Farmers and the milk price: this is how markets are supposed to work

We've another of those pieces complaining about the fact that dairy farmers cannot make money producing milk these days:

As I write this, the future of our dairy farm is bleak. It must be a crazy concept to keep borrowing money to produce something that almost all of us use and which is, somewhere along the line, making money for somebody. But farmers’ lives and homes are so entwined with the production of food that they continue doing it when most serious business people would have thrown the towel in. As a result, they are exploited. How long will it continue?

What is being missed is that this is exactly how markets are supposed to work. There is, as there has been for some time, a surplus of milk production around the world. More people are willing to produce it at current prices than are willing to consume it (or perhaps, volumes produced and consumed) at this current price. Thus some of the people who are currently producing it at this price should stop doing so. And that farmers cannot make money at this price is the incentive, the impetus, for some to stop doing so.

Making a loss really is the market's method of telling you to go do something else with your life and capital. This is true whether you produce milk, wheat, jet engines or buggy whips.

As to who benefits from these current low prices obviously that's the consumer. And given that the aim of having an economy at all is so that the consumer is able to satisfy as many wants an desires as possible given the scarcity of the factors of production this is just fine. In fact, more than just fine, this is the point of the exercise.

Milk can be sold for less than the cost of production? Then stop producing milk then.

This blessed isle, this England

Sometimes we forget how lucky we are to have so many keeping watch over us.  An elderly woman running a B&B up here on the Norfolk Costa Geriatrica has not been paying attention to this good fortune.  Someone comes in from the village to help with making beds and the like.  As an employer she should have been complying with the rules on Legionnaires’ disease but, and I know it is hard to believe, the guidance had escaped her attention.  Its six pages are merely an introduction to “the Approved Code of Practice (ACOP) and [the] Legionnaires’ disease: The control of legionella bacteria in water systems … technical detail.” These rules apply to every employer. Specifically she should have been:

• identifying and assessing sources of risk;
• preparing a scheme (or course of action) for preventing or controlling the risk;
• implementing and managing the scheme – appointing a person to be managerially responsible, sometimes referred to as the ‘responsible person’;
• keeping records and check that what has been done is effective;

There are about 300 cases of the disease a year about 40% arising from overseas travel.  The UK cases arise in clusters, i.e. one faulty water system typically infects about 10 people who use it.  The numbers have been falling from a high of nearly 600 in 2006.  There are less than 20 cases a year in East Anglia which probably means, allowing for clusters and overseas travel, no cases in Norfolk at all.

This disease is clearly a local problem and, if regulations are needed at all, they should be local and focussed.

But the urge to regulate is a general UK problem not limited to health and safety.  It has grown massively since Margaret Thatcher invented regulators, originally for the utilities, in the 1980s.  We blame the EU but most of it is home-grown.

Universities provide a very different example.  Should they be truly independent as they were for hundreds of years?  After all, the whole point of a university is freedom to pursue knowledge unfettered by bureaucracy. And if they should be regulated at all, by whom?

If you were choosing a university for yourself or a loved one, which regulator would give most confidence in the integrity of that university?

The Open University proudly boasts, on its home website and emails “The Open University is authorised and regulated by the Financial Conduct Authority.”  No better guarantee than that.

If you hate sweatshops, you should love immigration

Last week I argued that sweatshops are good for workers in poor countries. They usually pay more than the alternatives their workers have near them, they seem to reduce child marriage and pregnancy rates for girls who live near them, and when you actually ask workers in poor countries, they tell you that sweatshops are the best options going. But that isn’t sufficient, because compared to even very bad jobs in Western countries, sweatshop jobs are still exhausting, poorly paid, and dangerous. Garment workers in England are typically paid far, far more than garment workers doing almost the same job in Bangladesh.

Branko Milanovic argues that location is the main determinant of income, not class – you’re better off being near the bottom in a rich country than being near the top in a poor country:

All people born in rich countries thus receive a location premium or a location rent; all those born in poor countries get a location penalty. [In a world of low international migration] most of one’s lifetime income will be determined at birth. [Chart above from here.]

Why might this be? Different skill levels are certainly a part of the difference, but a worker who moves from Bangladesh to England can still expect to significantly increase their earning power. There is a network effect whereby working with people with better skills boosts your own productivity. Christian Benteke is likely to score more goals at Liverpool than he did at the lower-quality Aston Villa, and Uber drivers in New York City make more than Uber drivers in Mexico City.

