Land underlies everything
The use and ownership of land has been perhaps the most important question facing societies going right back into antiquity. Arguably the biggest story in human history is the settlement of particularly fertile regions by previously nomadic people, and their attempt to protect the land they cultivate from still-itinerant tribes and those who want to settle the same patch. It lies at the heart of many armed conflicts: even today, conflicts such as Dafur are, at heart, battles between the pastoral and agricultural peoples of that region.
The private ownership of land is hugely beneficial, as it has been conclusively shown that private ownership is the only way of guaranteeing either resilience, sustainability and efficient land-use. This was the core of Garrett Hardin's seminal article The Tragedy of the Commons, published in Science in 1968 (interestingly, in a peer-reviewed natural science journal rather than an economics journal). It is also the subject of the work of the late Nobel laureate Elinor Ostrum, whose Hayek Lecture (delivered shortly before her death) will be published by the IEA in the autumn. Basically, if "everybody" owns something (e.g. fisheries), nobody husbands the resource and it is not used optimally; if we look to government to regulate this (e.g. again with fisheries) the results are invariably driven by political objectives, which rarely if ever align with sustainability.
On the specifics of land - and indeed all questions of "sustainability" - there is too often considered to be a trade-off between the present and future generations, with the future always presented as the victims of current greed. In fact, future generations are invariably better off than past generations, so to sacrifice the current for the future is doubly unjust. It is the temporal equivalent of denying improved living standards to the Third World because it might hurt citizens in the First World (in chronological terms, the 2010s are the Third World of the C21st).
The other advantage with a proper market in land is that it ensures that the choice of land for development is optimal - which means that it incorporates the desires of all concerned parties. To take the example of converting farms into housing, it is extremely unlikely that in a free market, an efficient and productive farm would be closed and converted into housing. Rather, it would be the marginal farms - those barely getting by, making a loss or surviving only on subsidies - that would be converted. This would not affect food security (which anyway is better addressed in the UK by opening up international trade and looking to improve yields) – it might even free up capital which an enthusiastic farmer could invest in a new, more productive farm elsewhere. It would improve biodiversity, however, because farms are extremely bad environmentally – what I describe elsewhere as a " man-made monoculture of dubious environmental merit, that is for the most part closed to the public". The average back garden has more diverse plant and animal life than the average farmer's field.
Ultimately, land underlies everything, and not just literally. In the next couple of weeks, the IEA will publish a monograph on road privatisation, but (the authors frankly admit) road markets require entrepreneurs to be able to build new roads. Present planning laws make this very difficult. All parties agree that more homes need to be built in Britain, but planning laws are the major impediment to this. Food prices are too high in Britain because we have substantially less retail space than our continental neighbours, again as a result of planning laws. New school capacity, new hospitals, new airports… land, land, land.
Until we repeal our planning laws and free land owners and local communities to make informed choices about land-use, with the costs and benefits accruing to the owners and decision-makers, present and future prosperity will be a hostage of an ill-conceived nationalisation of land use that took place 65 years ago.
Independent Seminar on the Open Society - October 2012
The Adam Smith Institute’s Sixth Form conference - The Independent Seminar on the Open Society - was attended by over 280 students this October. The event focused on economics, offering students an insight into some aspects of the discipline which are not covered by the A-Level syllabus.
Dr Madsen Pirie began proceedings by speaking on the importance of economics. He debunked concepts such as the Marxist Labour Theory of Value and explained the impotency of mathematics in explaining human action. Those interested in such arguments should watch Madsen’s series ‘Economics is Fun’ which now has over 113,000 views.
Steve Baker MP put the case for markets as promoters of moral actions. While any moral code we know (including the secular portions of the commandments) have not been able to make all act morally, neither can markets make us moral. However, market institutions do promote and encourage moral behaviours.
Emily Skarbek introduced her research on the Chicago fire of 1871, a fascinating existence proof for community responses to natural disasters. The ability of local people with particular knowledge of the needs they faced calls into question the commonly held view that governments are best placed to deal with such tragedies.
Tim Evans reminded students that we do not have a free market in the United Kingdom. In fact, even the money we use is controlled in a distinctly soviet fashion. Indeed, the Berlin Wall of today is in our pockets. It is this state control of money that Tim argued will be responsible for the next financial crisis.
Chris Snowdon and Tam Fry debated the need for a fat tax to combat obesity in the United Kingdom. While Tam argued that obesity posed a coming crisis for the NHS, Chris argued that a tax would be ineffective and against the paternalistic tones of such a measure. The students voted against a fat tax.
