So here's another lefty myth taking a pummelling

I thought that this was an interesting little snippet of news:

World food prices fell in January to a 19-month low, as costs for everything from sugar to grains slid amid ample global supplies, the United Nations’ Food & Agriculture Organization said. An index of 55 food items dropped to 203.4 points last month from 206.2 in December, the Rome-based FAO wrote in an online report today. The index is down 4.5 percent from a year earlier and is at the lowest level since June 2012.

This is excellent news of course for it means that we're all richer. However, it does rather beat up one of the myths that those on the left have been promulgating over recent years. Here's the absurd grotesques over at the World Development Movement on the subject:

Banks are earning huge profits from betting on food prices in unregulated financial markets. This creates instability and pushes up global food prices, leaving millions going hungry and facing deeper poverty. In January 2014, after four years of our campaign, the EU agreed to introduce new rules to prevent hedge funds and investment banks from driving up food prices.

Do note that those new rules aren't actually in effect yet, let alone resonsible for the falls in food prices.

The WDM's basic claim was that the more speculation there is in futures markets then the higher prices will go. As anyone with any knowledge at all of markets has pointed out, futures markets can only affect spot prices if stocks are rising. When food prices were indeed rising we did see an increase in futures speculation, indeed we did. However, we did not see an increase in stocks: therefore it cannot have been the futures pricing that was driving the spot prices.

We've also not seen a fall in the amount of money being used to speculate in food prices: nor a reduction in the number of trades. But we are indeed seeing food prices fall.

At the end of which there's really nothing left of the case that financial speculation in futures markets increases spot food prices, is there?

No doubt they'll think up some other phantastical claim soon enough though.

Economic freedom makes you fat

A fascinating little finding from the WHO: economic freedom makes you fat:

In line with previous research, our study shows that countries adopting what are considered market-liberal policies experience faster increases in both fast food consumption and mean BMI. These results are in accord with previous research showing that more stringent trade restrictions – including better protection of agricultural producers – the frequency of price controls and stricter government regulations46 are negatively correlated with obesity.

And what are we supposed to make of this? No, it's not because they've included poverty stricken hell holes like Cuba or North Korea. It's OECD countries only they've studied.

Well, what I make of it is that clearly people desire to consume fast food and are happy enough to end up a bit porky as a result. And as that's what people desire to do what damn business is it of anyone else to prevent their doing so?

For look at what it actually is that they're saying. In those places where people are free to open up fast food joints the citizenry appear to like, enjoy even, consuming the produce of those joints. Assume that all of their calculations are indeed correct and that both this is true and also that this leads to lardbucketry. Excellent, since the aim of this whole economics thing is to maximise the possibly utility of the populace then we seem to have found a method of doing so. That is, maximise economic freedom and then let people do as they please.

Which is, of course, what is being done. That people use this freedom in a manner that certain prodnoses don't approve of makes no matter. For the utility we're trying to maximise is that of the populace not the prodnoses.

If a regular hamburger or two makes you happier, despite or because of that extra 20 lbs you carry as a result, great, you're happier and that's the whole point of this economic freedom thing. And as revealed preferences tell us, if people didn't enjoy these sorts of things then their greater economic freedom would not lead to their doing them.

So, all in all we should thank the WHO for revealing this truth to us. In precisely those places where people are able to consume as much fast food as they would like to they do so. Those attempting to stop people exercising their own choices and desires in such a manner are therefore, by definition, illiberals.

What's really wrong with the economy: bureaucracy

Allow me to tell you what's really wrong with the economy these days: it's the bureaucracy, stupid!

Now that little video may well have been made as a jokey ad and there's some doubt as to whether a drone would be able to carry that weight. But ever since that little joke went viral guess what's happened? Yep, the company has been told to shut down the operation:

His drone successfully delivered 10 bottles of beer to a fishing hut on Mille Lacs Lake in Minnesota. However posting a video onto You Tube boasting of his initiative served only to attract the attention of the FAA, which currently bans the use of drones for commercial purposes. It has instructed the brewery to stop its airborne deliveries, to the disappointment of customers who have made a plea for a change of heart on the White House website. Current federal laws limit the use of drones for recreational purposes and they must not fly over populated areas.

