Venezuela Campaign: The taps run dry for the Chavista revolution

Venezuelan President Maduro and his predecessor Chavez have an extraordinary ability to create scarcity from abundance. Venezuela has the world’s largest proven oil reserves, but now suffers from petrol shortages. There was once a flourishing agricultural sector, now children die of malnutrition and people have lost an average of 11kg in the past year.

Venezuela has the twelfth largest fresh water reserves in the world, but fully 82% of Venezuelans now lack access to running water. That’s worse than 20 years ago—in 1998 nearly 87% had running water. Three quarters of public health centres do not receive regular running water, and the breakdown of the sewage system in hospitals has led to a surge in patient deaths.

In a recent interview with The Venezuela Campaign, SOS Telemedicina Cursos’s Federica Davila exposed the shocking conditions inside the University of Central Venezuela’s hospital, where patients must flush toilets with buckets and human waste is stored next to beds.

Water distribution and sanitation networks cannot be maintained due to a lack of spare parts, and most pumps, valves, and pipes are significantly beyond their expected lifetime. Treatment plants lie abandoned and reservoirs are contaminated with sewage. Caracas’ water utility company Hidrocapital has only 20 of its 400 maintenance teams operational, leaving it struggling to maintain the city’s collapsing infrastructure.

Corruption has destroyed the functionality of the water and sewage treatment systems. Politicians have invested only token amounts after the shortages began in 2005. Keeping water prices artificially low eroded utilities’ ability to maintain their systems, and political loyalty has become the main criterion for appointments. According to Jose de Viana, a former President of water utility Hidrocapital, the sector has been fundamentally de-professionalised.

Maduro’s meddling has just worsened matters. Since 2014 the body responsible for the water sector has been constantly reorganised. The ‘Ministry of the People’s Power for the Environment’ was abolished in favour of the ‘Vice-Ministry of Ecosocialism, Housing and Habitat’, which was then subsumed into the ‘Ministry of the People’s Power for Ecosocialism and Water’, which was split into two, the ‘Ministry of Ecosocialism’ and the ‘Ministry of Water Care’. Since 2014 there have also been five different Presidents of Hidroven (the agency responsible for drinking water).

Access to water is something the UN demands as a basic human right, and which people in prosperous countries think very little about. But without running water people must spend hours a day searching for water that is often unsafe to drink, leaving themselves vulnerable to horrible water-borne diseases—illnesses that Venezuelan healthcare cannot treat due to a lack of water. Bacteria and mosquitoes flourish in the buckets of stagnant water people must store, driving up the prevalence of Zika, Dengue, and Chikungunya. The water crisis in Venezuela is just yet another aspect of the humanitarian crisis that corruption and mismanagement have brought upon the country.

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

Observing an extreme form of the Laffer Curve

It’s possible for prices - and taxation is the price of government, as we know - to become so high that people simply lie, cheat and steal to avoid those prices. The price, say, of a legal heroin high is, given the illegality, effectively infinite. Thus there’s an awful lot of lying, cheating and stealing without the law going on.

Stamps have become more expensive:

The rising cost of postage is fuelling a market in reused stamps, allowing shoppers to buy them online for a quarter of the price.

A first class stamp now costs 67p, but uncancelled ones are available for as little as 16p on sites including eBay.

The Daily Telegraph discovered a booming second-hand market with eBay alone hosting more than 2,100 listings for re-used first and second class stamps.

One seller told the Telegraph they sell 20,000 reused stamps a month, claiming that they had had "no issues to this day" with the stamps they sold. 

We more normally think of the Laffer Curve as being about the interplay of the income and substitution effects. That mixture leading to higher tax rates - sometimes - causing lower revenues and the inverse, lower creating higher. But at the extreme it becomes that lying and cheating which predominates.

It has been observed - not least by us - that when Russia abandoned the old Soviet taxation system and moved to a flat rate income tax of 13% then revenue collected rose substantially. When this is used as an example of the proof of the general Laffer contention the usual answer from those who don’t wish to believe is that this wasn’t about those income and substitution effects. Rather, the old system was so confiscatory that people just lied and cheated.

Well, yes, quite. That is the extreme end of the Curve. We can, obviously enough, increase the inspection of peoples’ finances, as we can monitor online markets for stamps. But at some point we’ve got to also consider the costs of those interventions to support those prices/tax rates. What, for example, would be the cost to civil liberty of cracking down sufficiently that no one could lie, cheat or steal their way around an 80% income tax rate? And yes, there are those seriously suggesting such rates.

We can even approach this in a Marxist manner - every social action produces a reaction before synthesis is reached. Would we actually like that synthesis?

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?