The event attracted students from around 30 schools, with most rating the day as Good or Excellent. Teachers and students should note that our next ISOS event is planned for the Spring of 2013, and they can e-mail pete@old.adamsmith.org if they wish to receive further details.
High alcohol taxes are self-defeating
Not too long ago I wrote about the HMRC's 'most wanted' tax evaders list. As I pointed out, most of the criminals concerned were being given an opportunity to exploit high rates of duty and VAT on alcohol and cigarettes by smuggling. Similarly, this very revealing programme by BBC's File on 4 traces some of the types of and scales of frauds carried out in the alcohol trade. Unfortunately, the programme focuses on the types of frauds conducted and ignores some rather more important issues.
Duty on alcohol was substantially increased by March 2008 by the then-Chancellor Alistair Darling who introduced a four year tax escalator due to last until 2014, under which the duty rate on all alcoholic drinks was set to increase by two per cent above the rate of inflation. High taxes on alcohol must be seen as a regressive tax (of about 1.6% of disposable income) on lower income groups as it constitutes a greater percentage of their disposable income than the better off. HMRC reckon that £1.2 billion a year is being 'lost' to the Treasury due to these frauds, up from £400 million in 2001, which points to a significant and growing level of criminal activity. One of the interviewed police officers investigating these frauds, however, suggests that this may be a substantial under-estimate.
Aside from the loss of revenue to the UK Treasury, it would be interesting to know how much the enforcement activities demonstrated in the programme are also costing the police and HMRC, not to mention the costs which they impose on legitimate businesses. Surely this suggests that rates of taxation have exceeded their revenue maximising point (to say nothing of their growth maximising point, although this is clearly a contentious issue where alcohol is concerned) and it is quite possible that a cut in duty would be self-funding, not only from a tax but also an enforcement perspective. Quite simply, lower rates of duty mean lower profits for smugglers and therefore less smuggling.
Contrastingly, the conclusions of Richard Bacon MP given on the programme are - given that rates of duty are unlikely to be reduced - that enforcement should be stricter, which would surely only increase the costs to the taxpayer. Mr Bacon believes that reduction in duty is unlikely because of the UK's parlous fiscal circumstances, but one wonders if this is supportable in view of the Laffer curve effects outlined above. He also suggests that the high rates of duty exist because of the desire to discourage alcohol consumption. This is contrary to evidence that alcohol consumption in the UK is actually declining, except among certain groups who are probably extremely price inelastic anyway or who, one suspects, are actually buying the smuggled booze itself! It is also the case that differential rates of VAT on off-premises versus on-premises sales are helping to encourage people to drink at home rather than in pubs. Availability of cheaper smuggled alcohol may also be a factor in this trend which has so seriously damaged the UK pub sector and is reckoned to have cost about 5,000 jobs here.
However, the programme also makes the point (which it does not go on to explore in depth) that the availability of illicit alcohol is actually pressurising legitimate retailers to drive down the price at which they sell. How much this is a factor in retailers' efforts to sell alcohol at below-cost prices and the resultant emergence of minimum unit pricing policies, which simply represent additional profits for retailers and smugglers, is hard to say. What is clear is that with alcohol, as with so many areas of public policy, government spends a great deal of money and resources attempting to correct the impact of problems is has created itself. It is also clear that rates of tax on alcohol, and much else besides, must come down - even the EU is arguing for that!
The financial watchdog is barking
We are used to sabre rattling by financial regulators. The last one told the industry to be very afraid of what the Financial Services Authority would do to them but, in the event, the only fearful thing was the FSA’s incompetence. Martin Wheatley, CEO-to-be of the new watchdog, the Financial Conduct Authority, is barking similarly likewise. According to the Independent on Sunday, he told the Association of British Insurers that he “will punish insurers and banks that make "excessive" profits”.
Quite how anyone, let alone a long-term financial bureaucrat, with little or no business experience, can determine what is or is not an “excessive” profit beats me and I’ve been teaching marketing for 40 years. Perhaps RBS will be punished if it makes enough money for the government to sell off its stake.
But this is only one of the four all-seeing powers he expects to utilise. The other three are “are making sure that firms develop new products, that they strive to offer better services than their rivals, and that the most successful banks or insurers are those that respond best to consumer demands.”
