This is an interesting plan from John McDonnell

An odd one too, but interesting all the same:

McDonnell is at great pains to calm these fears with frequent meetings soothing City and business people. I asked him what he could do to stop the rich panicking. “We are open and transparent about our plans. Is there something up our sleeve? No. Yes, we will tax the top 5% more – we’ve said exactly how much. But we are not imposing capital controls. I have never mentioned capital controls.” He has laid out his iron rule, the same as Brown’s: no extra spending over the cycle, except for capital investment.

The standard mantra is that the capital spending will pay for itself. Government borrowing costs are lower than private sector, the returns from the investments will more than cover the interest bill. Sure, that assumes that government can build to time and budget - not something ever actually shown by any British government ever - but that is the claim.

So, if there’s to be no extra spending then why do taxes need to rise?

What McDonnell is actually saying is no deficit over the cycle. Which is also what Brown promised, Ha Ha, to find that he had to constantly redefine the cycle in order to keep to it.

So, where’s this confusion come from between extra spending and a deficit? That’s because this is Polly Toynbee attempting to comment upon matters economic.

Government spending more is one thing, the deficit only rises if they don’t also raise taxes to pay for that spending. Ms. Toynbee doesn’t get this - which is roughly all we need to know about Polly’s comments upon any matter economic, no?

Do note this is that same Polly who insists that taxes must rise to pay for the lovely extra spending she would like to see. But she still can’t make the connection between that and her claim here.

Certainly America's aristocracy should be held to account

David Sirota tells us that the American aristocracy should be held to account. And most certainly they should, any ruling class of any place should be accountable:

That is because the United States has been turned into a safe space for a permanent ruling class. Inside the rarefied refuge, the key players who created this era’s catastrophes and who embody the most pernicious pathologies have not just eschewed punishment – many of them have actually maintained or even increased their social, financial and political status.

The effort to construct this elite haven has tied together so many seemingly disparate news events, suggesting that there is a method in the madness.

We approve of this idea, thoroughly.

For example, David Sirota told us that:

No, Chavez became the bugaboo of American politics because his full-throated advocacy of socialism and redistributionism at once represented a fundamental critique of neoliberal economics, and also delivered some indisputably positive results. Indeed, as shown by some of the most significant indicators, Chavez racked up an economic record that a legacy-obsessed American president could only dream of achieving.

Ah, yes, that success that led to 1,000,000 % inflation this year, economic migration of a scale not seen since East Germany had to build a wall to keep them in, the creation of a land with no food.

We should hold Mr. Sirota to account in what manner? At least we could start by deriding absolutely anything he has to say on matters economic perhaps?

And if you don’t think that the children of America’s gilded liberals are an aristocracy there’s a bridge in that now fashionable Brooklyn we’d like to chat to you about.

Madsen Moment – Nationalisation

In this week’s Madsen Moment, with re-nationalisation back in news following the UK political conference season, Dr Pirie takes a look at the failings of the past and explains simply why we shouldn’t have a rose tinted view of when the state used to run just about everything.

What excellent news, climate change is easier and cheaper to fix than we thought

Some might recall the Stern Review, that report to the British government that said we’ve really got to do something about climate change you know. That something being to impose a carbon tax. Longer memories might remember Willam Nordaus who has been saying much the same for three decades now. And the general consensus among economists is that, assuming the cause and problem are correctly identified then yes, changing the price of emissions by the addition of a Pigou Tax is the correct method.

The question becomes, of course, what should the rate be? James Hansen as argued for up to $1,000 a tonne CO2-e. The Stern Review said $80 per such tonne. Today we’re told something different:

Charge €30 a tonne for CO2 to avoid catastrophic 4C warming

This is, apparently, all we need to do:

The climate summit in Katowice, Poland, in December will conclude that the voluntary contributions of the governments are currently insufficient to put the world on a 2C, let alone 1.5C, trajectory. Policies to intensify efforts are necessary. All nations need to revise their mitigation targets to accommodate the more rapid emission reductions required to truly stay well below 2C.

New global policies are needed. One such policy would be a carbon price starting around €30 per tonne of CO2, which would very likely render investments in coal-fired plants unprofitable.

Isn’t that good news? Our required price change is less than half what Stern thought it was. Climate change is easier and cheaper to fix than we thought. Oh, and that also means that we’re already paying too much tax in the UK to fix it. That Stern $80 a tonne is about 11 p on a litre of petrol, a sum the fuel duty escalator has already more than added. And yes, the 23 p or so added by that escalator was to “meet our Rio commitments.”

