We like Roger Bootle, we do, but we think he's being unduly optimistic here

The thought that perhaps the next Prime Minister might have a sound knowledge of economics is a comforting one. But we fear that this isn’t in fact the problem. Rather, it’s not the knowledge, it’s the incentives:

Now that the search for a new Prime Minister is under way, after the disasters of the last couple of years it is worth reflecting on how important it is that Mrs May’s replacement has a sound grasp of economics.

History gives a mixed message. Mrs May herself was not burdened with an understanding of economics, nor much interest in it.

The thought that someone who knows their economics will be better is that comforting one. But then Karl Marx knew his economics - he lifted an awful lot from Adam Smith after all - and other than John McDonnell few think he’d have made a good Prime Minister.

The problem, we fear, being not the knowledge of the subject but the incentives faced by an elected politician. In order to keep the job it is necessary to win the next election. That means that the useful time horizon is never more than 4 and a bit years, on average is around two. Given that either fiscal or monetary policy take a couple of years to make a difference this is problematic. It’s obviously worse when we move to microeconomic matters where misrule might take a decade or two to turn up.

It’s easy enough to gain electoral favour by announcing some measure of spending here or there. The effects of the collection to fund the spending turning up only after that period of time.

That is, a system whereby our money is spent by those who must regularly appeal to the mob produces the wrong incentives for those rulers.

No, this is not to say that democracy has thus failed - an undemocratic regime faces exactly the same problems of panem et circences as we can observe around the world. The answer is to structure the system so that we move from St Milton’s fourth method - spending other peoples’ money on other people - to the first, we spend our own money on ourselves. That’s actually useful knowledge of the heart of economics and we might indeed hope that the next PM grasps that point.

Habeas corpus and the protection of liberties

340 years ago on this day, May 27th, 1679, the Habeas Corpus Act passed and became part of the laws of England. Designed to safeguard against illegal detention, it requires a detained person to be produced before court in order to ascertain if the detention is lawful. Witnesses will be required to establish this before the detention can be continued. Meaning “you have the body,” it names a person and requires the authorities to bring them before a court, thereby ruling out their ability to continue to imprison them in secrecy.

Along with Magna Carta, the Petition of Right and the Bill of Rights, habeas corpus is regarded as one of the landmarks along the road that led to the establishment of English liberties and the limits of untrammelled state power against them. These were rights that limited the power of the power of the state, then expressed in the hands of the monarch, to encroach arbitrarily on the liberties of the subject. These rights were not granted graciously by authority, nor were they natural rights deduced from something inherent in people’s nature, nor even were they derived from some ancient social contract alleged to have been made in primitive times. Instead they had evolved from the traditional ways in which tribes and societies had recognized that leaders had obligations to their fellows and followers, as well as authority over them.

Spiderman’s uncle famously said, “With great power comes great responsibility,” implying that those with power have a moral obligation to exercise its use with discretion and restraint. This is not the English tradition. It relies not on moral restraint, but on limits set by laws. Those in power are restrained, not because they are virtuous, but because they come under laws that protect every one of those subject to that power from its arbitrary use.

In Robert Bolt’s “A Man for all Seasons,” Thomas More is asked if he would give the devil himself the protection of English laws, and replies that he would.

“This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down, and you're just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake!”

It expresses the view that it is laws and institutions that protect our liberties, not because we choose wise and virtuous leaders, like Plato’s philosopher kings, but because we restrain them. These rights have been codified over time in acts like Habeas Corpus, but they were not established by those acts, just confirmed by them. When the Founding Fathers in America objected to arbitrary acts imposed from a distant colonial ruler, they wanted to preserve their established rights, not to seek new ones. One of their number, George Mason, stated that "We claim nothing but the liberty and privileges of Englishmen in the same degree, as if we had continued among our brethren in Great Britain.”

Habeas Corpus was an important landmark in the honourable tradition of confirming established liberties in law, and in bringing authorities under legal obligation to respect them.

If only Will Hutton understood what he's talking about

The Will Hutton solution to British Steel is obvious of course. Remain, government subsidy, sunlit uplands. This being the Will Hutton solution to everything.