Capital differences are crucial, of course. Infrastructure and factory equipment are usually better in richer countries. And one big reason for this is institutional quality – the risks of capital investment are much lower in the developed world.

Things like the rule of law and decent, stable governance make it easier to invest with confidence, and seem to be some of the hardest things for poor countries to develop themselves. The cost of running a factory is lower in places where you know that factory won’t be seized by the state. I am not quite convinced that institutions are the most important driver of economic growth but they clearly matter a lot to maintaining a decent level of development.

All of which strikes me as a good reason to try to allow would-be sweatshop workers in the developing world to come to the richer world to work. Letting them work here effectively allows us to stretch our institutions over them, boosting their incomes productivity and incomes.

Given political constraints, this might be best done in the form of a new ‘guest worker’ visa that allows firms to bring people guaranteed a job from poor countries to the UK to work. The firm could be required to post a bond equal to the cost of that immigrant returning home, so nobody is stuck here against their will, and so that we don’t have to worry about immigrants sponging off the state (not that that happens much anyway).

If we targeted this guest worker scheme at people from the poorest countries in the world, we would be able to reduce poverty dramatically. We might see the emergence of industry built specifically for those low-paid workers, who nonetheless would be earning far in excess of what they would earn at home. There is evidence from New Zealand’s guest worker programme that this has large positive effects in the long-run for migrants’ families as well:

We find that the RSE has indeed had largely positive development impacts. It has increased income and consumption of households, allowed households to purchase more durable goods, increased subjective standard of living, and had additional benefits at the community level. It also increased child schooling in Tonga. This should rank it among the most effective development policies evaluated to date

The Gulf States’ guest worker policies, on the other hand, are ugly and brutal in many ways, but people still keep coming because their alternatives are worse. Sweatshops are ugly and brutal in many ways, but people want to work there because their alternatives are worse. How good it would be if for once we could give poor people a better alternative – just by letting them come here to work.

Not enough people watch Game of Thrones

That might just sound like the subjective ramblings of someone who's into blood, guts, quality drama and gratuitous nudity. But economic theory suggests that an inefficiently low number of people are enjoying George R.R. Martin's fantasy epic, along with other cultural gems such as Wolf Hall, Mad Men, and Keeping Up With The Kardashians. The BBC's current system turns its rights over to private distributors who profit from the sole right to sell it on. Instead the Corporation could act as a 'national netflix,' negotiating purchase of the UK distribution rights to content, and making it available to the public for free.

Such a radical proposal makes sense because of the strange economics of the digital age. The cost of producing an episode of Game of Thrones is high – the first season alone set HBO back $50 million. But the cost of producing an extra copy of that episode is almost nothing. There are lots of people out there to whom the episode is worth only 50p, whereas it costs $4 on iTunes.

This argument applies to a lot of digital media – to e-books, to search engines, and to blogs. Google have found a way around it by monopolising the market and raising revenue from the vapour rising off viewers' eyeballs. (Advertising). The Adam Smith Institute raises funding from wealthy, libertarian-minded donors. So far the best that TV has to offer is streaming services like iPlayer and Netflix, and the option of online piracy.

It would be anathema to suggest the government getting involved in the business of search engines. Producing the kind of unique institutional culture that Google has is very difficult for a private company to do, and almost impossible for the government. But a quality institution – the BBC – already exists. It already provides online media to millions for free, and iPlayer is an immensely successful streaming platform.

One concern might be the weakening of incentives to produce great shows. But in an age of piracy, producers are already finding innovative ways to finance projects that don't require shutting out potential viewers.

Nationalising content rights might not seem very pro-freedom. But the current copyright laws provide content producers with a monopoly, preventing people from enjoying content that costs nothing to produce. In this case, government intervention can promote freedom.

Theo Clifford is winner of the 18-21 category of the ASI's 'Young Writer on Liberty' competition. You can follow him on @Theo_Clifford, and read his blog at economicsondemand.com.

The case for abolishing Inheritance Tax

Posthumous taxation is no different to Victorian style grave robbery, only done on a much larger scale. Morally- the inheritance tax should be abolished. As well as the moralistic argument, there are also serious economic consequences of the tax- chiefly that it makes the tax system incredibly complicated. Abolishing the tax also means that those who are about to die will have the security of knowing their loved ones will have enough to live comfortably- a worry most parents have in common.