Now that there should be some regulation is just fine with me. There has actually already been one death when the rotors of one craft cut the throat of a passer by. But this is what enrages:

The FAA is redrafting the regulations, but the commercial use of drones is unlikely to be allowed in the USA until 2017.

The process started last year: so that will be 4 years just to get those regulations drafted. And really, this just won't do. For economic growth is all about, is based upon, how quickly we can adopt new technologies. It might be to do new things or it might be to do old things in a more interesting or efficient manner, but it really is the adoption of new technology that drives the whole thing forward and thereby makes us all richer. A four year dealy while the bureaucrats scribble on pieces of paper is something we just shouldn't be willing to put up with.

After all, it's not a particularly difficult task, is it? Should we allow drones to slice peoples' heads off? Y/N?

If N are there drone designs without exposed rotors? Given that the answer there is Y the only other question would be what level of insurance should we insist that commercial operators have?

There, that wasn't so difficult to do and if I can do it in five minutes then what on earth is the bureaucracy doing taking four years over it? Waiting for their pensions to mature or something?

And yes, of course this is a fairly trivial example. But what people outside the entrepreneurial world don't seem to understand is that almost every new product and or service is being subjected to the same regulatory delays. And that really is having an effect in slowing down the growth of the economy.

I'm perfectly willing to agree that there are areas of life that do indeed need regulation. But could we please note that we don't need regulation of all aspects of life and further, where we do indeed need it can we get these things settled in a timely and efficient manner? Not doing so is needlesslyh making us all poorer than we need to be.

Let me Google that for you

Google is being targeted by protesters angry about the rapid increase in the cost of living in San Francisco. Their complaint focuses on Google's employee shuttle buses using municipal bus stops, but the real problem seems to be that well-paid Silicon Valley workers have driven rents up in the city. In City AM I argue that this is much more likely to be to do with planning controls restricting the supply of housing, and that government is to blame:

It comes down to supply and demand. As the Cato Institute’s David Boaz has noted, San Francisco’s strict planning laws have made it much more costly to build new housing to meet rising demand. Zoning laws restrict the construction of higher density buildings on the city’s limited land mass. Median rents are now the highest in the US. Over the past ten years, the city’s population has risen by 75,000, yet the number of housing units has increased by just 17,000. Paradoxically, rent controls that apply to some parts of the city are probably making things worse – those who live in rent-controlled housing may be OK, but there is no incentive to build more.

The parallels with London are obvious. Read the whole thing.

Edapt in Education

Michael Gove's battle against  "the blob" rumbles on. Not only is he in the firing line over Ofsted appointments, but the NUT is set to announce the date for more teaching strikes on Friday. Cue the cheers of solidarity from some sources, and lofty dismissals of leftist militarism from others.

Though the saint-sinner dichotomy makes for easy reporting, the real relationship between teachers, politics and the unions is more interesting. Despite falling membership across other sectors, teaching remains a highly unionized profession. Teachers also report high levels of satisfaction with their union experience. Despite this, turnout for voting on industrial action is often low, and 44% teachers told a LKMco study that the right to strike isn't important to them.

Instead, the most frequently-given reason by teachers for union membership is access to legal advice and support. With 1 in 4 teachers experiencing a false allegation at some point in their career, the expertise and advice a union offers in times of dispute is also cited as the most valuable service they provide.

Given the structure of employment law and the difficult nature of dealing with children, it is no wonder that teachers value this support. However, there's no reason why affordable expert advice should have to be bundled with a political agenda. Indeed, a quarter of teachers said that they'd rather not belong to a union if a good alternative existed. At a CMRE seminar last week John Roberts outlined the model of his company Edapt, a for-profit, teaching union alternative established in 2011. Edapt offers the legal advice and representation teachers seek, without engagement in political bargaining and lobbying. Instead of trading blows with governments they can focus on delivering quality employment support to their members. Many members approached Edpat with a pre-existing issue and unsatisfied with their union's response, whilst Roberts boasts of Edapt's 99% satisfaction rate.