However, such Olympian solutions always do suffer from those little technical problems, don’t they? That being why government subsidy directed by newspaper columnists is a less than wondrous solution. Here Hutton tells us that British Steel will be -= or could be, should be - saved by decarbonised steel:

What’s more, the company’s vital reinvention – around making decarbonised steel, say – and a general revived manufacturing industry requires a purposed industrial strategy on a much larger scale than what we have.

What’s being missed there is that we know how to make decarbonised steel. It’s easy. And we do a lot of it:

Blast furnaces such as the one at Scunthorpe make steel from scratch and, once shut down, are more or less impossible to replace. Greener, less energy-intensive electric arc furnaces, of which the UK has four, can make steel by recycling scrap.

Run your arc furnace off renewables created electricity and you’ve decarbonised steel production. It’s also nice and cheap to do so. Which is why we do do so. Decarbonising a blast furnace isn’t really an option for we’re looking for the chemical reaction between the carbon in the coal and the iron ore as well as the energy produced by the combustion.

Which is precisely British Steel’s problem. It runs a blast furnace. The old technology we need very much less of these days. Precisely because the hippies have won, we recycle much more. And, pace Will Hutton’s plans, we do produce decarbonised steel. It’s just that to do so we don’t need a blast furnace.

The entire problem over Scunthorpe is that we’ve already done what Hutton demands. Which is probably all we need to know about the wisdom and perspicacity of Willy Hutton’s demands, isn’t it?

Venezuela Campaign: Cartel of the Suns

When a criminal cartel takes hold of a state like Venezuela, it poses a difficult challenge for the international community.

The main focus of Maduro’s regime is personal enrichment for its leading members – mainly through crime. Outright drug smuggling is a huge source of revenue for the regime. The cabal of ministers and generals who control it are known as the ‘Cartel of the Suns’, and there is much evidence pointing to top regime leaders’ involvement in the narcotics trade.

Diosdado Cabello, head of the puppet legislature known as the National Constituent Assembly and Tareck El-Aissami, the Minister of Industries, have been sanctioned for their drug trafficking activities. This has been confirmed in leaked Venezuelan intelligence files. Members of Maduro’s own family are currently in prison in the US for cocaine smuggling.

Venezuela is the main source of drugs smuggled into the US and Europe. The quantity of drug flights from Venezuela has been expanding rapidly in recent years, growing from around one flight a week in 2017 to daily flights in 2018, mainly using around 50 runways in the north-western state of Zulia. The value of the cocaine that reaches American streets from Venezuela is around $39 billion. The Maduro regime receives billions for its part in these operations

Another way the regime is siphoning off money into its own pockets is through misuse of a subsidized food programme, known by its Spanish initials ‘CLAP’. CLAP is run by the Venezuelan military through a network of companies owned or controlled by Alex Saab. Saab was appointed to this role by Maduro himself. The US has just announced that it is preparing sanctions and criminal charges against those involved in the programme. Saab himself was indicted this month in Colombia on money-laundering and fraud charges. Prosecutors now say he is also being investigated for laundering money for Colombian drug cartels.

How has this programme been used for corruption? Venezuelan officials sign overpriced, no-bid contracts with suppliers abroad, who send low quality food to Venezuela. Some of it is diverted to the black market. The regime then pays suppliers through a state-owned bank, with overpayments distributed to various bank accounts and into other investments controlled by the conspirators, who have amassed vast quantities of real estate, yachts and airplanes.

Illegal mining in co-operation with Colombian guerrilla groups is another critical means for regime members to cash in. Causing huge environmental destruction, gold is illegally extracted from the Amazonian basin by armed groups colluding with the Venezuelan military. Much of this is laundered through Suriname, a small country ruled by Desi Bouterse, a convicted cocaine trafficker who gained office with financial support from Chavez. The illegal gold is badged as coming from a facility in Suriname called KSMH, a fictional site whose entire purpose is to act as a cover for Venezuela’s strip-mined gold.

