No, really, don't cap electricity tariffs

It's obviously election season as people are promising actions of the most blithering stupidity. The latest idea being that electricity tariffs should be capped. No, if you cap prices then that thing the price of is capped disappears from the marketplace:

Theresa May will attempt to capture the political centre ground by slashing £100 from the energy bills of 17m families and granting new rights for workers.

The prime minister will use the Conservative manifesto, to be published on May 8, to cap the gas and electricity bills for the seven out of 10 households that pay standard variable tariffs — dubbed a rip-off by watchdogs.

The policy is a centrepiece of a manifesto that will set out a bold social vision for Britain that parks Tory tanks on terrain usually occupied by Labour.

There's not a huge amount of point in beating Labour if one does so by repeating their idiocies. And this is a foolishness at best. If prices are capped below the cost of production of something then that something disappears from the market. Nicolas Maduro and his stunning success with the Venezuelan food supply is all we need to see to prove that.

Now, we might just possibly think that it is profit margins which are excessive here but that's not actually the case:

GB Energy Supply, which only months ago boasted the cheapest fixed-rate deal on the market, has ceased trading.

The low-cost energy supplier, which is believed to have had around 160,000 customers, moved to reassure customers that they will not be cut-off following the announcement.

A low price, an under the market price, strategy doesn't work in the current industry. We would thus very much assume that the market price is indeed that market price, not one inflated by excessive profit margins.

Capping prices just isn't a sensible thing to do. So, don't do it.

If only Will Hutton knew what he was talking about, eh?

Will Hutton is indulging in his usual blizzard of assertions to insist that really, we should all just get on with doing what he says and tug that forelock as we do so. As is also usual the assertions don't seem to have much behind them - they're rather wrong in fact.

We most certainly agree that the UK tax system isn't perfect and we make a number of suggestions about how it could or should be better. But we do at least know the basics about the current system. Unlike Willy:

The ideological right’s propositions – that tax in principle is immoral, coercive, anti-enterprise, anti-aspiration and always economically destructive – now set the terms of discussion, policed by our rightwing media. The consequence is that the tax system is now so gravely distorted that it threatens the social fabric.

We're definitely part of that group being sneered at there. But the proposition that tax is a bad thing is clearly and obviously true. It's the price we pay for government and like all prices are it's a cost. Sure, why not aspire to government of Aston Martin levels of luxury? Why not aspire to an Aston in fact? The point being that the price is that cost and we'd all very much prefer to be getting the Aston at the Ford Fiesta price. Because that price is the cost, the bad thing. And that's also why the Fiesta outsold the Aston by some considerable margin.

But crucial in this story is that property is effectively only taxed when it is bought and sold. There has not been a revaluation of residential property prices, on which the ineffective council tax is based, since 1991. As a result, the property market is, because of generous inheritance tax thresholds, tax exemption of capital gains on homes and trivial council tax receipts, the world’s biggest onshore tax haven creating the world’s highest real house prices. 

But Britain does not tax property lightly. As the OECD points out, the portion of GDP that is taken in property taxes is both the highest among OECD members and over twice the average at 4% or so. Vastly more tax than anyone else is an odd description of a tax haven.

Britain must create a tax system that raises revenue across a broad base as fairly and with as little economic distortion as possible and it must accept that if it wants health and education to remain public goods financed by general taxation,

Education and health care are not public goods. They are both rivalrous and excludable - as NICE shows every time it refuses to pay for a certain treatment or an Oxbridge college refuses to enroll a student. At least that second Willy should understand given that he runs a college.

It's entirely true that Adam Smith suggested that being part of a generally literate and numerate society was a public good and thus primary schooling might be encouraged usefully by the government. But it's that which is the public good, not the education itself.

then taxation will have at the very least to remain around 35% of GDP and may even have to rise a little.

It is around 35% of GDP. And if we keep the current tax rates then as GDP rises then the percentage of GDP in tax will rise. Because the tax system is leveraged to growth. Because there are tax free allowances on all sorts of things, incomes and so on, then the government's take of a marginal 1% of GDP is very much higher than their average take across all GDP.

As we say, the assertions which Willy brings into play turn out not to be correct. Thus the conclusion he reaches must be suspect too, no?

