-height five bedroom penthouse is offered for £30m.

This is an outrage apparently. At which point, think through what the demand is. Here we've a property which can be sold (the cheapest can be sold for this price) for £2 million. The demand is that instead of being sold for this price it must be offered for an under the more general market rental - that's what affordable means in this context.


Imagine that - as we don't in the slightest think should happen - that the building of for market housing should be accompanied by the construction of that affordable unit or seven. Why does it have to be in the same building? To insist upon that is to ignore the second most important part of economics, opportunity costs. That unit can go or £2 million. £2 million, even at London prices, will buy 10 units elsewhere in the capital. OK, maybe five. So, for the same expenditure of resources do we want ten, OK five, units of affordable housing or one?

The demand is that we'd prefer one. Which is, of course, simply lunacy. How did we end up with this foolishness as policy?

Freedom Week 2018

FW18 groupshot.jpeg

Every year, the Adam Smith Institute and the Institute of Economic Affairs hold Freedom Week—a week-long series of lectures, seminars, and social events in the heart of Cambridge for the brightest young thinkers interested in free markets and classical liberalism. I attended Freedom Week in 2013, and half a decade later had just as much fun as one of the organisers.

Freedom Week 2018 took place last week at the illustrious Sidney Sussex College and saw 32 students engage with the fundamental principles of a free and open society. The attendees tackled a wide range of topics, beginning with an opening address from ASI President Dr. Madsen Pirie on the importance of empiricism. Other talks included Professor Len Shackleton on the consequences of automation, Kate Andrews on the gender pay gap, Sam Bowman on the economics of immigration, and Dr. Craig Smith on the perils of paternalism.

Every session was followed by a lively discussion that continued well into the night during evening social activities. We punted on the River Cam, flew drones at a BBQ, debated every topic imaginable at the pub, and tested our knowledge at the annual pub quiz. 

There are few better feelings than being surrounded by a smart, lively group of young people who are interested in the same ideas as you. One of the most satisfying parts of working at the Adam Smith Institute is seeing how our youth programmes ignite a lasting passion for freedom. People make friends for life on Freedom Week and past attendees have gone on to become award-winning journalists, work for think tanks like the Cato Institute and the IEA, and advise ministers and legislators.

The future of neoliberalism is looking bright and it's a privilege to be part of shaping it.

Sam Bowman on Neoliberalism

Sam Bowman, one of our Senior Fellows and former Executive Director, has been interviewed by TriggerPod on neoliberals vs libertarians (and what separates one from the other), drugs (which he thinks should be legalised, and why he thinks legalisation might be sooner than we think), housing (why it’s a regulatory, not a monetary phenomenon) and much more.

The full interview is below: 

There's an interesting number we're not being told here

There's an amusement here as well as a missing number:

One in three people on the government’s new welfare system are having their payments cut to cover debts, the Observer can reveal.

In a sign of the troubling levels of indebtedness affecting some of the most impoverished communities, official figures show that hundreds of thousands of universal credit payments are being subject to deductions used to pay back arrears in rent, council tax and utility bills.

The amusement being that a critique of universal credit was that it took too long to arrive, that first payment. So, a system of advance payments was instituted, those advance payments obviously enough being clawed back. Now the complaint is about their being clawed back. Quite why we're not sure, we don't think any demand that people should gain more than their allotment of benefits is going to be popular.

The missing number is this:

Up to 40% of a standard monthly universal credit payment can be deducted – a higher proportion than under the old benefits system.

That old benefits system. It too had a system of clawbacks for overpayments. There were 6 benefits too meaning that it's obviously possible that even if each had a lower number of clawbacks a greater portion of the claimant population were subject to them. 

Which is our missing number of course. What was the portion of claimants subject to clawbacks under the old system compared to the new? That is, are things getting better or worse? That is what we want to know isn't it? Are we moving in the right direction? 

Or perhaps not, perhaps it is true that we're just looking for something, anything, to complain about.

Venezuela Campaign: Censored Speech

Freedom of expression and of the press is under attack in Venezuela.  The Government is cracking down on any perceived opposition. The ongoing humanitarian crisis has made these responses more brutal, as food becomes scarce and desperation grows.

