London needs real road pricing

Nine miles per hour. Few predictions have stood the test of time better than the R.J. Smeed's. Back in 1949, the statistical genius hypothesised that the average speed of traffic in London is fundamentally stuck at nine miles per hour. It doesn't matter whether new roads are built, whether better cars are designed, the speed ain't ever getting faster than nine miles per hour.

Smeed thought that nine miles per hour was the minimum speed a driver would tolerate. Any slower and they'd switch to public transport or stay home. Any faster and the reverse would happen. Smeed's been right all the way up to 2012, where the average traffic speed in central london was 8.98 miles per hour.

It's got worse. It's now a sluggish 7.4 miles per hour thanks to major overhauls to our road system and a boom in new uses like home deliveries which are less sensitive to road speeds.
Smeed's prediction held true for so long because he thought like an economist.

Roads are scarce resources just like oil and coal. And as history has shown (100 years since the Bolshevik revolution) when scarce resources are given away for free they're overconsumed.

Instead of willingness to pay, they're distributed by willingness to wait. Brits may be famously polite queuers, but it's Russians who've had the practice.

It means our roads are clogged by those who place the lowest value on their time.
Smeed knew this. That's why he advocated for road pricing as early as 1964. And why the Adam Smith Institute has advocated it since the early 80s.

Interestingly, the London Transport Committee has come around to the idea too.

When it works road pricing means that those who need to use the road the most spend much less time stuck in traffic.

The problem is London's first attempt at road pricing, the congestion charge, was badly implemented. It's set so low that it barely affects traffic flow, and it's set at a uniform rate, so it fails to push drivers toward off-peak hours and routes. Motorists see it as just another tax (and they already pay a lot of tax).

As a result, we've got a congestion charge that's way too low and way too inflexible. Not a proper system of road pricing.

But, I bet motorists wouldn't hate paying more if they'd seen the alternative – Singapore.
Singapore squeezes five and a half milion people into a city half as big as London. Yet, traffic isn't a problem. The average speed in rush hour is nearly 20 miles per hour.

Imagine that. If you lived in Singapore rather than London, you'd spend half as much time stuck in traffic. That's great for motorists but it's also great for pedestrians; cars pollute more in traffic than in free flow.

Singapore's had congestion charging since the 70s and brought in the world's first digital congestion charge in '98. And they've set their congestion charge based on consumer reality not what's politically easy (it helps that there is no functional opposition in Singapore).

It means they can have variable pricing. Encouraging efficient use in rush hour and giving less-well off drivers bargain prices the rest of time. The tech developed in Singapore could in theory allow for Uber style surge pricing when demand increases rapidly.

That'd be useful when tube unions bring London to a standstill. Rather than traffic grinding to a halt the congestion charge could rise to keep traffic flowing smoothly.

Properly pricing roads would of course raise revenue for city hall to fritter away on vanity projects. But the beauty of the system is that it'd make things much better whether we spent the money on strike-proof driverless tubes or simply burnt it.

Indeed, with the cost of congestion an estimated £8bn a year, it seems we're already quite used to burning money.

Planning laws are not the whole housing problem—we should blame politicians too

There is a very good and persuasive argument that planning laws contribute to making us all poorer. We know, for example, from the work of Hilber and Vermeulen (2014) that “house prices in England would have risen by about 100 percent less, in real terms, from 1974 to 2008 (from £79k to £147k instead of to £226k) if, hypothetically, all regulatory constraints were removed”. Many other estimates agree and as Kristian Niemietz notes in Redefining the Poverty Debate these likely understate the issue considerably because they assume that no planning controls existed prior to 1974 and the model assumes further development restrictions.

The literature is fairly consistent: planning laws reduce supply, increasing house prices for us all. This is an issue that the left and right should care about. If you are on the left, and you haven’t read Sam’s primer on not caring about inequality, housing makes up a large portion of why capital as a percentage of national income - one of the favoured measures of inequality by economists like Piketty – is as high as it is, as can be seen from the graph below from

 

That said, I think focusing on laws which contain restrictions rather than laws which contain powers lets our elected officials off too easily. Notwithstanding the huge detrimental effect of planning laws, we have laws that would allow for a lot more house building than we currently have and they aren’t utilised for political rather than legal reasons. This distinction matters: politicians cannot be allowed to fall back on “the planning system constrains me” by default. In addition, if there are political reasons, we can try to impress a countervailing political pressure.  

The Mayor of London, for example, could use his powers to call in any planning application of strategic importance (this includes where more than 150 homes are proposed). This power would essentially allow the Mayor to act as the planning authority for a particular application – giving the application friendlier treatment than a local council might.

The Mayor also has powers to set up ‘Mayoral Development Corporations’ for the purpose of securing regeneration of an area. These MDCs have the power to be a local planning authority and determine applications directly. To date, there have only been three MDCs.  These MDCs have their own local development plans (used to determine planning applications) and have the power to direct other local authorities to amend their local development plans so that they are more pro-housing.