Although the Venezuelan oil industry has largely been destroyed by Chavista policies, stealing from the state oil company PDVSA through kickbacks, currency manipulation and other means still continues. Just last year in the US, 12 individuals were convicted of stealing $1.2 billion from PDVSA. Chavistas often cooperate with ‘ideological allies’ in other states in order to facilitate such corruption. One of the original cross-border theft schemes was that of falsified oil sales, started in Chavez’s time. For example, PDVSA owns 60 percent of Alba Petroleos in El Salvador. This subsidiary received virtually no oil from PDVSA between 2010 and 2017 but recorded an income of $1.2 billion over that period. The 51% owned Nicaraguan subsidiary Albanisa did get some oil from PDVSA, but still received funds far in excess of their value, constituting a theft of $4-6 billion.

Both subsidiaries, in cahoots with local Chavista-aligned politicians, then set up and lent money to dozens of front companies – from food production to airlines – which didn’t actually produce anything. Their entire operation consisted of moving money to various havens in Belize, the Cayman Islands and Russia. The debt was then declared unrecoverable.

Recognising that the Maduro regime is actually a criminal cartel has serious policy consequences. Firstly, coming to an agreement with their leaders in which they go scot-free is unlikely to be fruitful, since they will always fear being tracked down and arrested.  Better to convince their underlings to switch sides. Secondly, a robust approach to dealing with the criminals makes more sense. For example, the closure of Venezuelan airspace to stop drug flights is an approach that would cut off another source of regime funds. When it is recognised that we are dealing with a criminal regime, what needs to be done should become clearer.

Jeremy Corbyn at 70

Jeremy Corbyn is 70 years old today. He was born on May 26th, 1949, and has spent his life in politics, rather than in employment in business, industry, services or the professions. His education culminated in two E-grade passes as A-level, and although he began a course in Trade Union Studies at North London Polytechnic, he left after a year without gaining a degree. He worked as a Trade Union organizer before being elected as MP for Islington North in 1983.

Always on the far left, he joined the Campaign for Nuclear Disarmament in 1966 aged 16, and became its vice-president. He opposed Britain's liberation of the Falkland Islands in 1982, describing it as a "Tory plot." Also in 1982, he opposed the Labour Party's expulsion of the Trotskyist and entryist group, Militant Tendency. He favours the UK leaving NATO, and "would prefer Britain to be a republic" rather than a monarchy. He supports a "united Ireland" and has appeared alongside IRA terrorists, one of whom he invited into Parliament just weeks after the Brighton bombing.

He is a member of the Palestinian Solidarity Group, and has shared platforms with those who call for Israel and its population to be eliminated. He was at a ceremony to commemorate the Palestinian murderers of Israeli athletes at Munich, reportedly laying a wreath. He hosted a meeting at which Israel's actions in Gaza were likened to the Nazi holocaust. He contributed a forward to a book that claimed Jewish control of finance enabled them to influence world events, and has himself called for an investigation into "Israeli" influence in UK politics. He describes the terrorist organizations Hezbollah and Hamas as "his friends."

He now supports renationalization of leading industries, including energy, and advocates raising the youth minimum wage to the adult level. He has vast spending plans, including the abolition of student fees and student debt, to be financed by raising taxes, increasing National Insurance, and by inflationary increases in the money supply. He lauds what has been achieved in Venezuela.

His career and his attitudes have given rise to a popular joke:

A Communist, a terrorist supporter, and an anti-Semite walked into a bar. The bartender said, "Hi, Jeremy. What can I get you?”

He himself may be a joke, but one in very questionable taste, and he is by no means popular.

Why we shouldn't believe a word of Philip Alston's UN report on poverty in the UK

Philip Alston is the UN’s special rapporteur on extreme poverty. He’s done a report on poverty in the UK. A report that we simply shouldn’t believe a word of. Including any use of then words “and “, “or” and the like. For it actually is pretty terrible. Not that the headlines discussing it point this out but you know, any stick to beat with.

The report is here.

