A most amusing thought about Brexit

We’re told that civilisation is fragile which is to rather misunderstand how civilisation works. For the assumption is that it’s something imposed by government upon a place and is thus something weak. Reality is entirely the other way around:

Brace yourself, Britain. Brexit is about to teach you what a crisis actually is

Cue predictions of the shops empty, riots, the collapse of order and so on. When the actual change that is being proposed is that we’ll have a different group of people sitting in different offices changing a few of the rules which govern our interactions.

It being, of course, our interactions with each other which are that civilisation. The reason we don’t have the Government Shopping Service and all those other accoutrements being that this isn’t something that governments are good at. That self-organising system of markets is what does produce that civilisation that we do enjoy.

A different debating chamber forming our laws doesn’t change any of that.

The prediction then becoming most amusing:

When the grownups fail, as they periodically do, and badly, what you need is better grownups. Awful things have happened, and do happen, in this country, chiefly as a result of bad policy and worse enactment. We don’t need to have homelessness, dependency on food banks or deprived areas ruled by criminals and bullies. We can afford to act against these evils, but we let them happen all the same. That shames us. Hand the keys and the controls over to eternal teenagers – populists of either stripe – and what you’ll get is a situation where that choice is gone.

We’re not special. If, in a deluded fit of national self-harm that ever more resembles the drift into war in 1914, we allow ourselves to wreck the complicated machinery that underpins our everyday lives without us ever having to think much about it, nobody will be coming to rescue us. Cassandra, as Cassandras are always ready to remind you, was right.

The underlying insistence there is that Brussels is the grown ups, we the children. And who can imagine a world in which that could be true?

Leaders in the NHS

On Tuesday Matt Hancock released a research paper on empowering leaders in the NHS and provided his own “vision” of that. Did the two versions coincide? No. Both recognized that the culture of the NHS was a problem but neither had a credible solution. The Secretary of State’s vision is to broaden the pool from which leaders are drawn whereas Sir Ron Kerr’s analysis revealed the key problem as excessive bureaucracy arising from the superstructure of the DHSC, top NHS management and its 26 or so quangos. Constant questioning and interference from on-high makes the job of any leader in #OurPreciousNHS nigh impossible.

Matt Hancock wants more diversity in top NHS management: more clinicians, women and ethnic minorities. There are a couple of problems with this vision. Converting good doctors and nurses, of which the NHS is short, into decent managers, of which the NHS has a surplus, can only makes the problems worse. Furthermore there is no evidence that clinicians, women or ethnic minorities are intrinsically better leaders than their male white non-clinician counterparts. The NHS needs the best leaders for the toughest of jobs, not stereotypes. Hancock has lost the plot..

The armed forces and most large firms identify the characteristics of their currently successful leaders, search without prejudice for more of the same in the younger generation and then provide them with pathways to senior roles. There is no shortage of research in this area but it seems to have been overlooked. Both papers, however, make the important point that the NHS leadership employment borders should be porous, i.e. promotion to leadership should not just for NHS lifers but be open to those who have shown leadership in other areas.

It is open to question whether young doctors should be seen as the main source of future leaders at all. Research published last month claims: “The movement towards developing medical students as leaders has to be contrasted against the fact that high school exam performance and academic achievement continues to be the primary basis for selection to medical school. Not surprisingly, the smart kids are studying medicine. Unfortunately, there is a person–job mismatch between the initial skills that allows an individual entry to medical school and what the job will actually entail. For example, higher levels of intelligence are associated with less effective leadership styles.”

Sir Ron Kerr was asked to address three issues:

1. “the expectations and support available for leaders - particularly in some of our most challenged organisations;

2. the alignment of performance expectations at the organisational and system level; and

3. the level of administrative burden placed upon executive leaders.”

Apparently although the performance of a hospital correlates closely with its leadership, the Care Quality Commission (CQC) “has not tackled the three specific issues looked at in this review.” Presumably it has been too busy ticking boxes.