Wheatley should study the words of Adam Smith and seek greater understanding of how competitive markets work. It would seem that he has little idea of brands or marketing or how consumers make choices and spend their money. Wheatley’s apparent intention to tell suppliers how to do business would be ambitious if it were not ludicrous.
His insight that the most successful banks and insurers will be those that respond best to consumer demands runs the risk that they will thereby make excessive profits and need to be chastised by Headteacher Wheatley. No doubt he will keep a cane for that purpose behind his door.
How exactly will he ensure firms develop new projects, especially when they are threatened with the cane if they succeed?
Wheatley’s reference to the payment protection insurance imbroglio is misleading. Like so many disasters it was an unintended consequence of the government’s own policies. The original concept was, and is, fine; the problems arose from the mis-selling. The reason it became a disaster was that the regulator, then the General Insurance Standards Council, watched the mis-selling arise and did nothing about it. Once again, the regulator either did not understand the industry or was too incompetent to move in promptly. If the regulator had moved in swiftly, there would have been no disaster. The FSA took over as the regulator in 1997 but 13 years passed by before, in December 2010, they addressed it with regulations for selling PPI. The banks appealed the retrospective aspects of the new regulation to the courts.
Consumer complaints had been pouring in from 2007 so it was at least three years of FSA inattention. In any case, there was no need to wait for the issue to be dragged into the courts as the FSA has quasi-judicial powers to discipline banks directly.
If Wheatley restricted himself to saying that the FCA would do their best to ensure fair trade in competitive financial markets, we would all cheer. A regulator should seek to establish a culture which makes interventions unnecessary. Consumers, if they are dissatisfied, can and do complain to the Financial Ombudsman Service. If trends in such complaints indicate that external correction is needed, the Competition Commission and/or Office of Fair Trading (from April 2014 the Competition and Markets Authority) can wade in.
An ASI Briefing Paper to be released soon will show that we do not need the FCA at all and the unworldly barking by this new watchdog support that conclusion.
Don't believe the austerity hype
UK Chancellor of the Exchequer George Osborne has been warned by the International Monetary Fund that he risks further damaging the economy unless he slows the pace of austerity and faces up to Britain's 'growth challenge.
Er…what austerity? This graph, compiled by Veronique de Rugy of the Mercatus Centre, shows that UK public expenditure has been growing at a pretty solid pace, even in real, inflation-adjusted terms. If you or I were in debt as deep as the government's, we would aim to cut our spending and reduce it. But the government continues to increase its spending, and continues to borrow and add to its debt to finance it. Indeed, the Treasury expects that UK government debt will increase three times, from around £581bn in 2008 when the present crisis hit, to £1,500bn in 2015/16 which is as far ahead as the Treasury forecasts.
Public expenditure is, of course, notoriously difficult to cut. It involves making politically difficult and unpopular decisions. And indeed, during difficult times there are more people drawing unemployment and other social benefits, which are a very large part of the UK government budget. George Osborne's hope was that he could finesse things by hoping that the growth of people's incomes would outpace the growth of public expenditure, so that the relative burden of public spending would diminish, and less borrowing would be required. But given the general economic malaise in Western economies, and the disarray in the euro area in particular, our customers are not buying much more, even at the cheaper prices made possible by the downward slide in the value of the pound.
There is little sign of this changing in the near future. The only way to boost our earnings further is with a growth agenda of deregulation and tax cuts on business (such as a National Insurance holiday for small businesses), which would stimulate employment and investment. In the long term, however, we still need some mechanism to prevent governments simply borrowing to spend – such that they get the benefit while in office, but future government or future generations get the bill to pay. And it needs to be a mechanism that, unlike the eurozone's borrowing rules (or former Chancellor Gordon Brown's), does not fall at the first hurdle when the going gets tough.
Whether governments are ever capable of such self-restraint, however, remains a moot point. So let us start right now by looking at the things that are preventing businesses, particularly small businesses, from hiring and investing and expanding – and get government and bureaucracy out of their hair.
Ten very good things 10: Inequality
Where some look at people and wish we were more equal, I revel in the diversity of humankind, and in the different talents and skills we can make available to enrich the lives of others. Inequality is my good thing number ten.
10. Inequality
One of the great virtues of the human race is its variety. We all have different tastes and different talents. We value things differently, and through our choices, we give expression to our unique characters. Freedom is valuable because it allows people to give effect to their own values and to live by the precepts they think are important.