The bottom line is that much of the glue that has held British society together since the Second World War has been deliberately removed and replaced with a harsh and uncaring ethos. A booming economy, high employment and a budget surplus have not reversed austerity, a policy pursued more as an ideological than an economic agenda.

A budget surplus? ONS doesn’t think so. Even The Guardian doesn’t think so. Nor does Spreadsheet Phil:

As a share of economic output, the deficit fell to 1.2 percent, its lowest since the 12 months to March 2002 and down from nearly 10 percent during the depths of the global banking crisis a decade ago, the Office for National Statistics said.

Following publication of the figures, Hammond said the government looked on track to meet its goal of reducing overall government debt levels as a percentage of the economy by 2021 and keeping the core budget deficit below 2 percent.

A deficit of 2% of GDP is not a surplus. And this is the level of accuracy throughout the report. You know, not accurate at all.

The United Kingdom, the world’s fifth largest economy, is a leading centre of global finance, boasts a “fundamentally strong” economy and currently enjoys record low levels of unemployment. But despite such prosperity, one fifth of its population (14 million people) live in poverty. Four million of those are more than 50 per cent below the poverty line3

Footnote 3 is this:

Social Metrics Commission, A New Measure of Poverty for the UK, September 2018, p. 97

Which leads to this. Which is an entirely new method of measuring poverty, one entirely made up by a self-appointed group of possibly worthies. You know, maybe not a useful method of measuring poverty and most certainly not an official one.

and 1.5 million experienced destitution in 2017, unable to afford basic essentials.4

Destitution, eh? Footnote 4 is this

Suzanne Fitzpatrick and others, Destitution in the UK 2018, Joseph Rowntree Foundation, pp. 2–3.

Which leads here.

Which describes destitution as being:

Definition of destitution People are destitute if: a) They have lacked two or more of these six essentials over the past month, because they cannot afford them:  shelter (have slept rough for one or more nights)  food (have had fewer than two meals a day for two or more days)  heating their home (have been unable to do this for five or more days)  lighting their home (have been unable to do this for five or more days)  clothing and footwear (appropriate for weather)  basic toiletries (soap, shampoo, toothpaste, toothbrush). 3 To check that the reason for going without these essential items was that they could not afford them we: asked respondents if this was the reason; checked that their income was below the standard relative poverty line (ie 60% of median income 'after housing costs' for the relevant household size); and checked that they had no or negligible savings. OR b. Their income is so extremely low that they are unable to purchase these essentials for themselves. We set the relevant weekly 'extremely low' income thresholds by averaging: the actual spend on these essentials of the poorest 10% of the population; 80% of the JRF 'Minimum Income Standard' costs for equivalent items; and the amount that the general public thought was required for a relevant sized household to avoid destitution. The resulting (after housing costs) weekly amounts were £70 for a single adult living alone, £90 for a lone parent with one child, £100 for a couple, and £140 for a couple with two children. We also checked that households had insufficient savings to make up for the income shortfall.

The problem here is that they’re measuring incomes according to something higher than that normal relative poverty measure of 60% of median household income. Instead, they’re using their own higher estimate, the one that leads to the living wage numbers. Apologies, we got bored checking footnotes at this stage, the point being we think well made.

And yes, it gets worse than that. If we plug that £70 a week number into the global income distribution then we find that this apparently abject destitution is in the top 25% of all such global incomes. Note that this is the post housing paid for income, while that global number is a pre-housing one. Adding in a modest £100 a week for housing costs puts that destitution level up into the top 16 or 17% of global incomes. And that’s before we even consider the free at the point of use health care, education and so on that the British state provides.

Britain is a place where some have more than others, most certainly. That’s known as inequality. Britain doesn’t actually have any - at all - of what we globally call poverty and it most certainly doesn’t have any destitution. As actually checking the footnotes of Philip Alston’s report shows. Which is why we shouldn’t believe anything the report says.

A good date for space travel

By coincidence, May 25th has been a significant year for space travel in several years. On that date in 1945, Arthur C Clarke (later Sir Arthur) began circulating to his friends a proposal he later published in Practical Wireless. It suggested that TV signals could be beamed down to Earth from satellites in geostationary orbits, 26,000 miles high, so they would match the rotation of the Earth and appear to remain at a fixed point in the sky. The idea later became the basis for Intelsat and its successors.