To meet the climate change challenge means lowering UK taxation - can we all at least get behind that idea?

Venezuela Campaign: bad governance to blame

Venezuela’s collapse can be largely attributed to a failure of governance. While foolish economic policies garner much attention, at root they are the product of a corrupt and anti-democratic approach to governance.

Hugo Chavez’s central political principle was to seize as much power for himself as possible. He eliminated or emasculated all institutions that could possibly restrain him. Congress was replaced with a new National Assembly, which he controlled. Chavez used this Assembly to remove Presidential term limits. His intention was to rule for life, which he duly did for 14 years until his death from cancer in 2013.  He switched to rule by Presidential decree and made up the law as he went along.

Chavez used the National Assembly to end judicial independence and pack the Supreme Court with cronies. The Supreme Court was then used to purge lower levels of the judiciary, with the firing of hundreds of lower court judges and replacement with Chavista loyalists.

Chavez also attacked independent trade unions, banning legitimate strikes, leading reprisals against strikers, and denying collective bargaining rights to unions whose election results were not state approved.

Chavez removed Presidential term limits because he was confident he would never lose another election. He ended the independence of the elections watchdog, the CNE, by packing it with loyalists. The CNE then abused its powers to ensure that Chavez would win every election he contested. Chavez’s United Socialist Party spent vast state funds on its election campaigns, the secret ballot was compromised and those who voted against Chavez faced losing state benefits and dismissal from state jobs. In a country where an ever-larger number of businesses were taken into public ownership, this made voting against Chavez extremely unwise. Electoral fraud is now so serious that in 2017 even the company that had supplied the technology for Venezuelan elections since 2004 stated that the latest election was clearly rigged.

PDVSA, the state oil company, used to enjoy considerable autonomy in corporate governance. It was run by professional managers under a professional board which reported to several different ministries. Chavez scrapped the governance structure and brought PDVSA directly under the control of the President’s office. This facilitated his total control over spending without any accountability or transparency. PDVSA had become Chavez’s personal oil company, and Chavez pillaged it at will.

Corruption was a double-edged sword that Chavez regularly wielded. Officials were encouraged to be corrupt. However, a step out of line and that corruption would be exposed to serious consequences. State contracts were regularly awarded as prizes to loyal allies, almost always without competitive bidding. Allies and relatives were given access to preferential exchange rates facilitated by control of the central bank, also now under direct Chavista control. This allowed them to make millions. Indeed, Chavez’s daughter María Gabriela Chávez, is now the richest woman in Venezuela with an estimated fortune of $4.2 billion. Foreign companies seeking to export to Venezuela were required to pay unofficial commissions to Venezuelan officials in the range of 15% to 20%. Imports from Argentina alone were estimated to total over $650m between 2004 and 2008. The military was also co-opted through the encouragement of rampant corruption. For example, state funds were provided to the armed forces to construct a large sugar plant in the state of Barinas in 2008. The plant was never built, and the funds disappeared.

Unsurprisingly, in 2008 Venezuela ranked 158 out of 159 countries on the Transparency International Corruption Index.

Chavez also ensured that the media was not able to hold him to account. He enacted vaguely defined “incitement” provisions, allowing for arbitrary suspension and license revocation of TV and radio stations such as RCTV. He arrested media executives when they published or broadcast material unfavourable to the Government. Between August 2009 and August 2010 the central government closed 34 radio stations, 2 regional TV stations, 6 cable TV stations and 2 newspapers. Chavez would instead require all TV stations to air his own lengthy TV shows, during which he would smear opponents and give away flat screen televisions to pre-selected voters.

This whole tragedy underlines the fundamental importance of core governance values and standards.  These essential principles include the separation of powers between the executive, legislature and judiciary; an independent judiciary upholding the rule of law; a free press; respect for human rights, independent investigative institutions reporting to the legislature; transparency of government actions and accountability to the people. These are essential protections against an incompetent, venal and self-serving government. All these core standards were abandoned by Hugo Chavez, and the results are plain to see.

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

England's amazing disappearing Green Belt

Entirely bloodcurdling stories of how we’re entirely destroying England:

New statistics show the nation’s Green Belt has shrunk by more than 10,000 hectares in a decade with campaigners warning land which is supposed to be off limits is increasingly being targeted for development.

Ten thousand’s a big number, horrifying. Over a decade too!