Alarmingly, we find we agree with John McDonnell

McDonnell tells us that above some £70,000 a year people should be defined as rich - or more accurately, as high income. There are problems with this, that sum in Central London isn't a fortune while in Middlesbrough it will finance a very much grander lifestyle. But then that problem is always going to happen in a national tax system. But McDonnell's point was that we should be expecting those more fortunate to be contributing more as a percentage of their income to the public coffers. And we've not got a problem with the idea that the top 5% should be identified as those who should be contributing more.

Adam Smith did after all talk about more than in proportion to income. Our own desired taxation system is rather different of course, with a substantial tax free allowance and then a flat rate but that still allows progressivity. But that essential underlying logic McDonnell is using seems fine to us.

But there is a problem here. As the Diamond and Saez paper points out the peak of the Laffer Curve in a tax system with allowances - and yes, being able to leave the country and thus the tax system is an allowance - is 54%. And this is taxes upon income, not the income tax alone. So, employers' NI must be included. Meaning that we are above the peak of the curve already. There is therefore no room for another higher rate on those over £70,000.

Yet that moral intuition that the richer should pay more still exists and is still correct. The only possible answer therefore is tax cuts for those on less than £70k. Which is entirely fine with us we shouldn't need to have to point out.

This is known as begging the question

To argue that we must decide who to tax more assumes first that we must in fact be taxing more. And that's the question that is being begged here:

The paradox is that raising taxes may scream “politics of yesterday” to voters Labour needs to win over, when in many ways the idea has never been so contemporary. Crumbling public services, a mountain of debt to repay, and an ageing nation of pensioners with a post-Brexit aversion to letting young, taxpaying foreigners move here all adds up to one logical conclusion: tax rises loom almost regardless of who wins in June.

For the aim, the current plan, is to deal with all of this by shrinking the size of the state itself. The declared targets - yes, stop sniggering at the back there - are that public spending should decline to some 35% of GDP, back where it was in the late 90s and also where it was for some goodly part of the post-war era. 

The current tax system can finance that without tax rises.

We do indeed agree that if you insist that tax revenues must rise then it is necessary to work out who should pay those higher taxes. But that first question must be answered first, do we actually need more tax revenue?

The answer to that being, currently at least, no, so therefore we've not got to fret over whose wallet to plunder, do we?

Why we should not have TV debates

Britain’s Prime Minister Theresa May has called an election for 8 June, but says that there will be no TV debates between the party leaders. 

This is exactly the right decision—not just for her and her party, but for the UK. Why?

The idea of TV leaders’ debates goes back to the 1960 presidential election in the United States. A debate between the two main candidates, Vice President Richard M Nixon and Senator John F Kennedy, took place on 26 September. Radio listeners thought that Nixon was the outright winner; but a majority of those who saw it on TV thought Kennedy was. That is the importance of body language: Kennedy looked neater, younger, cooler, more self-confident. Nixon had five-o’clock shadow (it was a problem for him: he had to shave twice a day), looked older, sweatier, unstylish, and much less at ease with the cameras.

Whatever you think of Nixon and Kennedy, that words/pictures divide is the first point against TV debates in elections. The very nature of TV favours smooth performers who are confident on camera, not experienced candidates who will be competent in office. The inevitably rushed, superficial, quick-response nature of TV debates deepens the divide. Indeed, good potential candidates who are not comfortable on camera do not even put their names forward.

Even among seasoned performers, TV debates do not serve every candidate equally. They favour underdogs. That is why UK opposition parties called for them for years before David Cameron agreed to one. But his short-sighted decision backfired because it gave the LibDem leader Nick Clegg—another self-assured TV performer—a huge boost, and led to Cameron having to share power, with dismal results. 

Having agreed to TV debates in 2010, Cameron had set a precedent—he had no grounds to refuse them in 2015. That time he won, though by a wafer-thin majority. 

By then it was clear that TV debates were having a major effect on UK elections. But that was not an entirely positive constitutional change. Perhaps electors should make their choice on something more profound than a much-hyped and stilted media extravaganza—to decide on what all the candidates say and do during several weeks of campaigning, not on how a handful of party leaders happen to perform in a TV studio on a Saturday night.

That points up the next argument against TV debates. They might be fine for US presidential elections—which are elections between single individuals. But UK general elections are different. You are voting for a Member of Parliament to represent you in Parliament—to represent you, indeed, against the power of the Executive. TV debates turn UK elections into presidential contests—into elections for the leader of the Executive. Since Walpole’s time, many people have believed that Prime Ministers have too much power in Britain. By raising party leaders' profile yet further, TV debates simply add to that personal power. 