This is not restricted to London, Urban Development Corporations can be set up across the country – and they simply are not. Infrastructure provides yet another potential example: the government recently amended the Planning Act 2008 so that housing could be incorporated into the streamlined process for obtaining consent for large infrastructure projects (for example, a rail link or even nuclear power plants). But the government limited this to 500 homes – an entirely arbitrary number.

Moreover, the government could use transport infrastructure bills to accommodate housing. Acts of Parliament have no limitations and, indeed, in the Crossrail Act 2008, a process was implemented which essentially allowed for circumnavigating local councils on some issues.

Planning reformers are rightly concerned about the Town and Country Planning Act 1990. But its not the only way to get more housing: there are legal powers that allow for a more liberal approach to be taken, and they are not used. The pressure we can exert to get officials to use their powers is no substitute for changing and amending the laws – but whilst we’re waiting for full liberalisation, we might as well have a go at officials who can make a difference, but choose not to. 

So Gordon Brown was right then, Britain should not have joined the euro

That Gordon Brown was in fact right about something is a bit of a shock but he was indeed correct that Britain should not have joined the euro. One of his points being that the housing finance system was too different.

In an optimal currency are the different components will react to interest rate changes the same way. But if we've got largely variable rate mortgages and other places have largely fixed rate then they won't react in the same manner. A change in rates will affect, for us, all paying a mortgage, for others only those considering new ones. Our reaction will thus be of greater amplitude.

Some new research on this more generally:

Business-cycle synchronisation is a key criterion for optimum currency areas. The standard argument is that membership in a common currency area becomes costly for any country whose national cycle diverges significantly from the common cycle.

We find that for most EMU member countries there is a tight correlation between the national cycle and the common cycle. At first sight it thus appears that, with the exception of Greece (and possibly Portugal), the standard optimum currency area criterion is fulfilled. But our key argument is that it is not sufficient to look at correlation patterns. Countries that share the same business cycle might nevertheless experience quite different cyclical positions, and thus require a different monetary policy stance if the amplitude of the cycle is very different. We indeed find large systematic differences in the amplitude of national cycles and the degree to which the national cycle reacts to the common one, with many countries registering a ‘beta’ that is significantly different from one.

The practical conclusion for the Eurozone is that the main problem for the ECB might not be a de-synchronisation of cycles, for example between the core and the periphery. Instead, a more relevant problem in practice might be that individual countries have cycles that are tightly correlated, but of very different amplitudes, thus requiring at times a different monetary policy stance at the peak than at the trough. The more general conclusion is that a high degree of correlation is not a sufficient optimum currency area criterion. Having a beta that is close to one is equally important.

As it turns out, nor should anyone else have joined the euro either.

 

But why wait until the EU is being beastly Prime Minister?

Theresa May has told us all that if the Europeans are beastly to us over the Brexit negotiations then she'll show 'em. It will be more than just wind signifying nothing too, she'll create a lot tax and low regulation Britain just to show those continentals:

In comments that were hailed by Eurosceptics, the Prime Minister told EU leaders that any attempt to “punish” Britain would be “an act of calamitous self-harm for the countries of Europe” that her Government will not accept.

She said she would rather do “no deal” than one which is a “bad deal for Britain” and said that any attempt by the EU to harm the UK would force her to change the country’s “economic model” by lowering tax and cutting regulation to compete with Brussels.

The question that pops into mind here is, well, why do we need to wait for Brussels to be beastly? 

Of course, around here, we generally support a lot tax and low regulation model anyway. But the PM is stating there that such  a model would be good for the UK. For it would allow us to compete with Johnny Foreigner - presumably making us richer as we did so. And given that that is the case, both from her logic and also from the basic fundamentals of the subject, why are we waiting upon J. Foreigner? 

Why don't we just get on with having a low tax and low regulation economy and country? That is what Brexit gives us the freedom to do after all....

Bit of a blow to The Spirit Level idea, isn't it?

In The Spirit Level, by Wilkinson and Pickett, we are told that inequality is the source of most social ills. So much so that a more unequal society raises murder rates, makes even the rich die younger and ....well, you get the picture.

This is shown by lots of comparisons a cross countries, more equal places have better results by certain measures, more unequal worse and so on. It is, of course, a great big steaming pile of foetid dingoes' kidneys, as Chris Snowdon has memorably proven. But now comes another little blow to the thesis.

Japan is one of those places which they claim is more equal. So much so that quite a number of their projections  are anchored by the Japanese result. At which point:

Their plight is a rarely seen consequence of Japan’s struggle to steer its economy out of the doldrums after more than two decades of stagnation and deflation. Four years after Shinzo Abe became prime minister for a second time, campaigners say the rise in poverty is evidence that his grand plan for growth – known as Abenomics – has failed to deliver for many families.