The extent of the designated Green Belt in England as at 31 March 2017 was estimated at 1,634,700 hectares, around 13% of the land area of England.  Overall there was a decrease of 790 hectares (less than 0.05%) in the area of Green Belt between 31 March 2016 and 31 March 2017. In 2016/17, eight local planning authorities adopted new plans which resulted in a decrease in the overall area of Green Belt compared to 31 March 2016.

Ah, so we can do this for the next century then and we’ll not even have eaten 5% of that Green Belt. And who really did have a feel for these numbers, this idea that an entire 13% of the country should be walled off, no one allowed to do anything with it, to prevent that sprawl so hated by those who would tell us how and where to live? Note that 13% is more than the entire built environment, some 3 to 4 times the amount used for housing.

Sounds to us like there’s plenty of that which can be used. There is also this:

The decision by councils to remove protections on large swathes of land has been blamed on a “perfect storm” of hard-to-hit housing targets and developers failing to build the homes they have permission for as they instead eye development on lucrative “shovel ready” Green Belt.

If a particular, or type of, development is more lucrative then that’s the same statement as developing it adds more value. More value added is, by definition, us all getting richer. Developing the Green Belt is more lucrative, adds more value, let’s do more of it, all get richer.

After all, building houses people would like to live in, where they’d like to live, sounds like a useful description of a reasonable housing policy, doesn’t it?

How not to deal with the aftermath of a financial crisis

We have a report and column telling us how to deal with the aftermath of a financial crisis. The problem being that they’ve not correctly identified what was done right after the last one, therefore they’re not picking up the correct lessons.

It is true that their exemplar, Iceland, sorted itself out rather well, certainly doing very much better than Greece which faced similar pressures even if a different policy environment.

Our comparative research, carried out with Kieran McEvoy Neophytos Loizides, reveals that Iceland stands out from the rest. Iceland, a tiny European nation of 330,000 inhabitants, offers valuable lessons on the importance of accountability and suggests how to deal with such issues if or when the world suffers another financial crisis.

Days after the collapse of 97% of its banking industry, Icelandic authorities designed a comprehensive policy of accountability, based on two overlapping objectives: establishing the truth and punishing those responsible. An independent truth commission was mandated to document the causes of the meltdown, and the newly established Office of the Special Prosecutor was tasked to thoroughly investigate and prosecute those responsible for any crimes committed in the run up to the crisis. Both mechanisms have been remarkably successful.

That is to concentrate upon the trivia. What actually mattered was that Iceland allowed all the banks to go bust, the currency to collapse and repudiated whatever debts it possible could. That extreme free market - very close to an Austrian view of what to do - led to an horrendous collapse, most certainly it did. And now Iceland is back at full employment, again on#e of the richest nations in the world even if a rather icy social democracy.

The committee which looks into things afterwards is rather less important than the things done in the heat of the crisis. And liquidationism has now been tried in the real world and it works, works rather well in fact. Better than non-liquidationism in Greece for example.

So long folks

So after two and a half years today’s my last day at the Adam Smith Institute. Starting next week I’m off to join Philip Salter at The Entrepreneurs Network as Research Director.

Being Head of Research (and before then Head of Projects) at the ASI has been a blast. There are few workplaces that can offer comparable opportunities and I’d like to thank the ASI’s co-founders Eamonn Butler and Madsen Pirie taking me on board as a graduate.

Soon after I joined I was writing op-eds in national newspapers and appearing on TV thanks to the awesome media-work of Flora Laven-Morris and the constant help and advice of Sam Bowman and Ben Southwood.

Over my two years plus, I’ve seen the office change a lot. Including seeing Sam, Ben, Flora, and Ellie Weston move on to new jobs and seeing Matt Kilcoyne, Daniel Pryor and Sophie Jarvis join leaving the Institute in good hands. That’s not forgetting a range of interns (Hunter, Olly, Amelia, Jonas and now Ananya) who have all left their mark in their own way and will surely go on to great things.

I leave knowing that the ASI remains a research powerhouse (2nd best Domestic Economic Policy Think Tank in the World!). We’re a small team but through our brilliant fellows and associates (like Anthony J. Evans and Kevin Dowd) we punch well above our weight. Over the past year we’ve published top quality agenda-shifting research on immigration, financial regulation, monetary policy, vaping and, my personal favourite, the case for abolishing the MOT test. We’ve got a whole load of great papers and reports in the works (I count 8 including one by yours truly) to release in the coming months too. So watch this space.

The Adam Smith Institute is needed now more than ever and I’m excited to see what happens next.

All port, no policy?