It was the date on which President Kennedy announced in 1961 America’s goal of “landing a man on the moon and returning him safely to Earth before this decade is out.” NASA achieved that goal five months ahead of the target date. It was a remarkable and ambitious target to set, since Alan Shephard had flown his suborbital flight as America’s first man in space only 20 days previously.

It was on May 25th, 1977, that cinema goers had their minds blown by the premiere of "Star Wars." The movie quickened the pulse and inculcated a new eagerness for space among young and not-so-young people worldwide. It started the franchise that became a cult, filling the screens with adventures of space travel.

And it was also on May 25th, in 2012, that Elon Musk’s SpaceX docked its Dragon capsule with the International Space Station. It was the first private sector vehicle to achieve such an accomplishment, and opened up a new era of private participation in space exploration. Indeed, of the four space anniversaries that took place on May 25th, only President Kennedy’s announcement concerned a public sector event.

Space Travel is far from the "utter bilge" it was characterized as by the Astronomer Royal, Sir Richard van der Riet Woolley, just before Sputnik I was launched. It has proved its importance economically, militarily, scientifically and psychologically since then. The new element recently has been the incorporation of private sector initiatives into developing and testing new techniques, into experimenting with novel and cheaper ways of achieving space goals.

While much public money is spent on space exploration, the increasing commercial use of space means that entrepreneurs will invest resources and effort into gaining increased value from it, value that customers on Earth will happily pay for if it adds value to their businesses and enables them to provide better services to their customers.

Why we don't want to use wellbeing as a measure of national performance

It’s entirely true that there are problems with GDP. It doesn’t measure unpaid labour, or indeed most non-market transactions. It doesn’t detail the distribution of incomes. It is, however, a measure of possibilities. The more value we are creating then the more aggregate income there is that can be consumed. That’s a useful measure in itself.

But there’s a much more important point to it too:

Personal wellbeing rather than economic growth should be the primary aim of government spending, according to a report by the former head of the civil service and politicians.

Launching a report urging a sea change in thinking from ministers, Gus O’Donnell, who served as cabinet secretary to three prime ministers, said Britain could lead the world by making wellbeing the goal of government policy.

The call to unseat growth as the main measure of government success comes as the Treasury gears up for a three-year spending review, due this summer, which has been scheduled despite the Brexit turmoil gripping the Tories.

Wellbeing is an amorphous thing. For example, Bhutan claims to be run on the basis of gross national happiness, something which involves banning tobacco. Many think that entirely right, many others don’t - so we’ve proof that a move to this more subjective measure is going to smuggle in some, well, subjective goals.

Such national wellbeing usually does include such subjective matters too. Most oft mentioned is “equality” as a goal to be pursued. By which is meant not that equality which we fully support, that of opportunity, but of outcome. It will be measure by the likes of the Gini, Theil and other such indices. That is, obviously, to smuggle into our definition of the good life entirely subjective definitions of what that good life constitutes.

Which is to end up with that crowning glory of GDP as a useful target or measure. It’s objective. It isn’t subject to varying interpretations, it’s a plain number that we can observe. Which is why, if we’re to have a measure of our success at all, it’s so useful. And presumably why those who are judged by it would prefer something else.

“Leaving? Didn’t know you’d started”

I think I’m leaving the Adam Smith Institute. But nobody leaves. Ever.

But Ananya, what do you mean nobody leaves? Ever? Is this a case of indentured servitude? Well, not quite.

Today is sadly my last day at the ASI. And unlike other people who have left their jobs today (ahem, Theresa May. Ahem, the goddamn First Lord of the Treasury herself) I have had a wonderful time.

What is most striking, yet perhaps also unsurprising, is that what you learn at the ASI, they really don’t teach you these things at school (hint - there isn’t actually a difference between port and policy). The gap year internship scheme run by the ASI is truly invaluable to those who have the opportunity to make the most out of the seemingly infinite cups of tea in the kitchen. Oh and also the radio shows. The newspapers for which you get to write. The MPs you get to wing woman. The news channels on which you get to appear. You get the drift.

