Mark Andreessen's half a good idea

Mark Andreessen has half a good idea here. He points out that while everyone's trying to create more Silicon Valleys that's not actually what we need. SV is the global agglomeration of the world's computing nerds and their necessary support services. That's what makes the place work. However, what we would rather like to have is similar global agglomerations of the world's materials processing nerds, of the geeks who get organic chemistry and so on. For this is the way that industries manage to develop: building themselves where people already grasp the basics. It's still true, for example, that if you'rte going to set up in non-ferrous metals in the UK you'll do it around Sheffield or Rotherham, if in pottery in the Potteries, chlorine chemistry is Tyne- and Tees- side.

So, politicians who would like a development cluster should look to what areas already have some footing in and then attempt to build upon them. That's sensible and that's the half the good idea. However, we then get to the other half:

Imagine a Bitcoin Valley, for instance, where some country fully legalizes cryptocurrencies for all financial functions. Or a Drone Valley, where a particular region removes all legal barriers to flying unmanned aerial vehicles locally. A Driverless Car Valley in a city that allows experimentation with different autonomous car designs, redesigned roadways and safety laws. A Stem Cell Valley. And so on. There’s a key difference from the if-you-build-it-they-will-come argument of yore. Here, the focus is more on driving regulatory competition between city, state and national governments. There are many new categories of innovation out there and entrepreneurs eager to go after opportunities within each of them. Rethinking the regulatory barriers in specific industries would better draw the startups, researchers and divisions of big companies that want to innovate in the vanguard of a particular domain—while also exploring and addressing many of the difficult regulatory issues along the way.

Selectively reduce the regulatory state in various areas and see what happens. But this doesn't go far enough: as we saw with the Urban Development Corporations of St. Maggie's era. For if reduced regulation is going to increase growth, and we are already assuming that, then why would we reduce regulation in only one geographic area?

Once we've accepted the basic argument, reduce regulation so as to encourage innovation, then our answer should be to reduce regulation everywheree.

Politicians Without Borders: A proposal to abolish the nationality requirement to run for election

Vishal is the winner of the Adam Smith Institute’s 'Young Writer on Liberty' competition. The subject of the competition was '3 Policy Choices to make the UK a Freer Country', and below is one of Vishal's three submissions.

If representative democracy is characterised by the citizens voting for those who they think will represent their interests most accurately – why is this choice restricted? I am referring specifically to the nationality requirement to run for election in all nation-states.

Interestingly, European Parliament elections do not require candidates to be of the same nationality as the citizens of the constituency they hope to represent. For example, Anita Pollack was an Australian who represented a UK constituency, Maurice Duverger was a Frenchman representing Italians, Ari Vatanen was a Finn who represented the French and Monica Frassoni was an Italian who represented Belgians. Why, then, should we be denied such choice when electing individuals to national parliaments?

One may argue that the right must be deprived due to security concerns and because ‘foreigners may not have the country’s best interests at heart’. However, we could say the same for domestic politicians – this is not sufficient. Furthermore, when we consider that there are many humanitarian projects in various countries that involve people of different nationalities, sometimes it might just be reasonable to believe thatpeople actually want to help others, regardless of their nationality!

Currently, all mainstream parties in all countries are nationalist and abolishing the nationality requirement would pave the way for non-nationalist alternatives (at the very least) which may actually help preserve peaceful relations with other countries by providing a voice to those who do not believe in a potentially dangerous, exclusionary nationalist agenda.

Furthermore, the extra competition from foreign nationals might make the transmission of public policy ideas and implementation of public policy more effective. Voters could essentially call for certain foreign politicians to run and ‘import’ politicians whose policies they think they would help the country more than their domestic alternatives (people might prefer, for example, some Scandinavian, German or American MPs). Essentially, domestic politicians would have to increase their performance in response to foreign competition and this would improve overall political performance over time.

After all, if George Osborne can legitimately appoint Mark Carney, a Canadian national, to control the country’s money supply on the grounds of competence, why should the British public not be able to directly elect the foreign politicians whom they would like to see governing the UK? Simply abolishing the nationality requirement and thereby increasing choice for voters would ultimately lead to a net gain in welfare for British society.