Some say this will lead to more inequality of opportunity. However this may not necessarily be the case. Take the case of the Walton family. Sam Walton grew up very poor. Through innovation and enterprise he founded Walmart and grew it to be the biggest retailer in the world, and when he died in 1992 Walmart was worth roughly $45 billion. His six children have no such experience in building a business. They are better at spending money than making it, and so their fortune will decline over the generations even without inheritance tax. This happens across the economy in Britain and the U.S. Of all the Fortune 500 companies that existed in 1955, only 11% remain. The average life expectancy for a Fortune 500 firm is now 15 years old. Family owned firms are usually sold by a less competent individual family member to another firm or individual, one with a better talent for enterprise.

So, without inheritance tax, the market still distributes resources to ensure maximum efficiency. The inequality of outcome cannot be attributed to lack of opportunity, but to inequality in entrepreneurship, something which builds capitalist society. Additionally some wealthy individuals like Bill Gates, choose to give away their wealth voluntary on their death, Gates choosing to leave his three children with just $10 million each of his vast fortune so they can “find their own way”. Taxing this fortune would probably result in less social good than would result from it going to the charities of Bill Gate’s choice, given how efficient government is.

Of course some hereditary inequality will occur, but this is the case when parents hand down good parenting skills, or good genetics or good education. Why should hereditary property be regulated by the government? Inheritance tax is unfair, predatory and economically harmful. The UK economy would benefit from Inheritance tax being scrapped.

Theo Cox Dodgson is winner of the Under-18 category of the ASI's 'Young Writer on Liberty' competition. You can follow him @theoretical23.                             

Finally, an idea on international aid we can get behind

Should we clothe the naked, feed the starving and succour the ill favoured in our world? Yes, no doubt we should. Emergency aid isn't one of those things that really causes much controversy. There might be arguments about how it is done, should we ship food or ship money to buy food locally, for example? (The answer is the second). But that's not what international aid is these days: it's rather more about paying the EU to teach people to take trapeeze lessons.So, we entirely welcome this suggestion:

First, the language of investment better reflects the reality of modern aid. The charity paradigm has long been considered patronising by most poor countries, and is increasingly considered old-fashioned even in many “donor” agencies. The reality that strategic and economic interests have always been at play in aid-giving is recognised by most DAC, or developed country, donors somewhat cautiously, but is explicitly promoted by the “emerging” contributors of development cooperation in the global south.

These “emerging donors” eschew the term aid because of its simplistic connotations, preferring the language of “mutual benefit”. They want to imply “horizontal” relationships between equals, fundamentally similar to business transactions. Investment, not charity.

Yes, we're all for this. Firstly, doing it as investment means that at least some attention will be paid to how effective it is. That is, what is the return? It's not necessary for this return to be appropriable by the investors, but just the calculation of whether there will in fact be one or not would have a bracing effect upon decision making.

But there's another point to be made here as well. We don't, domestically, think that governments are very good at investment. So, there's no reason at all for us to think that they will be very good at foreign investment either. Thus, if we are to move over to an investment paradigm, as we agree we should, then it's not going to be government that does the investing. Thus the end of Overseas Development Aid altogether, and the replacement with proper commercial investment.

As of course should happen anyway in our view. As has in fact been happening. ODA is of the order of $100 billion a year these days, Foreign Direct Investment, FDI, is of the order of trillions a year globally. The ODA is only a remnant rump of the process making the poor of the world richer anyway. So, no problems if it gives way to the more efficient and effective investment, is there?

Britain should leave the United Nations

Much talk these days is made of Britain leaving the EU. But what of other bodies that violate Parliamentary Sovereignty? What about, for example, the United Nations? The EU, is made of 28 member states, most of whom could broadly be described as liberal democracies . The UN is made of 167 non-micro states, 88 of whom The Economist would describe as “Hybrid regimes” or “Authoritarian regimes”. Only 25 are full democracies. When dictatorships have a say on the policy of Great Britain, one should not be surprised when the results are bad. Britain, if serious about Parliamentary Sovereignty and democracy, should leave the UN.

To be clear, such a move would likely mean the entire UN would disband. Unless there were major consequences imposed upon our country, the world would remember that membership of the UN is voluntary and thus nations are free to leave at any point in time. And what would the world really lose? Peace has been maintained primarily by two forces over the last 70 years:

1) Democracy- Democracies are less likely to go to war than Autocracies. 2) Free Trade- Building trade relations between countries means going to war with other countries is extremely expensive in terms of lost trade.

The UN facilitates neither and discourages both. By passing numerous binding resolutions- often against democratically elected governments such as Israel, it violates the principle that National Parliaments are sovereign and furthers the neoconservative delusion that imperfect countries can be perfected through the “General will” of other countries, many of whom are far less democratic than Israel.