Obvioulsly, this model would not be for everyone. Many teachers still consider collective bargaining an essential tool, and Edapt is small fry compared to the unions. Not all teachers are comfortable playing politics, however, and inter-union competition for members can encourage more politically aggressive strategies. Recent strikes have polarised teachers, with Edapt growing most quickly around times of industrial action. Further strike action could lead to another surge of teachers uncomfortable or simply exasperated with their union's actions.

No matter what causes people to join Edapt, political neutrality is crucial for its long-term success. It's ironic that eschewing sector politics can look ideological, but a 'non-union' is easily seen as an 'anti-union'. Gove might have made this mistake himself in inviting Edapt to reform discussions last year. And, tellingly, his endorsement of the Edapt as a ‘wonderful organization’ actively lost them members.

Time will tell just how successful union alternatives can be. If Edapt can prove that it isn't ideologically driven and its focus is right, the model might have relevance in other sectors and across countries. With only 25% UK workforce unionised, there might be scope to offer services to people who wouldn't have considered joining a union. Either way, with 48 hours of tube strikes starting tonight, I bet TfL wishes that there were more union alternatives within public transport.

Just why are we ruled by these people?

The 2020 Conservatives group used Laura Sandys MP to write a report on how we should all reuse stuff much more so that we're a much richer nation. And my question to that group is why?

Why did you have written and then release a report that shows your misunderstandings of how the economy works? Wouldn't it have been better to write one on a subject you do understand?

I managed to get hold of a copy (it's not on the 'net as far as I can see) and it's somewhat painful to read. There's the pretty much standard now view that we're all about to run out of minerals, an obvious fallacy if there ever was one. This leads to the insistence that we must all recycle more and this will make us richer:

The UK spends £1 billion a year in landfill costs just to dispose of plastics, wood, textiles and food - and in the process destroys these valuable commodities41. If a landfill ban was introduced just on these products and materials, £1 billion worth of costs would be avoided and a further “£2.5 billion [of] value” would be recovered42

Those two references, 41 and 42, are to something from the Green Alliance....where Mariana Mazzucato is a trustee which isn't all that comforting. But the obvious point here isn't tackled: if all this value is currently being dumped into holes in the ground why isn't anyone trying to make money out of it? We've been running scrap and rag and bone operations for many centuries in this country already and if there really was £3.5 billion of free money available then someone would be doing it and providing themselves with hot and cold running Bentleys.

That they're not shows that there's something wrong with this basic calculation: sure, landfill might cost £1 billion (much of that being the Landfill Tax) and OK, I'm willing to believe that the materials, when processed, could be worth £2.5 billion. But the reason it's not being done is obviously that the process of not landfilling the materials and processing them instead costs more than £3.5 billion. There's also an estimate that such recycling would lead to 300,000 new jobs. Given that the pay cannot be greater than the value being created that would imply wages of £12,000 for each of them even if we believe their number for said value created. We're really going to make the country richer by creating jobs at about half of median wage? It seems unlikely, doesn't it?

But there's a part that provides me with little hope:

For those of us who come from a business background, it is always surprising that government rarely considers the profitability of the UK economy. Currently the vast majority of political discourse and macroeconomic analysis centres on GDP, but a business would never focus on the top line and ignore the bottom line – businesses focus on profit rather than turnover for good reason. In the commercial world and across the economy ‘margin’ and ‘profitability’ are given equal consideration to ‘sales’, yet this is not reflected in public policy discourse.

As UK policymakers do not currently focus on profitability, there are few policies in place that truly support margin enhancement. This is illustrated by the fact that there is no mention of the words ‘profit’ or ‘profitability’ in BIS’ Business Plan4.

I had hoped that this was simply clumsy phrasing but the same point is made in interviews about this plan:

The modernisers also call for a rethink away from what Sandys calls the "British Leyland" mentality, which says that the strength of an economy is measured solely by Gross Domestic Product (GDP) – the size of an economy. "We are going to have to look at what we are really achieving and not what I call British Leyland metrics," Sandys said. "British Leyland produced a lot of cars. It had a lot of GDP. Nobody wanted the cars but nobody seemed to care.