Never would I have imagined that the highlights of my formative years would include dancing to Carly Rae Jepson from a rogue Spotify playlist at the ASI Christmas party and learning how to send 500 emails at once using fancy excel spreadsheets.

Some things, of course, will always remain a mystery. Like, why are paragraphs in op-eds always super short? Why does the franking machine have a personality of its own? And of course, why does the dishwasher always have an upset tummy? But this is where critical thinking skills come to play. The brains I got to pick, the minds I got to pirouette around, are one of the most brilliant in the world. Accordingly, I learned things I would have never come across or thought to consider - anyone lucky enough to have the same opportunity will undoubtedly experience the same.

The come down from the city slicking, tweed-clad lifestyle I’m sure will be an interesting one. The thought of sheer bewilderment on people’s faces when I joke about the argumentum ad temperantiam fallacy, or Smith’s Theory of Moral Sentiments for the 17th time will be undoubtedly be difficult to deal with at first, but I think I’ll just have to get used to it. And if there’s one thing that I’ve learnt during my gap year is that grit is an invaluable trait and bubbles are bad.

Madsen Pirie, President of the Adam Smith Institute, often says that “the question is not whether our gap year students are ready for the world, rather, whether the world is ready for them”. While I concede that Madsen is usually right about most things, if the world isn’t ready for a bespectacled, socially out of step, Viking enthusiast then the world probably better toughen up.

So toodles! Farewell! Hasta la vista! And I look forward to my retirement.

The bottle shock that shook the world of wine

An event that shook an industry and a country took place on May 24th, 1976. A British wine merchant organized a blind tasting in Paris between French and California wines. The judges were nine top French connoisseurs, plus the Englishman and an American. The California wines came out ahead of their French counterparts in every category, stunning the French, and even the English wine merchant, Steven Spurrier, who had hitherto only sold French wines.

For his efforts, Spurrier was banned by the French from their prestigious wine-tasting tour for a year. The tasting was initially ignored by the French press, but three months after it, Le Figaro published a sneering article to mock it, as did Le Monde after a further three months. But the story reverberated internationally, hugely boosting the developing New World wineries, and damaging the reputation of the French ones. The tasting became known as “The Judgement of Paris,” in a nod to Greek mythology.

There were follow-up tastings ten years later by the French Culinary Institute and the Wine Spectator. The American wines outscored the French in both. Spurrier organized am anniversary tasting 30 years after the 1976 one, with a similar result. As the Times reported, "Despite the French tasters, many of whom had taken part in the original tasting, 'expecting the downfall' of the American vineyards, they had to admit that the harmony of the Californian cabernets had beaten them again.”

The French has simply assumed that only France could produce wines of the finest quality, and had rested on their laurels as the New World vintners crept up and overtook them. Wine connoisseurs used to prattle snobbily about the “terroir” and the “minerality,” while the New World producers mastered the ability to produce consistently reliable quality wines. What in France had been an industry suffused in mystique became in the New World an industry reliant on technique.

It changed British habits. Wine drinkers, of which there were not many, had graduated from appallingly sweet fortified ‘port’ and ‘sherry’ types to appallingly sweet German wines with names like Blue Nun and Black Tower. Now they came increasingly to appreciate the drier varieties from the new producers, and began to order wines not by their vineyard, but by their country and grape type.

It typifies the ability of markets to punish backsliders. A producer who relies on their past, feeling comfortable in an established position, is always at risk from upstart newcomers who innovate and offer the public new things that resonate with them. The brands that dominate in one period often themselves become period pieces as new ones come to supplant them. It is one of the virtues of markets that they respond to changing public tastes. Monopolies, be they state or private, do not allow the public to shop elsewhere for better products and services, and are thus not agents of improvement. On the contrary, with captive consumers they will tend to deteriorate as producers capture them to serve their own interests instead of those of their customers. Modern day advocates of nationalization should take note of that.