It is as serious as that. TV debates turn UK elections into something that, constitutionally, they are not. They turn elections into contests between TV personalities, rather than contests between concepts, ideologies, strategies, visions and policies. They promote the rule of individuals over the rule of law. They are a very bad idea. 

To end flytipping stop charging for waste disposal

Among the many things that Brexit will enable us to do is deal with the problem of flytipping. We will be free of the EU's rules on how much waste must be recycled and we can go back to doing what is sensible - sticking it in holes in the ground:

Last month the government announced the worst fly-tipping figures on record; nearly one million incidents in England last year. Two thirds consisted of large household waste that the council used to take away. More than a third of farms were hit by fly-tipping last year, according to the National Farmers Union. The Country Land & Business Association says fly-tipping is now its members’ greatest concern. Farmers and property owners have to pay for the clearance of land, which is especially costly when asbestos has been dumped. Struggling local councils spend nearly £1 billion a year picking up rubbish from roadsides.

It is indeed a problem and it is also a growing one. In fact, it's been growing ever since we were all taxed into recycling more and taxed into not sticking rubbish into holes in the ground:

 Truckloads of refuse are being deposited at night, weighing up to 20 tons. Some of it comes from organised gangs, often working with the building trade; the “industry” is estimated to be worth £1 billion a year, because a 20-ton load would cost £2,000 to deposit legitimately at a landfill site. Some comes from homeowners who can’t face the charges for house clearouts.

This is just simple economics. Raise the price of something and people will do less of it. And, quite obviously, more of something else. Raise the price of disposing of waste at the council dump and more people will flytip. There is no mystery as to what is happening here:

This month the government published its first litter strategy, with increased fines and more bins.

Nope, that's not the way to do it.

The 5p plastic bag charge has proved their first success. One suggestion has been a tax on nappies 

Nor is that.

Another idea was a bottle return scheme

Nope.

Increasingly ministers and civil servants are talking about “extended producer responsibility”. In other words, companies need to take ownership of their discarded products rather than taxpayers. 

Drivel.

Companies also need to be encouraged to start selling more durable goods again. 

Nonsense.

The problem is that people are flytipping because we have made legitimate waste disposal more expensive. The solution is to make legitimate waste disposal less expensive and people will then stop flytipping. This isn't brain surgery folks, there is nothing difficult here.

Licence some more landfills, drop the landfill tax and fling open the gates of the council dumps. The problem will vanish overnight.

As is so often true the solution to he problem is not for government to do more it's for it to stop doing what it is.

The ASI is hiring!

The ASI is currently recruiting a communications manager—someone to handle the ASI's public and media relations, write our press releases, set up broadcast interviews, place op-eds, send out comments, and potentially themselves represent the ASI in the news.

We’re looking for someone:

  • interested in politics and economics
  • committed to the ASI’s free market liberal principles
  • who has a career background in PR, media and communications
  • able to write well, without proof-reading being necessary
  • good at working on your own initiative without supervision
  • self-motivated and enthusiastic about the work we do and about bringing it to the widest audience possible in the clearest way possible

See the full ad on w4mp for more info.

Useful evidence that we're all getting richer

We are often told that we should be working fewer hours. You know the sort of thing, Keynes said we'd all be working 15 hours a week by now so why aren't we? What is less often noted is that we are in fact all working fewer hours. The great reduction, of course, has come in unpaid working hours in the household. But that paid working week is also shrinking:

Workers in the UK are working the equivalent of a week's work less a year than they did 20 years ago, new figures have revealed.

According to the Office for National Statistics, the average worker in the UK worked exactly 31 hours a week in the final few months of 2016. This is 0.6 hours per week fewer than the equivalent figure in 1998.

Over the course of a year this is the equivalent of 31.5 hours, roughly one extra week.

That working week has been shrinking over the near century since Keynes wrote as well. Which is all as we'd expect it to be. Our starting assumption is that humans try to maximise their utility and some amount of leisure adds to that, as does some measure of income or ability to purchase worldly goods. This is also the idea which gives us the substitution effect which makes up one half of the Laffer Curve argument. As people become generally richer we would expect them to take some amount of that higher income in more leisure therefore.

The same logic can also be run backwards. That people are taking more voluntary leisure can be used as evidence that we are all getting richer. For we are achieving greater utility, the only measure of wealth that actually matters.