It is because we are different that we co-operate in trade, with each party to an exchange preferring what the other offers. Some of us are talented at music or sports, and have abilities that others enjoy seeing us exercise. Some of us are creative and can think of new ideas to offer. Some of us are risk-takers, eager to undertake new ventures in the hope of success.
This diverse and pulsating pool of different talents is what enables human beings to progress, to innovate, to strive for excellence. People who want equality more than freedom are sacrificing the diversity that makes people strive for different goals, and they are compromising the creativity that leads humanity to improve and to progress.
Some people imagine a world in their mind in which people are equal. This is not the real world with its rich diversity, so they often try to make that real world behave like the imagined one. In doing so they sacrifice the freedom that enables people to live by their own values, and the variety that provides examples we might choose to emulate if we can.
It is not equality we should value, but opportunity. An equal, but static society is less likely to provide people with the chances of fulfillment than one that allows them to advance towards the goals they think worthwhile.
Well, let's face it, they weren't going to give the creators of the euro the Economics Prize now, were they?
I suppose we'll just have to swallow hard and accept it, this award of the Peace Prize to the EU. That's after we've recovered from the fits of hysteria and laughter. Quite by chance the same day the news came though this was said about Owen Paterson:
Paterson's plan for protecting the UK's seas from overfishing was widely praised by environmentalists as "having its heart in the right place", but was founded on an impossible unilateral withdrawal from the European Union's fisheries policy.
Paterson's plan was drawn up with heavy input from Richard North, of the EU Referendum blog. Further, it was based on an impeccable understanding (no, no, I did not aid them, they managed to get it right on their own) of the basic problem of fisheries. Which is Hardin's oint about open access commons. Simply, when demand for the resource exceeds the regenerative capacity of that resource then access limits must be imposed. In theory it could be either regulation or pricate property rights. In practise, it depends: and we've tried the regulation for 30 years now and it ain't working. Time to move over to those private rights which have been shown to work in every fishery that they've been applied to.
Excellent, we've a real plan to solve a real and agreed problem and the reason we cannot do it is: the bureaucratic structure we are tied into. Even though the plan is correct in theory and has been tried in the real world and it works there and we cannot do it because of the EU.
Still, at least they didn't offer the Economics Prize to the creators of the euro, eh?
The most astonishing economic change going on around us
Almost at random from my RSS feed two little bits of information that tell of the quite astonishing economic changes going on around us at present. The first, that the world is now pretty much wired:
According to new figures published by the International Telecommunications Union on Thursday, the global population has purchased 6 billion cellphone subscriptions.
Note that this is not phones, this is actual subscriptions. It's not quite everyone because there are 7 billion humans and there's always the occasional Italain with two phones, one for the wife and one for the mistress. But in a manner that has never before been true almost all of the population of the planet are in theory at least able to speak to any one other member of that population. The second:
The most recent CTIA data, obtained by All Things D, shows that US carriers handled 1.16 trillion megabytes of data between July 2011 and June 2012, up 104 percent from the 568 billion megabytes used between July 2010 and June 2011.
Within that explosive growth of basic communications we're also seeing the smartphone sector boom. Indeed, I've seen figures that suggest that over half of new activations are now smartphones, capable of fully interacting with the internet.
One matter to point to is how fast this all is. It really is only 30 odd years: from mobile telephony being the preserve of the rich with a car battery to power it to something that the rural peasant of India or China is more likely to own than not. Trickle down economics might have a bad reputation but trickle down technology certainly seems to work. The importance of this event is very difficult to over-estimate. There has been good and solid research showing that an increase in 10% of the population having a mobile phone (the simle, not smarthone kind) boosts economic growth by 0.5% of GDP each and every year. That's the power of being able to communicate about prices, supply and demand, in an economy where there is no landline network and thus no swiftly efficient market.
The second is that smartphones are moving even faster than simple mobiles. It's been shown that the smartphone is the fastest to be adopted technology ever: all the way from fire and agriculture to cars and computing. They are, after all, only a decade or, if you mark it from the iPhone, only 5 years old. The two together, what I think is the obvious likely position in a decade or so, of near everyone, rich or poor, having access to both communications and the store of information that is the internet is going to rather change things.
But not, perhaps, all that noticeably. I'm not expecting revolutions, just slight and incremental increases in the efficiency with which things get done. These will be greater in those places without comms systems until recently, greater where there is less access to knowledge. In the poor places that is. But effects there will indeed be and they will be cumulative. That's the thing about cumulative changes though. 0.5% of GDP might not seem like much but if half a population have phones then GDP doubles every generation, every 30 years or so, from this one single cause alone.