Even discussing poverty is taboo. In 2015, the government stopped publishing statistics about poverty in the country and attributes Venezuela’s problems to a supposed ‘economic war’ instigated by the United States. The government blames the opposition for causing chaos and accuses them of colluding with the United States. Brutal attacks on opposition protests in 2017 led to more than 120 deaths, most of them at the hands of security forces or government-backed vigilante groups known as "colectivos". During the protests thousands of demonstrators were arrested, with almost a fifth then subjected to humiliating treatment or torture. Officials use terms such as "terrorists" or "armed insurgents” to describe protestors. Human rights activists such as Theresly Malavé are the subject of government-backed threats and intimidation. With paper scarce in Venezuela, the government frequently prevents critical newspapers from buying in the paper they need to print their editions and also cuts off electricity to critical radio stations

At universities and other educational centres, academic autonomy is being replaced by political control. Students have been expelled simply  for watching a television station that was not the State-owned channel. Hundreds of students were detained during last year’s protests, and 17 university professors were arrested for criticising the government, with some turned over to military courts. Faced with accusations of “disturbing public order” or “threatening the revolution”, Venezuelans are afraid of airing their views on social media. Popular Twitter user Pedro Jaimes was arrested and detained for merely tweeting the flight path of President Maduro.

The case of the Lorent Saleh is instructive. Saleh, a student activist, was detained in 2014 and accused of plotting to overthrow the government. His court hearing has been deferred 44 times. Kept in solitary confinement at La Tumba, Saleh occupies a small underground cell where  the lights are never turned off, and prisoners are unable to see sunlight or breath fresh air. As of 5th July 2018, it has been 50 days since anything has been heard about him. Despite the fact that a few political prisoners were conditionally released this year, there are hundreds like Saleh of whom we hear nothing.

The international community should do everything it can to support freedom of expression and freedom of the press. At a time of acute crisis, these freedoms are vital to Venezuela’s democracy.

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

Phil Hammond's misunderstanding the rates problem and Amazon

There's long been a muttering that Amazon and the other online sellers should be taxed in some manner. They're not paying the business rates of he High Street retailers and this is unfair, not a level playing field. Phil Hammond seems to be thinking along these lines which is a mistake. For internet sales use less of, and lower priced, commercial property. Therefore they should in fact be paying less of a tax upon commercial property.

The demand that they pay the same is as if we had a tax upon, say, the use of fossil fuels and then we taxed people who didn't use them because they weren't. Somewhere between silly and nonsensical that is.

Philip Hammond has raised the prospect of an “Amazon tax” for online retailers amid fears that high street shops are being put out of business, as House of Fraser was rescued in a last-ditch deal on Friday.

The Chancellor said the tax system had to be fairer to traditional retailers and that the EU was looking at imposing revenue-based taxes on online firms, but that Britain would introduce its own levies if progress was too slow.

There is that interesting technical point that business rates are not incident upon the retailer in the first place but upon the landlord. Lightening the tax burden for commercial property landlords might be a Tory principle but it's not quite how to run an economy.

But it's that claim being made, that different ways of doing the same thing - providing retail services - must carry the same tax burden which is off. We do not have equality of taxation between restaurants, takeaways and home cooking and we'd be mad to think of doing so. Why should we have equality of taxation between physical retail and virtual? 

We shouldn't should we?

This is rather the point, competition benefits the consumer, even at universities

An interesting little example of producers complaining that we're all being blue meanies by insisting that they compete with each other:

The Russell Group has complained that leading universities are “forced to compete” with eachother to recruit from a “small pool” of bright but disadvantaged students.

In a submission to the Office for Students (OFS), the group criticised the regulator’s approach to boosting diversity, arguing that universities should not have to report back to the regulator annually on their plans.

Setting targets that “demand a consistent increase in the intake of students from disadvantaged backgrounds” risk discouraging leading universities from working together, the Russell Group said.

Instead, it means that the country’s top universities are “forced to compete for a small pool of suitably qualified applicants from these groups”.

Under the current fees system, any English university wishing to charge tuition fees of over around £6,000 must have an “access agreement” approved by the new higher education regulator.

We can't say that we're entirely in favour of everything about the current university dispensation. The insistence that 50% of the age cohort are suitable for, will even benefit from, an academic education looks more than a tad suspect to us. However, we're all in favour of the useful and bracing effects of competition.

Note who benefits here - those disadvantaged. The more those better universities have to compete for their custom the better the offers will be to those disadvantaged. Which is  precisely what we're after of course. Well, maybe we should be and maybe we shouldn't but we are.

Note what the universities themselves are arguing. They should be allowed to cooperate - form a cartel - so that they don't have to so compete and thus don't have to so benefit the consumer.