Corbyn's protectionism

Charging ahead with his so-called policy blitz, Jeremy Corbyn seems to be channelling the League of Gentlemen’s Tubbs and Edward in calling for increased powers to local councils to prioritise local firms when awarding contracts post-Brexit. He also claims that a Labour government would “support new and existing businesses and industries in Britain” - protectionist rhetoric that ‘Candidate Trump’ would have been proud of. To top it off, he wants to ensure that businesses are imbued with the same friendly, abstract values as us, like ‘fairness’ and ‘doing right by everyone’. Combined, Labour will be able to ‘upgrade’ the British economy. Unfortunately, I have my doubts that JC even knows how to upgrade his phone software, let alone the economy.

Where to begin? Prioritising local businesses for public contracts will lead to inefficiency and poorer services, not more local jobs. Isolating the UK from a €2.4 trillion EU public procurement market, to say nothing of the rest of the world, will prevent many of the best service providers in the world operating here and spreading best practice. Unions have complained that state-owned foreign companies, like Abellio, MTR and Arriva, are able to run our train services. Fortunately for train users though, they are usually picked because they offer the best deal. This is not to say that British firms are incapable of providing the same quality services—when they do they should win and keep deals—but the ultimate goal should be the best public services, not the best deal for the provider.

While the ‘infant industry argument’ (nascent firms don’t have the economies of scale to compete internationally so need some initial support to get going) is at least a partially defensible idea, government protections for British firms is an idea that should have died in 1846. What he means by ‘support’ is unclear, but subsidies to domestic firms will create inefficiencies and waste taxpayers’ money, while barriers to trade will make us all poorer. Not only will this decrease consumer choice, allowing firms to hike prices and scrimp on quality, but foreign governments whose companies have been spurned will impose similar restrictions to our firms; overall revenues and profits will fall. Employment will fall. Tax revenues will fall. Public services will suffer.

Thankfully recent outbursts showed no sign of his ‘bargain basement tax haven’ attack line, but the meaningless and mendacious rhetoric is still evident (though that is obviously not exclusive to the Labour party). I worry that Corbyn is trying to stoke and capitalise on the growing suspicion for business across the political fringes. Of course, bad business behaviour exists, but greater competition and a more knowledgeable consumer would help self-correct these problems. Ministers jumping at the next twitter storm scandal to make it look like they’re helping, with the aid of bureaucrats with zero experience of the industry will lead to cumbersome and unhelpful regulation.

The Labour leader has had a bee in his bonnet about banning zero hour contracts for some time, and while there are some issues with reliability of work, people actually on a zero hours contract are more likely to be happy with their work-life balance than those on full-time contracts and are just as satisfied with their job. Indeed, these contracts have also been a significant factor in our record high employment figures. Politicising rather than liberalising the jobs market will put people out of work.

We should all be grateful that Corbyn is unlikely to ever become Prime Minister - ‘Don’t Know’ has a far better chance. But then, Donald Trump got elected on lazy and populist economic ideas, so maybe we shouldn’t be so complacent. Free trade, free markets and economic liberalism make people better off, protectionism and state regulation does not.

 

We're so glad we can solve this little problem for the NUT

Not that we actually believe their analysis for a moment but assume, arguendo, that it's true, the solution is obvious:

The number of children who are going hungry at home has reached "heartbreaking" levels, the main teaching union has warned.

Four out of five teachers reported a rise in "holiday hunger" among children on free lunches whose families struggle to afford to feed them three meals a day through the holidays, a survey by the National Union of Teachers (NUT) found.

More than one-third (37%) said they saw pupils returning after the school holidays showing signs of being malnourished after starving for extended periods.

We simply do not believe reports of starvation or even malnourishment in Britain today. Sorry, that is to demean the meanings of those words. Absent serious mental health or addiction problems those two don't exist. Being hungry most certainly does but as we say, to equate he three is to not be serious about the meanings of the first two.

But let us assume that it is true. What should we do? 

Well, quite obviously, schools should run for 52 weeks of the year therefore. Yes, agreed, this is to diagnose the adults of modern Britain as so ludicrously helpless that they need communal feeding stations as if this is Mao's China. And we think it might end up working about as well too. But if it is true, as the NUT is stating, that only children fed in school are children being properly fed then full year, year around, is the only solution, isn't it?

Both teachers and the students can have four weeks holiday just like everyone else and take it on a rolling basis across the year just as all of the rest of us do too.

We look forward to the NUT explaining this to their members. But no need to thank us, it's obvious to everyone that this would be the only valid solution to the problem as stated, isn't it?