The UN also implements trade sanctions. The UN claims that this is peaceful, but aside from economic damage- we should also learn from Otto Mallery (Not Bastiat) who said “When goods do not cross borders, armies will”. Iraq makes a good example. On August 6th 1990 the UN approved trade sanctions against Iraq which lasted until 2003.

These sanctions resulted in the deaths of over 576,000 children, and agitated Iraq further into isolation and radicalism. Mallery‘s lesson was proven when the US and UK invaded Iraq in 2003. This was not only an example of the UN failing to secure peace- it was an example of the UN actively discouraging it.

Membership of this organization is at best useless and at worst malign- it is time Britain set an example and left.

Theo Cox Dodgson is winner of the Under-18 category of the ASI's 'Young Writer on Liberty' competition. You can follow him on Twitter @theoretical23.                             

Can we really decriminalise sex work, globally?

Amnesty International have released a draft policy arguing for global decriminalisation of sex work. As a rule, decriminalisation of consensual actions between individuals that do not directly harm others is something I support. Prioritising the removal of legislation that disproportionately hurts the worst off/most marginalised is top of this agenda. However, wading into an unfamiliar political landscape and applying libertarian principles without care for the consequences is not something I endorse. In this case, I think Amnesty have missed a trick on nuance, in mandating a global recommendation for decriminalisation. In a previous paper, Amnesty say:

Approaches that categorise all sex work as inherently nonconsensual, actively disempower sex workers; denying them personal agency and autonomy and placing decision-making about their lives and capacity in the hands of the state. They also limit sex workers’ ability to organise and to access protections which are available to others (including under labour laws or health and safety laws).

Arbitrarily broad laws prohibiting organisational aspects of sex work often ban sex workers from working together, renting secure premises, or hiring security or other support staff, meaning that they face prosecution themselves if they try to operate in safety.

This is a sound argument for decriminalisation. Even those who think that we should categorise sex work as nonconsensual should nevertheless see that at least decriminalising it makes it safer (since we can regulate and sex workers can report illegal behaviour without fear of prosecution themselves!).

There are two main criticisms of Amnesty’s plan. One is the fact that they somehow see the needs of buyers as relevant to how we should treat sex workers (i.e. because some clients of sex workers often purchase these services because they would otherwise struggle to enjoy them unpaid, we ought to consider making it easier for them to do so). I sympathise with this concern - nobody has the right to sexual gratification, so the idea of legislating with this in mind just seems bizarre.

But the main reason to be sceptical of Amnesty’s call for decriminalisation globally, is that they don’t appear to have done an awful lot of research to understand whether decriminalisation is right everywhere.

Sure, it’s very likely to be a good idea in the UK and most European nations. We can debate the merits of various regulatory frameworks to put in place once this has gone ahead. For example, despite concerns that decriminalisation would lead to more prostitution, and more visible prostitution, the evidence in New Zealand post-decriminalisation does not support this. From other countries, we see that police are a huge source of violence against sex workers (the study attached to that link is very graphic) and by the admission of police and sex workers themselves, the lack of access to justice for sex workers is a huge problem. If decriminalisation makes any headway in increasing sex workers’ ability to use the legal system to assert their rights, this is a step forward. The BMJ recognises that decriminalisation improves sexual health for sex workers.

But in every other policy debate, we would always consider whether the subject of our enquiry differs depending on the context in which we’re applying it. Do cultural, social, economic and legal differences between countries inform the kind of effect we might expect decriminalisation to have? It is impossible for them not to have a huge impact on the success of decriminalisation.

Consider the example of a country where the stigma attached to sex work includes serious bodily harm to the sex worker by aggrieved members of the community to which they belong. By criminalising sex work on the part of the buyer (commonly known as the ‘Swedish’ model), you increase the incentive for the buyer not to ‘out’ the sex worker, which may actually make the sex worker safer. The example of Cambodia gives us reason to suspect that it isn’t as simple as decriminalising - according to the same source, Cambodia is highly restrictive of women’s sexuality, which indicates that decriminalisation is not going to deliver the benefits we might hope for, and might do much worse if society takes the police’s place.