Aye up, as ever, competition benefits the consumer and the producer group would very much prefer it didn't. All of which is why markets do indeed work, isn't it? 

This is quite wondrous from Owen Jones

The underlying subject is the slowdown in the rate of increase in lifespans. The answer, obviously enough from Jones, is Tory Austerity. Then he makes this statement:

Given the government is refusing a national inquiry into the great standstill in life expectancy, experts are left without a credible explanation other than austerity.

One of the experts named is Danny Dorling and we are unsurprised that he doesn't know what to think unless the government tells him. 

For that's what the claim is by Jones. Experts don't know unless government, through the medium of a national inquiry, tells them. It's all rather Promparty, isn't it? The engineers must be told by Stalin how to do their jobs and any who insist upon actual physics or chemistry are wreckers who must be rooted out. Instead of how we think the system should work which is that experts advise the government.

As, you know, would actually happen in a national inquiry. Experts in such things as lifespans would get together and advise government on what is happening and what should be done. Which, if said experts haven't a clue, are all at scoobie, isn't really something that's going to work very well, is it? 

But enough of logic and good scientific practice. Just savour the claim being made. Experts are left floundering for an explanation until and unless government tells them.

Well, yes, we think the modern university system probably does have a few disciplines that work that way, not that we find it reassuring that Jones is at least half right in some sense.

Solving the Uber Congestion Problem

On Wednesday, New York City Council voted to impose a cap on Uber and Lyft licenses. No new private for-hire vehicle licenses will be issued for the next twelve months while the City Council studies the effect of ridesharing on congestion.

The news from New York comes a month after TfL announced that they plan to extend the Congestion Charge to private hire vehicles (including Uber).

There’s a growing concern that Uber (and its competitors) are leading to people taking fewer trips on public transport and more trips in cars causing congestion. While some research suggests that Uber actually reduces the total number of car journeys (and frees up parking spaces), it might be the case that in cities where public transport use is high, Uber adds to the total number of car journeys if it’s competing more with buses, trams and trains rather than other cars. This is very much an open question.

New York’s approach seems strictly worse than London’s approach. While in London, TfL are effectively removing an advantage Uber has over existing private cars and using a(n imperfect) price mechanism, New York are imposing a strict quota and favouring privately-owned cars over rideshares.

But London’s approach isn’t perfect. There’s a glaring admission. Black Cabs remain exempt. TfL justifies the exemption on two grounds.

  1. “A taxi driver, unlike a PHV driver, would be compelled to enter the Congestion Charging zone if required to do so when hailed or booked”

  2. “Taxis are a part of the accessible public transport network in central London.  We believe that it is right, therefore, that taxis continue to be exempt from paying the Congestion Charge.  PHVs which are designated wheelchair accessible will retain an exemption to the Congestion Charge.”

The first reason is weak. Black Cabs may have less ability to avoid central london, but they still impose the cost of congestion upon others. Also, Uber requires its drivers to take the fastest possible route as well, and while they could in theory, allow a lower cost Congestion Charge zone free route, in practice it seems unlikely they would offer it.

The second reason is more compelling, but exempting Black Cabs still isn’t the answer.

Rather than favour one mode of transport (at a relatively high price point) over another, we could instead give London’s wheelchair users more choice, while tackling the congestion caused by 22,500 Black Cabs.

It is important to remember that most Black Cabs journeys aren’t taken by wheelchair users, so exempting them altogether is a poorly targeted approach.

A better approach would include the 22,500 Black Cabs (as well as wheelchair-accessible private hire vehicles) and use the additional revenue (£58.5m per year assuming that each cabbie drives into the congestion zone 5 days a week) to pay London’s wheelchair users directly.

Roughly 1.8% of the British public uses a wheelchair. Assuming the proportion for London is the same then it implies there are 146,448 wheelchair users living in London today. They could all receive a £400 annual transport voucher (to be used how they please).

The policy has two major advantages over TfL’s current plan.

First, it substantially cuts the cost of travelling for wheelchair users. Not only are wheelchair users directly subsidised, they also can spend their voucher on alternative services such as Uber’s cheaper, but sometimes longer wait-time Access service.

Second, it ensures that we can tackle congestion without giving Black Cabs an unfair advantage over private hire vehicles.

In truth, extending the congestion charge to taxis and minicabs won’t be enough to seriously reduce congestion. To do that we need a real system of road pricing. Instead of a flat-rate, we should charge road users based on when, where and how long they drive for.