Japan now has some of the worst wealth inequality and highest rates of child poverty in the developed world, according to a Unicef report released in April that ranked Japan 34th out of 41 industrialised countries.

Japan isn't all that equal and therefore their assignment to the more equal class must be called into question.

Or, of course, perhaps it has only just become more unequal - in which case they must all be dying younger, there are more murders and so on because inequality is the cause of these things, no?

In the absence of the evidence that those social indicators are going the wrong way we'd be back where Mr. Snowdon says we are, wouldn't we - foetid dingoes' kidneys? 

Bleedin' Germans, coming over 'ere and nickin' our markets

A nice outburst of xenophobia here, apparently Deutsche Bourse is going to nick some markets from the City:

Deutsche Börse’s €25 billion merger with the London Stock Exchange will trigger a huge grab of business by Frankfurt from the City, a study claims.

Research, which was commissioned by the German exchange, says that the merger will give Deutsche Börse the opportunity to relocate billions of pounds of derivatives trading from the UK to Germany.

The findings raise fresh questions about whether the deal, which will have to be signed off by the Bank of England, is in the City’s best interests.

So, how is this to be done? It is, after all, customers who decide where they are going to trade:

“Deutsche Börse has a good chance of winning significant long-term market share in the areas of interest rate and currency trading and relocating trading from London to Frankfurt if the market participants in London are given unrestricted access to superior trading platforms in Frankfurt,” Dirk Schiereck, chairman of corporate finance at Technische Universität Darmstadt, wrote in the report.

"Hmm, if we could just get this straight professor. You're saying that a producer who offers consumers a superior product might gain market share? Are you absolutely sure about this very strange idea?"

At which point shouldn't we put that xenophobia back in its box where it belongs?

Yes, remarkably, these people are being paid by you

A standard analysis of the effects of the European Union would include the fact that it subsidises the production of certain agricultural goods. This is what led to those wine lakes and butter mountains of yore. Set the price well above the market price and watch as producers flood the continent with product that no one wishes to eat.

One such product is sugar. The EU price is well above the world price and has been for yonks. This keeps the sugar beet barons in business and leads to, as always with a price above the market clearing one, excessive production. Fortunately, this is about to change. We consumers will be less ripped off to favour some few thousand landowners, how excellent, eh?

Except there are those who think this is not a good idea

British efforts to tackle obesity could be rendered futile by a European Union deal that threatens to flood the market with cheap sugar, experts have warned.

Campaigners fear the reform, described as a “threat to public health”, will allow companies to laugh off Government measures such as the Soft Drinks Levy, aimed at forcing a reduction in sugar content.

Beginning in 2018, the levy promises to tax companies which make and sell sugary drinks almost £1.5 billion over the first three years.

The high mandated prices are accompanied by quotas, so that entire countries do not in fact disappear under the overproduction of sugar. Those quotas are to go, as are the guaranteed prices.

And here's the lovely thing. The people telling us that we should continue to be ripped off in favour of those few thousand land owners are in fact paid by us. The claim being that they are experts looking out for our interests. It being somewhat difficult to see that they are really.

That Carthaginian solution is looking better all the time, isn't it?

A coherent economic policy is a useful thing Mr. Corbyn

We thus suggest you take the time to acquire one:

A Labour government will take failing care homes into public ownership to protect social care provision, Jeremy Corbyn is to promise.

The Labour leader will warn the social care system is at "serious risk of breakdown" unless the Government invests more money.

OK, maybe there is a problem here and maybe there isn't. And we don't think that nationalisation is a good solution either. But leave that aside. Let's at least try to insist upon coherence here, shall we?

 In a speech to the Fabian Society new year conference, he will say rising costs and falling fee payments from councils had seen 380 care home businesses declared insolvent since 2010.
...
"So a Labour government would give social care the funding it needs and give a firm commitment to take failed private care homes into public ownership to maintain social care protection.

That coherence being what's missing here. The initial insistence is that the government isn't spending enough on care homes. The solution is thus that the government will take them over and become entirely responsible for them? That's going to help, is it?

And we can meet this coming the other way too. If funding levels are raised then the care homes won't go bust and thus need not be nationalised. Even, if government doesn't have to buy the homes (and they would, you cannot nationalise without compensation) then there would be more in the budget to pay for funding, wouldn't there? 

Yes, we realise that we and Jeremy are most unlikely ever to get on and all that but our wish for the new year really is that people start proposing actually coherent public policy, not just sound bites to please the crowd.

Adopting the economics of fascism isn't quite how we'd see off the extreme right to be honest

But that is how Colin Hines sees it in his latest tome, Progressive Protectionism. Of course, this subject has been discussed before, around about the time he announced that he was going to be writing the book. That passage of the years in the work hasn't improved the idea it has to be said.