My expectation is that by the time I reach my scheduled check out time the world will be a much richer and better place. And all because people can chat to each other: ain't that great?
The problem of BBC bias
The Chairman of the BBC Trust, Chris Patten, has launched an enquiry into impartiality in BBC news reporting. It should be noted that the BBC controls 60% of the broadcast news audience in the UK, which makes a mockery over any fears that Sky might pose a threat to competition in the market. The BBC is required by its statutes to adhere to impartiality in its reportage. This position is reinforced by the requirement that all broadcasters in the UK present impartial views on news. Clearly this presents some serious issues for freedom of speech; it allows politicians and bureaucrats to have general oversight over the content of news broadcasts as they are in a position to arbitrate what constitutes impartiality.
Most on the 'right' accuse the BBC of a 'liberal' bias - that is socially liberal and economically interventionist. In this article, Prof. David Miller suggests that the BBC is not necessarily liberal but instead takes 'establishment' views. According to this viewpoint, the BBC's reporting holds views on immigration or Islam which are markedly illiberal. We Classical Liberals will laugh at this absurdity - this simply means that none of the BBC's views are worthy of the name Liberal at all, but this is unsurprising from what is essentially an organ of the state (although not any particular government). What would be more remarkable would be if the BBC were biased towards free enterprise and economic laissez faire, however, this would make the BBC no more acceptable to Classical Liberals.
Miller argues for an independent enquiry - although one doubts that this would make any substantial difference as it would, of course, be led by a member of the establishment. On the other hand, it strikes one as slightly absurd to think of there being 'an establishment' which has one homogeneous set of views - Prof. Miller is guilty of reification, as indeed am I by referring to the BBC as having a view. The Archbishop of Canterbury and a member of the Conservative Party Free Enterprise Group are both members of the 'establishment' but they have very different views. That said, I do agree that there is a prevailing set of étatist views which dominate most opinion in the UK and the bulk of BBC output is certainly in line with that.
I would suggest that it is the function of these enquiries to find that the BBC is somewhat biased towards certain positions and to offer some mild programmes for how to ensure impartiality. I would be pretty surprised if it found that the BBC was wholeheartedly neutral, not only because it is not, but because that would lessen the apparent impartiality of the enquiry itself! On the other hand, it would be surprising to hear that the BBC's news broadcasting is rotten to the core, as this would suggest that the organisation is in breach of its statutory duties. It would be a brave enquiry, internal or external, which took such a position.
To my mind, the whole impartiality debate is entirely misleading and that, of course, is the point. I would argue that it is impossible for news reporting to be impartial and it is impossible for any enquiry to assess impartiality. No amount of study or research could possibly discern the motivations and detect the subtle sins of commission and omission which such assessment would require. Moreover, such researchers would necessarily have their own bias . Rather more abstractly, it is impossible for any human being to be impartial in a field so complex, diverse and unfalsifiable as human social activity i.e. 'the news' - only an omniscient god could make such a claim of knowledge.
This realisation should not lead us into some postmodernist nihilism; it simply means that we require pluralism and freedom in our media so that we can select that position we believe to be most accurate, not have it selected for us (as mentioned above and here it is clear that the BBC also presents a threat to media plurality and undermines competition). This does not mean that organisations should not strive for impartiality, but that they will not achieve it. The problem, therefore, is not that the BBC might be biased but that we cannot tell whether it is biased or not. Or, rather more simply, the BBC must ipso facto be biased.
Naturally, every news outlet must be biased, even one which claims impartiality. In a free market, this presents no problem as there is plurality; one pays one's money, one takes one's choice, as with newspapers or internet media where competition thrives. We all know that the Telegraph tends to the right, the New Statesman to the left and the ASI Blog to logical and sound positions. The BBC is different as it is funded by a forced public levy (find out what happens if you don't pay) - but as a publically funded organisation it cannot be allowed to be partial. But hold on, I hear you cry, have we not just observed that it is impossible for any human being or organisation to be impartial? Well then, the only logical and sound position is that a publically funded organisation should not broadcast news.
Tweet of the day
The Nobel prize is sufficient to fund the EU agricultural policy's destruction of food markets and third world countries for 14 minutes.
— Johan Norberg (@johanknorberg) October 12, 2012