Oh dear. Ms. Sandys seems to believe that GDP measures the turnover in the economy. Erm, no: it measures the value added in the economy. The clearest expression of this is when we look at it from the income approach: what everybody earns, wages, salaries and profits, equals (with a couple of minor adjustments) GDP. It simply is not true to say that GDP is composed of, nor measured by, the turnover of companies. BL's contribution to GDP was the wages it paid to its workers minus the losses that it made: something which could conceivably have meant that BL actually reduced GDP given the scale of its losses at times.

Now I'm perfectly happy for people to come up with proposals to make things work a little better. But I would hope that those doing so demonstrate that they understand how things currently do work. And equating turnover to GDP is a signal that they very much don't here.

And then there's the part that near kills all hope:

Why do we only think of labour productivity?

For the obvious reason that labour productivity is what determines what it is possible to pay labour. And our aim in this whole economy thing is to maximise the living standards of the people which is why we concentrate on raising labour productivity so that people can earn more and thus have more nice things.

Please note that this isn't an ideological or political assault here. It's a commentary on the point that the people presuming to tell us how the country should be run don't have a firm grasp on that real world they want to direct. Which isn't likely to lead to a decent outcome really.

Apparently the UK is in the grip of a house price fairy

I'm afraid that I rather spluttered into my fry up this morning reading this piece of absurdity in The Guardian:

Cable calls for a new house-building programme, but in truth this is a nonsense when the market dictates prices, and always will. You can build 300,000 new homes a year, as the Lib Dems want, but you can't stop those homes putting on value to a point where the people for whom they were built can't afford them.

I'm sorry, what? Does Melissa Kite think that the market is some sort of pricing fairy that decides that house prices are always going to be high?

As opposed to "the market" being the balance of supply and demand for goods and services? So that if we increase the supply while demand stays static then we expect prices to fall?

Good grief: housing completions are running at around 120,000 a year at present. If we were to have 300,000 a year then prices may or may not be lower or higher than they are now: that depends upon a host of other factors like interest rates, real wages, immigration levels and so on. But if 300,000 houses were indeed being completed each year then they would most certainly lower than if only 120,000 were a year.

The real absurdity here is that Kite is, as many lefties do, reifying "the market" in a manner that we free marketeers know we shouldn't. It's not something separate from the interactions of the rest of us: it is the interactions of us all. And that means that if supply rises then prices will, ceteris paribus, fall. And thus, if you want to lower house prices one should try to build more houses.

Or, as I've pointed out passim ad nauseam, given that the most expensive part of a house anywhere anyone wants to live is the chitty granting permission to build a house there one should issue more such chitties.

And here's another problem with the climate change debate

This article by Michael Mann is an interesting example of something that has gone wrong with the climate change debate. For what we're getting is people who claim expertise in one part of the problem insisting that said expertise gives them power to determine what should be the answers to other parts of said problem.

As ever, let's not get into the shouting match about the science being all wrong. Let us just, for the moment, accept what the IPCC tells us. Yes, even including Mann's hockey stick:

I have made my position on the Keystone XL pipeline quite clear. Approving this hotly debated pipeline would send America down the wrong path. The science tells us now is the time that we should be throwing everything we have into creating a clean 21st century energy economy, not doubling down on the dirty energy that is imperiling our planet. Now that the State Department has just released a final environmental impact report on Keystone XL, which appears to downplay the threat, and greatly increases the odds that the Obama administration will approve the project, I feel I must weigh in once again.

Erm, why must you weigh in again? You're a climate scientist. You work on temperature reconstructions. What on earth do you know about the economics of the oil industry?

And that's what our problem is here. Again, leave aside whether you believe Mann's science or not. Let us just, for the sake of argument, accept it for the moment. Excellent: so he's identified a problem, one that we should think carefully about. The same could be true of all sorts of people who have contributed to the IPCC reports. But the climate scientists are not the people we should be listening to on what we do next. For they've no expertise, not even any knowledge, of the subject that is crucial to what we do actually do next.