Don't cry for Argentina

The usual suspects are complaining loudly that Argentina will have to pay back some of the money that it borrowed. Better, they seem to think, that the law should be flouted by a government than that capitalists should get their money back. However, Argentina had a choice a decade ago. And they made one that benefited them then and has done so for the past decade: it's only now that the other part of that choice is becoming apparent.

Yet, the implications of this ruling go far beyond Argentina's borders. The New York court decision is a precedent that prioritises the profits of financial speculators above the rights of a nation to make economical decisions and protect the interests of its people. It dramatically increases the risk and potential impact of future debt crises, removing any incentive for creditors to participate in debt restructuring for countries facing debt distress – why take the hit when you can stop everyone else from getting paid by holding out?

The clue is in that "New York court decision". Why on earth is a New York court interfering between a soverign government and the people that lent that government money? We wouldn't expect a New York court to have any power over the issuance of UK gilts for example. And the reason is that investors don't trust the Argentine courts. Thus if the bonds had been issued under Argentine law the interest rate to be paid on those bonds would have been higher than those that were actually issued under Now York law. so, Argentina has been benefiting all along from lower interest rates (both before and after default in fact) as a result of issuance in somewhere where court decisions get decided according to the law rather than as a result of a telephone call from the Presidential Palace.

And do not think this does not happen: some Argentine bonds have interest rates set against the Argentine inflation rate (logically, as they're local currency bonds). And the Argentine government has been threatening to jail economists recording the inflation rate as they keep coming up with numbers rather higher than the official announcements which are used to calculate that interest rate.

Another way to put this is that if a government flouts the rule of law so egregiously as to have to borrow money outside its own legal jurisdiction (something that is very different from having to borrow from foreigners, as you can issue foreign bonds under domestic law or that of some other jurisdiction) then it really shouldn't come as all that much of a surprise when some of those foreigners use that foreign law to stop you flouting said rule of law. For, of course, that's why it's all been set up this way in the first place.

Allow student loans to be spent abroad!

Vishal is the winner of the Adam Smith Institute’s 'Young Writer on Liberty' competition. The subject of the competition was '3 Policy Choices to make the UK a Freer Country', and below is one of Vishal's three submissions.

If the objective of providing student loans is to ensure that everyone has access to higher education, why do we stipulate that its use be restricted to British universities? Why not grant all prospective university students the freedom to use their loan money on foreign universities?

 Simply expanding university places in the name of ‘widening participation’ doesn’t change the fact that people from disadvantaged socioeconomic backgrounds are disproportionately well represented in the lower-tier universities (where graduate unemployment rates are the highest). Furthermore, the prospect of graduating with up to £37,725 of debt (for a 3-year course; £9000/year for tuition + £3575 maintenance loan) is far more daunting for people from lower-income households (bursaries and grants are limited, after all).

Allowing students to spend their student loans on foreign universities would ease the pressure on British universities whilst simultaneously encouraging them to be more competitive with the services they offer - most importantly though, students would have more choice (and often cheaper alternatives).

Many middle-income and upper middle-income families (whose children hold the lion’s share of places at the best universities, currently) may find that the resultant change in the marginal cost of sending their children where fees are relatively more expensive (to the USA, Canada and Australia, for example) would actually make this option financially feasible – thereby freeing domestic places.

Furthermore, if students chose to study in Europe (as many would, seeing as it is closer), many European countries do not even have tuition fees (and, if they do, it’s a fraction of what we pay for our universities) – this means that they’d only really need a maintenance loan, if at all! There are no tuition fees charged in Austria, Denmark, Finland and Sweden. Norway charge about 40EUR/semester (no, I’ve not omitted any zeroes), German universities can charge a maximum of 1000EUR/year, the French public universities charge between 250-650EUR/year, the Dutch 1835EUR/year, the Spanish between 525-1280EUR/year and the Swiss up to 3000EUR/year. That means massive savings for the taxpayer and many happier British graduates with a lot less debt.