Kerr’s report begins “The NHS must empower leaders to lead, encouraging them to celebrate their successes and learn from their mistakes. In reality, a culture of blame and negativity continues to pervade the NHS.”

It is quaint that leaders are appointed but not empowered: the root of this problem, as noted above, is the high level of interference, questioning and micro-management from above. The only solution offered is to have the NHS Regional Managers (the immediate bosses of hospital and Clinical Commissioning Groups) sit in on the leaders’ management meetings. The distinction between leaders and managers is not addressed nor how this would work with the subordinates looking to the Regional Managers as a higher authority.

One of the few areas where Hancock’s speech and Kerr’s report coincide is converting the culture of the NHS from cover up to transparency. Yes of course we should all learn from mistakes but there is a big difference between small administrative error and patients dying. The only other UK major employer that has a similar problem is the MOD and yet they have many great leaders within the armed forces. Both cause the wrong people to die and both have a cover-up culture in consequence.

In short, Hancock and Kerr have identified the problems but not the solutions. The Secretary of State could make a start by getting rid of the absurd superstructure of the NHS, the DHSC and its quangos. The NHS should be divided into manageable, NHS Scotland-sized, units. Calling for transparency when serious mistakes are made, and thinking this will lead to anything other than litigous action rather than real learning, is probably wishful thinking. Some other means of learning need to be found and that requires serious thought, not platitudinous sound bites.

The reason the euro doesn't work

No, not just because it’s the euro. Rather, it’s simply too large an area, across too much divergence in local economic conditions, for it to be an optimal currency area. Paul Ormerod uses this to illuminate the British regions - the pound sterling is also too large an area:

The weaker economies are not sufficiently competitive to produce enough goods and services that others want to buy. They run a balance of payments deficit with the world outside their borders.

And in a monetary union, a balance of payments deficit translates into lower growth and higher unemployment. Standard trade theory in economics shows this clearly.

At least in the UK, the poorer regions get compensation in the form of large transfers of money from the more successful ones to finance their trade deficits.

That last is indeed the standard response to that optimal area problem. Have fiscal transfers and it’ll be possible to have a larger currency area.

But then look at the conclusion here. Which is that even with those fiscal transfers the pound sterling is over too large an area for it not to continue to impoverish the peripheral areas. And the fiscal transfers within the UK are quite obviously massively larger than anything that would be politically possible across the nation states in the EU.

That is that common European Treasury idea that keeps getting floated, even that wouldn’t be a solution to the euro’s woes. It’s a currency which just covers too many people, over too much economic variation, for anything at all to make it work.

Despite the usual claims Britain is actually remarkably unracist

This is one of those things that those only used to Britain will have a hard time believing. But those of us who have had more than just a taste of other societies around the world will insist that its true - our green and pleasant land, or perhaps the people in it are, is remarkably unracist by the usual standards of these things.

This does rather go against the grain of the usual complaints of course, but it is still true:

Almost a third of people of African descent polled in a new EU survey say they have experienced racial harassment in the last five years, a report that claims racial discrimination is “commonplace” across 12 European countries reveals.

People of African descent face “a dire picture” of discrimination in housing, the workplace and everyday life, the survey of 5,803 people by the European Union’s fundamental rights agency states.

Perceived racial harassment, such as offensive gestures, comments or threats, was highest in Finland (63%) and Luxembourg (52%) and least prevalent in the UK (21%) and Malta (20%).

One in 20 respondents said they had been a victim of a physical attack in the last five years, ranging from 14% in Finland to 2% in Portugal. The figure was 3% for the UK.

This is not an argument that we must now rest on our laurels of course but the next accusation of the institutional racism of Britain should be met with a “compared to what? Or where?” We don’t claim that here is perfect, obviously not given the number of complaints we make about aspects of it. But it is markedly better than many other places and it is so along extremely important axes.

Arthur Shenfield’s point to Milton Friedman

It was an influential intervention at a 1970s meeting of the Mont Pelerin Society. It was not recorded, but this is how I remember it. The topic was the UK’s rising inflation as the government printed more money to meet aggressive union pay demands. Milton Friedman said with his trademark smile, “It’s easy. Just take your foot off the accelerator and put it on the brake.”