Economists know a great deal about what we should do next: Stern, Nordhaus, Greg Mankiw, in fact a goodly portion of the entire profession, would say that you whack on a carbon tax and you're done. Things like pipelines will then be controlled by whether they can carry the cost of that tax or not. As it should be: we've stuck our oar into the price system over an externality and can leave the market to sort out the impications. Even James Hansen has got this message.

OK, you might not like that answer either: but it is at least coming from people with qualifications in the relevant field. Asking Mann what we should do about climate change is as odd as asking an economist to do paleobiology: not just a waste of time but something highly likely to come up with the wrong answer.

And I do insist that this is a particular example of a larger problem. Being able to decipher what cloud cover does to temperature does not make one an expert in how to change the behaviour of human beings. That how cloud cover changes temperature is a building block of our knowledge of whether climate change is a serious problem or not is entirely true. But that simply doesn't mean that being able to pronounce with confidence on the one subject offers any insight at all into the second.

As you all know I'm perfectly happy to leave science to the scientists (and yes, I know many of you disagree). But I do insist that whether there is a problem is a different question than what we do about it if it is. And it requires entirely different skill sets to answer that second.

The people we ought to be listening to about what we do are the economists: assuming we believe what the climate scientists are telling us in the first place.

By the way, the economists and the engineers have spoken on Keystone XL now. It's not going to make any noticeable difference to emissions because those Canadian sands are going to be developed anyway.

It is the strange task of economics

The usual second part of that phrase is that economics shows us what we don't know. But in this case it is in fact to tell us what we do know:

An infant school has launched a new crackdown on parents who pick up their children late from school - by fining them £6 if they turn up more than 15 minutes late. Germander Park School in Milton Keynes wants to discourage parents from treating it as a 'childcare provider' by charging whenever it has to look after pupils outside school hours.

Ah, no, that won't work. On the basis that humans are contrary beings:

In an example made famous by Freakonomics, when parents at an Israeli kindergarten were fined a small amount for showing up late to collect their children, their punctuality actually declined.

Because if we're paying for baby sitting anyway then why not take advantage of the babysitting?

Or, an alternative explanation was that the social pressures of not imposing upon the staff were stronger than the monetary fine. Once the fine was introduced those social pressures lost much of their force.

However you want to explain the finding is one thing: that the result is there is another. Charging parents for being late is likely to make more parents late: and also to make those parents who are late later. For once you've incurred the fine why hurry?

Then again perhaps we shouldn't be all that surprised by this. No one has ever found evidence that the British school system is over burdened with those who understand economics.

We free marketeers have a problem here

This is something of a facepalm moment:

When he vented his frustration about holiday prices shooting up during the school half-term break, Paul Cookson struck a chord with other parents. His rant to 250 Facebook friends quickly went viral as outraged parents shared his post about rip-off prices 143,000 times. Now the issue may even be debated in Parliament after more than 100,000 signed an online petition calling for the Government to curb prices.

Err, yes, access to the fixed supply of something may well be more expensive when more people want to gain access. It's that supply and demand thing in action. There are alternatives of course: it could be that the favoured children of party apparatchiki gain access. There have certainly been times and places where that was the allocation method. There could be queueing, there have been times and places where that has been used too. But of all the different methods that have been tried rationaing of something like this by price has ended up being the best one.

That isn't to say that rationing by price is always the best method: I'd not be happy with justice being so allocated for one. But the chance to sit in the chlorinated water someone else's baby has just passed through? Sure, ration by price.

But as we can see there appear to be at least 100,000 of our fellow citizens who don't agree. I am reminded of Bertoldt Brecht's point about the first East German elections: perhaps we should try to elect another people who do get this market economy idea.

It also reminds me of something I saw the first year after food price rationing ended in Russia. Eggs are painted for Easter, there as here, and one old grandmother couldn't understand why they became more expensive just before Easter. "Why are they more expensive just when everyone wants them?" If you don't get the basic answer to that one then the operations of a market economy are always going to mystify you. She had an excuse: she'd lived her entire life under a system that was not a market economy. Quite what the excuse of those 100,00 Brits is I'm not sure. They'd all understand instincitively why pay goes up on Christmas Day. Because that's the day that absolutely everyone wants to have off. That they can't make the leap to why holidays might be more expensive in holiday time mystifies me.