Also, for those students who are adventurous and/or enterprising enough to want to get their foot in the door of certain emerging markets sooner rather than later, they could study in the BRICS countries (again, for a fraction of the cost).

If the objective of student loans is to educate, let students spend it on the education they would prefer!

Don't take this new estimate of poverty all that seriously

A new report out insisting that poverty has climbed over the past few decades. Not a report to take all that seriously really:

The number of British households falling below minimum living standards has more than doubled in the past 30 years, despite the size of the economy increasing twofold, a study on poverty and deprivation in the UK claims . According to the study, 33% of households endure below-par living standards – defined as going without three or more "basic necessities of life", such as being able to adequately feed and clothe themselves and their children, and to heat and insure their homes. In the early 1980s, the comparable figure was 14%.

The actual research itself isn't quite as bad as the write up of it (although that's last year's version, this year's is not published as yet). Not as bad as long as we recall the limitations to it.

The number of people falling below the minimum standards of the day has doubled since 1983

The important part is that "standards of the day".

It's a good measure of poverty for all that. Very similar to the way the Rowntree people calculate the Living Wage and we at the ASI have several times insisted that we support that method of measurement. It's Adam Smith's linen shirt all over again. Not being able to afford a linen shirt does not make you poor. But if you live in a society where not having enough to be able to afford a linen shirt means you are regarded as poor then in that society you are indeed poor. Thus the Rowntree surveys of what people ought to be able to do without being regarded as poor in this society.

But that makes this a survey of relative poverty, not absolute. For as society becomes generally richer then the list of things you should be able to do without being regarded as poor expands. For example:

Specifically, one in three people could not afford to adequately heat their homes last winter and 29% had to turn the heating down or off or only heat part of their homes.

I very much doubt that anyone at all expected to be able to heat all of their house the entire winter back in 1980. Perhaps the very richest: but partial heating of a house was entirely the norm even in a thoroughly middle class upbringing like my own. Yes, the report does talk about this but the standard of "fully heated" has changed markedly over these decades.

The interesting way to read this report is actually to look at the advances that have been made. The general standard of living has risen sufficiently that what used to be considered being reasonably well to do is now regarded as being in poverty. At which point three cheers for free market capitalism: the only socio-economic system that has ever actually managed this feat.

The NHS is terminally ill—we need a new Healthcare system

Tom won second place in the Adam Smith Institute’s 'Young Writer on Liberty' competition. The theme of the competition was '3 Policy Choices to make the UK a Freer Country', and the following is one of Tom's policy suggestions. 

The NHS is bloated, overweight and obese.  In 2012/13, its annual budget was over £100 billion.  A staggering sum.  For that sort of money we must be getting world-beating healthcare, right?  Well…not quite.  A Bloomberg study put us behind Libya in terms of efficiency!  While our healthcare costs per capita are the 15th highest in the world, our infant mortality rate is only the 30th best.  Life expectancy is no better.  For the huge costs to the taxpayer, the NHS isn’t good enough.

Why is this?  The NHS is increasingly filled with bureaucrats.  2008-9, the management staff numbers increased 12%, while the nurse numbers increased 2%.  Much money is being spent on middle management; not enough on frontline service.  Without the profit motive that exists in private business, the NHS has no incentive to cut costs, or drive efficiency improvements.  Consequently, the NHS budget has spiralled from just over 5% of GDP in 2000 to about 10% now.  A doubling in little more than a decade.  Moreover, the ‘free at point of use’ system is flawed.  Doctors’ valuable time is wasted;  88% said they spend time dealing with minor medical problems that patients could manage themselves.  If healthcare is provided free, of course people will misuse it; that’s how the incentives are aligned.  But is there an alternative?

Singapore’s healthcare system should be adopted immediately.  Bloomberg ranked it second in terms of efficiency; per capita healthcare costs are roughly half ours.  They also manage to deliver superlative healthcare outcomes.  They consistently rank near the top for life expectancy.  It is no surprise that they have the lowest infant mortality rate in the world.  How do they do it?  Healthcare spending is 68% market based.  Individuals control their own health savings account.  For low-income earners, this is topped up so they can afford their healthcare needs.  It also means people aren’t frivolous; they shop around, look for value.  Competition ensures that costs are driven down as healthcare providers fight for customers.  People also have catastrophic medical insurance so nobody is left to die because they couldn’t afford the surgery needed following a horrific accident.