As proof we've Richard Murphy insisting that the ideas have merit. As every compass has its butt end so do we have an infallible test of a bad economic idea:

The essence of Colin’s argument is that global capitalism is not working. And, given that Colin is a long time environmentalist (having been around that scene since it near enough began), what we should do to replace it is build strong local economies. This is not only green, but he also argues it is the way to tackle many other issues. Capital controls, for example, would let us more effectively tackle tax abuse and so build a more equal and just society. They would also end a focus on speculation that is creating massively harmful inequality in our country, and others. Controls on trade would, Colin argues, support local economies and jobs and massively reduce the enormous carbon cost of much of world trade.

This free market globalisation has just produced the largest fall in absolute poverty in the history of our species. Sounds like a pretty good result from a socio-political system to us. But that's not how Hines sees it:

Under these circumstances, beggar-your-neighbour globalisation gives way to the potentially more cooperative, better-your–neighbour Progressive Protectionism.

The book does not advocate a return to the oxymoronic protectionism of the 30s, where the goal was often for each protected industry or country to increase its economic strength by limiting imports and then hoping to compete and export globally at the expense of others. Unsurprisingly the more countries did this, the less trade there was between them.

Progressive Protectionism aims at reducing permanently the amount of international trade in goods, money and services and to enable nation states to decide the level of migration that their citizen’s desire.

What is being suggested is a move toward autarky as Enver Hoxa enacted, as Ne Win did, as Mussolini, Franco, as North Korea does, as the BNP when still extant claimed should be done.

Do note that we are not suggesting that Mr. Hines is actually a fascist. We are just noting that he's recommending economic policies adopted by those who were.

At which point enough with the insults. His recommendations are idiot stupidity which will make us all poorer. Larding them with the word progressive isn't going to be enough to get them down society's gullet.

Kids are different; it's time we accepted that

Roger Scruton recently argued for the reintroduction of selective schools - working from the premise that ‘knowledge benefits the child, but not as much as the clever child benefits knowledge’. He thus argues it is in the government’s interest (indeed in all our interests) to reintroduce selective schools—in the end, the whole of society benefits when the brightest individuals are educated to a higher level

Different sorts of education are needed for different people. The state’s role should be to promote society’s interest in general, not specifically reduce educational ‘gaps’. Those with other abilities would benefit from technical schools—like the “realschule” which arguably underlie much of Germany’s continuing success in manufacturing—schools of equal importance, but with different goals. We should not succumb to the notion that equality between individuals means identical skills. This may have brought about a dumbing down of our education system.

Scruton’s argument is very persuasive. Every child should have the right to be educated, so the state has a ‘duty’ to provide each child with an education. The state should not discriminate in the irrelevant areas, i.e. wealth and social status. But there should be discrimination in the relevant areas – i.e. academic ability. Assessment at any age is essentially arbitrary, but evidence suggests that ability is very stable through the lifespan from age 11. 

However, Scruton’s argument is short on empirical evidence.

Critics such as Chris Cook suggest such selection would be a ‘radical departure from educational orthodoxy’. Cook shows that in Kent and Medway, where there is extensive selective schooling, kids from poorer backgrounds do worse than in the rest of the UK. But this is confounded by the possibility that many families who would be in that position may leave for comprehensives elsewhere.

And US evidence suggests that universal ability testing actually helps find bright kids from less privileged backgrounds. Harris Westminster Sixth form may be a good English example. According to James Handscombe, its principal, 33% of its pupils are from deprived backgrounds (compared to national average of 29% and typical selective schools average of 10%).

Furthermore, this narrow focus on academic results is exactly what is wrong with the current system. These results are only relevant for some: the difference between a C and a D is largely irrelevant when it comes to university or careers requiring academic ability. We need more relevant measures. Many children find academic tracks stifling, boring and irrelevant—surely we should help them develop skills more relevant to their interests and desired careers. It is simply not the case that any individual is capable of following any career path.

A significant proportion of young people are now coming out of university with expensive degrees which are not preparing them for the world. Indeed there is a lot of evidence that apprenticeships have probed more valuable to both their prospects and self-esteem. According to the Office for National Statistics, more than a quarter of graduates in 2013 were paid less than the £11.10 an hour average for those on work-based training schemes.

More recently, the Sutton Trust found that people who had completed level five apprenticeships (equivalent to a foundation degree) were expected to earn £52,000 more over their lifetimes than graduates from non-elite universities. And with the average debt for university leavers now at £44,000, apprentices may find themselves better off in the long run. 

Challenging orthodoxy has been how we’ve made progress in every field. Where would science be today if Galileo had not challenged the Church’s monopoly on truth and power or if Darwin had not challenged special creation. Such challenge is the very essence of progress. There is always room for doubt and that, in and of itself, gives us the freedom to challenge orthodox views.