At this point Arthur Shenfield intervened to say, “That’s easy to say, but when you are being chased down the highway by a bunch of gangsters firing sub-machine guns at you, it’s not that easy to hit the brake!”

The point registered with me, and joined with other thoughts I’d had on Public Choice Theory to coalesce into an approach already developing in my mind. It wasn’t enough to urge politicians to behave sensibly on the economy; you had to make it easy for them to do so and sufficiently attractive to encourage them. In other words, you had to tweak ideas on free markets and enterprise, and craft them into policies that would appeal to legislators because they would bring popular results that could help them be re-elected.

Thus, instead of trying to set council house rents at economic levels rather than subsidized ones, offer the tenants the chance to buy those homes at discounted prices. Instead of forcing through privatizations in the teeth of opposition from union leaders, offer free or discounted shares to those who worked in those industries, bidding direct to the members over the heads of the union leaders. Instead of trying to confiscate union powers, as Heath and Wilson had famously failed to do, why not redistribute those powers instead to the members, paying for secret ballots to elect union leaders and vote on any proposed strike action? Instead of taking on interest groups by trying to confiscate the benefits they enjoyed, why not take them on board by offering them other benefits in their place?

It became the characteristic and influential approach of the Adam Smith Institute, and it was triggered in part by an intervention from the floor at a meeting.

To really misunderstand the purpose of an economy

Evgeny Morozov is one we have trouble understanding. He seems to have a remarkable ability to grasp the wrong end of that stick and then dress up misunderstandings in complex verbiage to no great end. Take this:

When Uber, Airbnb and similar platforms were young and tiny, it was easy to believe that a global revolution would liberate more informal economic activity. Out with professional drivers, limousines and hotels; in with amateurs, bicycles and shared couches!

It was an appealing vision, rooted in the countercultural rebellion against authority, hierarchy and expertise. That vision, however, lacked one thing: backing from political parties or social movements. Those parties, once in power, could have ensured that local platforms had adequate public funding not to be subject to the brutal laws of competition, protecting them from deep-pocketed commercial competitors.

When these new ways of doing things were just plucky little start ups they were great. But when they succeed somehow it all falls to pieces?

Which is to miss our point in having an economy at all. Our aim is that we all get to have the maximum possible of what we want. We wish to maximise human utility that is, given the resource constraints the universe imposes upon us. You know, that economics thing, the allocation of scarce resources.

So, imagine, we discover some new method of resource allocation, one which adds more to utility than earlier ones. Great, we’d like one of those scarce resources, capital, to pile in to provide more of those things which increase utility.

We even want to use the market economy, with its competition, so that we can find out which things do add to utility. Technology is always changing and the possible combinations of resources and methods to do whatevers with it. We thus need a sorting system for what does in fact increase utility.

A market economy does that sorting for us, as it also reallocates capital and other resources to those things which do that increasing utility thing. All of which is the very point of having an economy in the first place.

Apparently this is a disaster though, for some reason no one is really able to pinpoint. But, you know, why? Why is a system which makes us all as rich as we can be given reality out there a bad one?

Book Review — Clean Meat: How Growing Meat Without Animals Will Revolutionize Dinner and the World

In its recent report, the ASI identified cultured meat as a game-changing technology that will impact upon the way we live.

Paul Shapiro’s book provides an insightful look at the impact of the global animal product industry, and delves into detail about how science and innovation is rapidly moving forward to eliminate threats to our environment and produce cheap, clean meat and other animal products.

This is a must-read book for anyone looking to learn more about the process of growing products outside of the animal, and the history of the genesis of this new industry. It goes into the details of the process by which a few cells from the living animal can be turned into meat that can satisfy the dietary needs of future generations without impacting adversely upon the planet’s ability to sustain such a food supply.

It is an optimistic page turner that will certainly provide a welcome alternative to the often-bleak picture painted in the news today.