Imagine a situation in which decriminalisation would actually result in higher people trafficking, masked as sex work to reduce the legal repercussions. Criminalising the practice, either by punishing organisers of sex workers or by criminalising buyers may result in higher welfare for sex workers particularly as it discourages their exploitation. In Sweden, anecdote suggests that traffickers are seeing it as a less profitable place to operate, suggesting that there are some perks to criminalising the purchase of sex whilst not criminalising the sale - this kind of outcome might be appropriate for countries which have particular concerns about people trafficking, or whose current legislation makes it difficult to appropriately address trafficking. Again, though, it raises the worry that this second-best policymaking actually targets the wrong problem and is evidence that Sweden hasn’t got to grips with trafficking and is having to do so via indirect means. We also need to worry whether global trafficking volumes have changed - or just been moved elsewhere, to places where perhaps women don’t have the same degree of access to justice.

This isn’t to say we shouldn’t aim for decriminalisation in the long-term, but to recognise that there are a number of factors which will get in the way of achieving the aim we are pursuing in decriminalising in the first place - advancing the autonomy and, hence, safety, of sex workers. When embarking on a full-scale decriminalisation, perhaps we ought to consider addressing those problems concurrently. Certainly, Amnesty shouldn’t be mandating what the entire world should be doing with such insensitivity to the cultural, economic and legal norms of the various nation states that might alter the consequences of decriminalisation.

If only the warmists bothered to read the actual research

Talking about climate change inevitably brings up huge shouting matches. But let's put that to one side for a moment and just start insisting that those who do urge action on it actually read the reports that lead to the urging of action. As The Guardian quite obviously isn't here:

The fact is that it is in the very poorest countries where women have the most children, on average. And where population growth slows, generally economic growth speeds up, and carbon emissions rise faster. This happens on a global scale and even within countries – certainly within the poorer ones where there is most scope for population control, and where, also, the potential for industrialisation is greatest. It is unclear which is cause and which is effect: it is likely that they play off each other. And in some cases, perhaps, population policies go hand in hand with economic reforms. Only in the wealthiest countries, though, which already have lower fertility rates, are these links weakened or even broken.

This phenomenon raises the counterintuitive possibility that curbing population growth could generate higher global emissions than would otherwise be the case.

No, that's not something you're allowed to do. For, as the SRES, the economic models upon which the whole game is based, have entirely the opposite assumptions baked into them. A richer world has a smaller population. And those richer, smaller, worlds have lower emissions than poorer and more populated ones. Other than the entirely extreme world of A1FI that is (and really, nobody believes that coal is going to provide 50% of energy in 2100).

Economic growth leads to falling fertility and thus a smaller future population. The combination of these two is part of the solution to climate change, not part of the problem.

It is, of course, fine to have differing views on the subject itself. But we're adamant that whatever your views are they must at least be consistent with the evidence that leads you to them.

Britain needs more slums

The problems with the UK housing market have been well-documented. There is a 'housing crisis.' No-one today can afford to buy the sorts of houses their parents did. Household formation is depressed. Every day, the reports get more lurid. The latest example of this is a survey suggesting that all 43 of the affordable houses in London aren't actually houses, but rather boats. There has been a proliferation of not-houses in recent years, from houseboats to 'beds-in-sheds.' The reason is clear – Britain has a sore lack of proper slums.

Government regulations designed to clamp down on 'cowboy landlords' restrict people's ability to choose the kind of accommodation in which they want to live. Local authorities impose exhaustive energy efficiency standards, design codes, and depress density – if they allow construction at all. Each individual requirement sounds fairly reasonable, something that almost everyone would want. But housing should cater to a wide array of preferences. Some people might not feel like they need a bedroom space as large as the state expects, while others might not mind sharing a bathroom with another family if it means lower rents.

The consequences of forcing people outside the law are serious, as with immigration. If the only way you can afford housing is to live illegally, you have no recourse to the law if you do have a dispute with your landlord.

These regulations don't just affect the type of squalid accommodation that they were designed to outlaw. A recent project to build 'micro-flats' worth up to £231,000 required the intervention of the London Mayor to exempt it from certain regulations. Developments like these might be the future for young people like me struggling to get onto the housing market, but this kind of ad-hoc policymaking is no way to run a country. Wholesale change is needed.

The market desperately wants to provide houses people can live in at prices they can afford – but in the eyes of local authorities these houses are too small, or too tall, or the ceilings are too low, or the windows not energy efficient enough. Sweeping deregulation is the only way to provide Britain with the slums it is crying out for.

Theo Clifford is winner of the 18-21 category of the ASI's 'Young Writer on Liberty' competition. You can follow him on @Theo_Clifford, and read his blog at economicsondemand.com.