This market-based system maintains fairness - everyone has access to healthcare - drives efficiency and increases consumer choice.  Roughly, the UK could save about £50 billion by increasing efficiency to Singaporean levels.  This is a policy to make society freer, richer and happier.

Why we really should get fracking

An interesting little report from the US. Looking at the full integrated costs (yes, including carbon emissions not made) of the various options for energy capture and or generation. And it looks like wind and solar really just don't cut it:

[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less—nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar. This is the case because solar and wind facilities suffer from a very high capacity cost per megawatt, very low capacity factors and low reliability, which result in low avoided emissions and low avoided energy cost per dollar invested.

It's worth noting that that $16 gas price is well above the current gas price in the UK (around 40p per therm, while $16 equates to perhaps 100p a therm).

So, the really interesting question is how has the UK government managed to do the calculations showing that natural gas isn't the answer? To which the correct response is that they've assumed that natural gas prices are going to rise very strongly in the future. Yea, even if we frack the entire country, for all of that would just be exported anyway. This is, to say the least, an unsupportable assumption.

In the long run the answer is undoubtedly going to include a lot of solar. Prices are still falling at 20% a year and it really doesn't take all that many years for that to have a significant effect. As Bjorn Lomborg pointed out by 2025 we'll all be installing solar purely on price grounds anyway. In the interim gas is still the best answer: so we really should get fracking.

Green belt is the reason for rabbit hutch UK

A Cambridge University study has claimed millions of people are living in homes that are too small for them, and the poorest are being hardest hit, what the academics call 'rabbit hutch' Britain.

The academics at Cambridge should know. It is one of those towns, forty miles from Central London, that is booming as a result of London's suffocating 'green belt'. London house prices have been soaring, and people who work in the capital have been forced to find homes further and further away. They blame foreign property buyers, or even the government's Help to Buy schemes, for the surge in prices. But that is only part of the story. The fact is that London, like many other cities in the UK, is not building enough houses. To meet the demand, the UK would have to build around 260,000 houses each year. Last year, it built just 110,000. And, like the national debt, that deficit has been stoking up housing pressure for at least the last thirty years.

It is near-impossible to build houses to meet that demand hangover. The green belts, announced in the Town and County Planning Act of 1947 and introduced in the early 1950s, were supposed to be slim areas of woodland and farmland surrounding our cities. The idea was to stop 'urban sprawl' and to give city dwellers some nice countryside nearby that they could enjoy. The farmland, however, has become industrial farmland, more like the prairies of the MidWest rather than the bucolic idyll of Olde England, and quite inaccessible to the public. Meanwhile this so-called 'green' belt has been extended further and further as people living in it or near it campaign to stop development near them – which, if successful, means that their home rises in value because of the huge unfulfilled demand. So 73% of Surrey, near London, is now green belt, and the few houses their command huge premium values, as do those in the other Home Counties. In the cities themselves, space has become so valuable that homes have indeed become rabbit hutches.

As Paul Cheshire, Professor of Economic Geography at the London School of Economics (and a recent speaker at the Adam Smith Institute) points out, greenbelts are a form of discriminatory zoning. They deliver no real benefit to a poor child in Haringey, five miles away from the green belt. But they do deliver benefit to the stockbroker-belt residents, keeping the urban unwashed and their housing out of their backyard.

The Adam Smith Institute has suggested that 800,000 new homes could be built around the capital by shaving just half a mile off each boundary of the London green belt. Politically, of course, that is difficult. Every homeowner in London, and particularly those around the green belt, have an interest in keeping the supply restricted. Cheshire has another suggestion. Because of the green belt restrictions, if you can get planning permission on a piece of land, its value soars. Cheshire would simply say that when that premium reaches a certain level, it is obvious that the market is telling you something. And where the premium is highest, that is where we should release land for new building.