The technology written about here will revolutionize the way the world works, and is happening as a natural response to growing issues of concern about the way we treat animals. Already, innovative start-ups and groundbreaking private companies and investors are leading the way to forge a cleaner, brighter tomorrow, and this is something that everyone can get behind.

You can get Paul Shapiro’s book via this link.

Isn't this just such excellent news?

As we all know inequality is the curse of our times. It causes death, destruction, unhappiness and will lead to mobs with flaming brands and tossed pitchforks. Thus a reduction in inequality is something which will make our society better:

Britain’s richest billionaires have seen their personal wealth shrink by more than £6bn after their fortunes were hit by a perfect storm of market turmoil.

The Duke of Westminster Hugh Grosvenor, Virgin boss Sir Richard Branson, City fund giant Bruno Schroder and Britain’s wealthiest man Jim Ratcliffe have all taken hits running into the hundreds of millions of dollars this year, Bloomberg data has revealed.

The 16-strong British contingent in Bloomberg’s Richest 500 list have collectively seen an estimated £6.2bn wiped from their wealth as the UK property market and stocks around the world tumble.

According to that latest and greatest theory of everything - that inequality is that Very Devil Itself - we should now be seeing an increase in the lifespans of the poorer among us, a drop in the murder rate, the incidence of depression drop through the floor and….

Well, no, obviously not, we jest.

Except, except. The theory really is that inequality is the vital defining force in society, The Spirit Level and such telling us that all the ills to which the population are prone become worse the greater the economic inequality. The above is about wealth inequality, which is the thing Oxfam moans about every year. The Spirit Level was about income inequality, a related but different thing.

Yet here’s the thing. The recession lowered income inequality as recessions always do. The incomes of the richer are leveraged toward profits, profits are hugely more volatile over the business cycle than any other form of income. The Gini Index for the UK has fallen over the past decade or two. Thus everything should be getting better by all those varied measures that inequality is responsible for.

Yes, we too have noted the manner in which all those improvements are being reported. Which does lead to an interesting conclusion. If rising inequality does cause all these things, yet lowering inequality doesn’t diminish their number nor volume, then we’ve not got a scientific theory of anything, do we? Further, given that none of the proponents of the inequality theory are themselves celebrating how much better things have become as it decreases they don’t believe it either.

In which case why should we?

Causes of the Crisis

“The financial crisis was caused by excessively low interest rates, heavy-handed market interventions and over-indebtedness. Are we seriously to believe that the right therapy involves even lower interest rates, stronger market interventions and more debt?”

- Rainer Zitelman “The Power of Capitalism.”

This is correct. The low interest rates were set by central banks, notably the Federal Reserve, in order to cushion shocks such as the Korean crisis and the Dotcom bubble. Alan Greenspan acted to prevent a stock market collapse in response to outside shocks. He smoothed what would have been corrections. He acted to ‘steer’ the economy using easy credit to prevent contractions, the business collapses, and the unemployment that would have followed.

The low interest rates created a housing bubble, seeing huge increases in the average price of US houses. First under President Carter, then much more under President Clinton, government acted to ensure that mortgages could be obtained by low income people, including minorities. With the aim of extending home ownership lower down the income scale, the qualifying rules were slackened, and mortgages given to some who could not afford to make the required payments. These ‘sub-prime’ mortgages were packaged with others into securities, many of which were bought by Fannie Mae and Freddie Mac, the two quasi-public housing agencies. The degree of risk these packages contained was unquantified and uncertain.

Investors, faced with easy credit and the assumption that the Fed would act to prevent a stock market collapse, bought stocks and shares with less caution than they would otherwise have shown. Moreover, with low interest rates, returns on more conventional investments were low, leading many investors to pursue the higher returns offered by riskier shares, bonds and real estate, whose prices rose in consequence.

When the housing bubble burst, the fall in the value of houses left many institutions and individuals, including banks, unable to meet their obligations. Mortgages were foreclosed, and homes were repossessed and sold at a fraction of their former value. The Financial Crisis of 2007-08 took the world by surprise, but in retrospect its causes could have been discerned. Queen Elizabeth perplexed economists by asking why none of them had seen it coming. The answer might have been, “Because none of us was looking.”