Having never been to the Conservative party conference and not being a member of the party myself, I was expecting it to be rather, dare I say, aloof.

There was plenty of drinking, plenty of port for sure, but the policy coming out of the main hall seemed a little bit light. Yet that wasn’t what struck me most. No, reflecting the recurring trend in politics of late I was pleasantly surprised by what I found in Birmingham.

I had the opportunity to debate, present and articulate ideas to ardent High Tories who rallied under the banner of "Church in Danger" as well as uber edgy (both in persona and on the political spectrum of the left) Labour party members of the ‘free markets...BUT’ persuasion.

Though this civil discourse is rather cute, the pinnacle of polite conversation occurred as Owen Jones heartily laughed as a group of young Conservatives for Liberty members announced they would ‘privatise him’ and responded he would ‘nationalise them’ with an even heartier laugh.

The Conservative party’s conservatism is notorious for having a historically inconsistent dogma, from Disraeli to Thatcher; reflected by Boris Johnson speaking of One Nation Toryism and Thatcher in almost the same sentence. So when I attended a fringe event with a presentation slide titled ‘Origin of the term ‘Conservative’’ I was hoping for some clarity. But the lecture (and a quick glance over my A level history course) reminded me that Conservatism is only as good as what it conserves. Paradoxically this may be why the Conservative party has been Britain’s most successful political party – but that is a topic for another blog.

Regardless of the party’s past, the conference was particularly promising for the future of the free market faction. And I mean conference and not party there. It was at the business stalls and fringe events – those attended by entrepreneurs and academics – which is where I found showcases of driverless cars, AI in financial services, and housebuilders showing they’re not just jaw-jaw.

Naturally, this meant they were popular and the temptation to parallel the ‘one-in-one-out’ entrance policy at some events with the proposal of some Tories’ immigration strategy was too tempting to resist. The opportunity for intra-party dialogue, bolstered by the tieless teens, the Truss enthusiasts, and even the tweed-wearing Tories of the youth wing of the party was both fruitful and friendly.

And so, fruitful and friendly it was, evident by the copious amounts of literature from think tanks, various organisations and charities which I had the pleasure of taking home. However, the question of whether it was all port, no policy depends on whether the literature is seriously considered by the government in the near future.

Why use the proof that we're right to suggest we're wrong?

Owen Jones is again making an economic mistake. But then, you know, Owen Jones. He’s telling us that wages just haven’t been rising - we know - and that young people have it worst. Yes, we know.

The thing is, the particular statistic brandished at us tells us why young people have it worst - because government has forced everyone to pay them more. This is actually in the source report that Owen uses.

As he says:

The lack of any organised counterweight to the power of bosses has left many employees lacking security, ill treated at work, and paid derisory wages. Indeed, while Britain’s workers suffered the worst squeeze in wages of any industrialised nation other than Greece, the fall has been felt sharpest by the youngest: for workers aged 18 to 21, real weekly wages collapsed by 16% in the years after the crash.

Therefore Yah! Boo! Sucks!, the burger flippers are on strike and we’ll fundamentally reorganise capitalism. His source is:

The CEP report also emphasises that it is the wages of young workers aged 18-21 who have suffered the most since the financial crisis, with their real weekly wages down 16 per cent between 2008 and 2016.

And that report in detail says:

There are big differences by age. Young workers (those aged 18-21) have suffered a considerable loss in their wages – of the order of a huge 16% fall in real weekly earnings.

OK, why?

Low-wage workers have benefited from minimum wage increases, especially the 2016 introduction of the National Living Wage. They have done better than workers higher up the wage distribution, thus leading to a modest decrease in wage inequality.  Young workers have been the ones most affected since the crisis, experiencing a sharp fall in real weekly wages (of the order of 16% for workers aged 18-21), linked to lower hours, part-time work and self-employment arrangements

It’s that “lower hours” in there. Those young workers are paid more per hour of work, they gain fewer hours of work and their weekly income falls by that 16%.

So, what is it that Owen Jones and others tell us about the minimum wage? That it ought to be raised so as to increase low end wages. What is it that we’ve been saying about raising the minimum wage? That it will likely backfire as people do tend to buy less of something that is now more expensive.

And who is right? Well - but the real point here is don’t these people ever actually read the research they use to support their assertions?

No, not really, they don’t, for Owen Jones will still be calling for a higher minimum wage to increase the incomes of the low paid and young, won’t he? What truly worries is that he still would be even if he could comprehend what his own source report is trying to tell him.