Throw open our borders and liberalize Immigration policy

Tom won second place in the Adam Smith Institute’s 'Young Writer on Liberty' competition. The theme of the competition was '3 Policy Choices to make the UK a Freer Country', and the following is one of Tom's policy suggestions. 

Current immigration policy is scandalous and highly damaging to the economy.  By trying to limit the number of migrants severely, we are missing out on high calibre academics, scientists and engineers.  Perhaps the government could simply increase its target for immigration or ‘auction’ visas.  These changes would be an improvement, but they don’t go nearly far enough.

If we really want an immigration policy that maximises freedom, income and happiness, then the best immigration policy is to not have on at all.  Paradoxical?  I’ll explain.  The UK should operate acompletely free, open-door immigration policy.  If it sounds radical, that’s because it is.  Political rhetoric would have you believe that immigration is wholly bad; they take our jobs, lower our wages and steal from the public purse.  Nothing could be further from the truth.  Firstly, immigrants create jobs as well as filling them, by demanding goods and services.  The pool of jobs is not fixed.  The overall number of jobs in the economy increases due to immigration.  Secondly, migrants don’t lower wages, studies have shown that they increase wages on average.  Lastly, they contribute to, not steal from, the public purse.  The IFS found that while we native Brits only pay 0.8 times as much in tax as we receive from the government, migrants in fact pay in 1.4 times as much.  They are funding our benefits, not the other way around!

So, the political rhetoric on immigration is misleading.  But would a completely open immigration policy really lead to significant economic benefits?  Well, yes.  Emphatically, unequivocally yes!  Professor Lant Pritchett found that just a 3% rise in the developed world’s labour force through migration would lead to benefits larger than those from the elimination of trade barriers.  Think what a completely open door immigration policy could achieve!  Indeed, estimates about the effects of completely open migration suggest global GDP could rise, roughly, by between 70% to 150%!

Of course, migrants benefit society culturally too.  Cuisine, art, music, culture; they are all enhanced by migrants.  I for one would be much poorer culturally if I couldn’t get an Indian takeaway on a Saturday night!

Migrants bring huge economic benefits, and enhance our culture too, making the UK a more interesting place to work, rest and play. Evidently, if we want to make society freer, happier and richer, a completely open immigration policy is the way to go.

The only problem with Lord Saatchi's new tax proposal is that it's not adventurous enough

Lord Saatchi has come up with an excellent idea to change and improve the tax system. Let's do away with corporation and capital gains taxes with regard to small companies. The only problem with the idea is that it's just not adventurous enough.

In a report to celebrate the 40th anniversary of the think-tank, which was founded by Baroness Thatcher, the CPS calls on the Government to stop imposing corporation tax on firms with fewer than 50 employees. Capital gains tax should also be abolished for all investors in small companies, the report states. Lord Saatchi writes that the policy would show “how the awesome power of taxation can be used to the benefit of everyone”.

He makes the correct and obvious points that small companies are just about the only creators of new jobs in the private sector and that this would do much to increase their creation. The obvious side effect of that being that fuller employment will lead to higher wages: as long as they're being earned something we all generally regard as being a good thing.

But as we say this isn't quite adventurous enough. For optimal taxation theory tells us that we shouldn't be taxing corporations nor the returns to capital at all. For such taxes have higher deadweight costs than the taxation of incomes, which is again higher than taxing consumption which is again worse in its effects than repeated taxation of property. We should thus, in order to have the least lost economic activity from whatever level of taxation we desire to have, abolish corporation and capital gains tax in their entirety and replace the revenue with something like a land value tax.

Yes, it would produce political caterwauling but it would be the most efficient method of gathering tax revenue.

On a related point one way of looking at Piketty's magnum opus is that it's an attempt at a refutation of that optimal taxation theory. Everyone does agree (OK, some economists you have to press on the issue but it is agreed to in the end) that the deadweight costs are higher and that thus such capital and corporate taxation is inefficient. And that abolishing them and moving to other revenue sources would make us all richer. But there's an awful lot of people who just wouldn't be happy with such a system. So, they're looking for some other reason, other than efficiency, to insist on retaining such taxes. And inequality seems to be the current one they're trying out. It's not an argument that really works though.