The Financial Crisis was wrongly described as a “failure of capitalism,” and has led some to seek alternatives. In fact the roots of the crisis were political, representing the desire of legislators and bankers to keep the economy on a smooth, upward-sloping curve, rather than subject to the bounces and corrections that the economy would otherwise experience. A real economy is subject to the rough and tumble of trial and error, with mistakes being made and corrected, with businesses going under and capital redeployed elsewhere. Legislators dislike its roller-coaster ride, however, especially at election time, and intervene to attempt to smooth it.

An important lesson of the Financial Crisis is that government and its bankers should not try to steer the economy, but allow it to be steered instead by investors, businesses and banks responding to price signals and perceived risks, and making the individual decisions that will cumulatively determine its shape. Whether that lesson will be learned is still uncertain.

Venezuela Campaign: Chavismo paid — big time

Hugo Chavez’s economic policies did not create a socially just society in Venezuela. Under Chavista rule, mismanagement has gone hand-in-hand with corruption. Corruption is a scourge which affects many developing nations, but in Venezuela under Chavez and Maduro, it has become a professional business, with disastrous consequences for ordinary people.

We are only just finding out how this happened.  The US Justice Department has been doing sterling work tracking down the perpetrators and beneficiaries of Chavista corruption. Hugo Chavez’s Minister of Finance, Alejandro Andrade, has just pleaded guilty to stealing over $1 billion of public money. Sadly, this is probably only a small fraction of the sum that has really been stolen.

Andrade, who used to be Chavez’s bodyguard, was appointed by him to be Minister of Finance in 2007 and served for four years until 2011. In 2012, he was appointed president of the state-owned bank, Bandes.

Mr Andrade didn’t want to stay in Venezuela when he left office, moving instead to the United States—supposedly Venezuela’s great enemy.  In 2012 he bought a multi-million dollar 9,000 square foot house with five bedrooms, marble floors and a swimming pool a few miles from the Palm Beach International Equestrian Centre. The six-acre property in the gated Palm Beach Point development also has a large barn for some of his 60 horses. A $3.5m six-bedroom house next door was bought for Andrade’s 26-year-old daughter, Maria.

In a guilty plea Mr Andrade admitted receiving millions in bribes from Raul Gorrin, owner of television station Globovision, and other conspirators. This money was for securing the rights to carry out corrupt foreign exchange transactions at privileged rates. Gorrin has been charged with paying bribes to Andrade and others as well as helping to launder the payments.  Gorrin bought the Globovision TV station in 2013 and changed its anti-regime editorial line to one of support for the Chavista Government.

Gorrin is accused of buying expensive gifts for Andrade and other Chavista officials, including private jets, yachts, homes, champion horses, luxury watches and a fashion line. That is in addition to the millions of dollars paid into accounts in Switzerland.  

Andrade has already been forced to forfeit 17 show horses, with names like Tinker Bell and Bonjovi, that he kept at his Florida property. The US Government has also seized this property and his 11 vehicles, including three Mercedes Benzes, a Porsche, a Cadillac Escalade and a Bentley. His collection of more than 30 top-end watches is also forfeit. The Olympic equestrian career of his son Emmanuel (who calls Gorrin ‘uncle’) is now probably at an end.

Over one trillion US dollars was collected in oil revenues by Venezuela during the Chavista period. Little of that appears to have been spent improving the lives of Venezuela’s people. Water is in short supply, the electricity network barely functions, the phone system is breaking down, the hospitals have no money for medicines, the transport system has ceased working, schools don’t function, and the population is starving.

How much of the $1 trillion has been stolen by the likes of Andrade remains to be seen, but these Justice Department probes are only scratching the surface of this web of corruption.  

It is critical that the international community, including Britain, finds as many of these stolen billions as possible. If Venezuela is ever to rebuild itself, it will need every last cent.

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