The ASI in the news

Remarkably we have some reasonable economics in The Guardian:

"The contract negotiation they are having is about who gets the profit split on ebooks," said economist and Adam Smith Institute fellow Tim Worstall. "The correct answer emerges from our behaviour as consumers. We don't know what the consumers are valuing most – the distribution system Amazon supplies them with or the new JK Rowling that Hachette publishes. If we value JK Rowling more, then Hachette should win."

The point being that there's no metric by which we can decide what the profit split between a distributor, like Amazon, and a publisher, like Hachette, should be. There's simply no theory which provides us with a guide as to who should gain the lion's, or any other, share of the moolah. It all depends upon what we, the consumers, desire the most. If it's what the publishers provide then they should get that cash. If however most books are very close substitutes for eah other and we value the distribution system more then Amazon should get the folding stuff. And the only method we have of working out which is which is to observe what we all actually do. Will we go around Amazon in order to purchase Hachette products or will we not worry about JK Rowling and read some other Kindle book?

That is, the correct outcome in theory can only be derived from observation of market behaviour. There's simply no other way of doing it other than to watch it emerge.

Is the gender pay gap done to women or by women?

We would really like to know the answer to this question: is the gender pay gap something that is done to women by an uncaring patriarchy or is it something done by women? That is, are we imposing something upon women or is that undoubted pay gap a result of female choices? Voluntary Exchange has made a very clever catch here (and managed the almost unbelievable, found something useful in the writings of Beatrix Campbell) to aid us in answering the question:

Let me make sure I get this right. When women have less freedom to choose their jobs, earnings were equal, but when there is a policy shift that allows women more freedom to choose their jobs their relative earnings fall. Folks … this is prima facie evidence that the gender gap in earnings is caused by women’s choices and not by social restrictions.

We have, as all will recall, been shouting here for some years now that there isn't actually a gender pay gap at all. There's a motherhood pay gap instead. And as this example shows it's about the choices that women make over children and child care that create it. This must be so: if an increase in economic freedom leads to an increase in the pay gap then it must be the choices that people are making with that new found freedom that is causing said gap.

The pay gap is emergent from the choices of women. QED.

Leaving the EU is an opportunity for a better relationship, openness and choice

Recent European Union debate has misrepresented the case for exit. Those advocating the status quo depict exit as closing Britain off, reducing our influence in Europe, limiting our trade and endangering our economy. Similarly, too many see euroscepticsm as inextricably linked to UKIP, putting off many moderates. Instead, leaving the EU is an opportunity for a new relationship, openness and choice.

A better relationship

As part of a British exit from the EU, we would negotiate a new relationship. Norway, Switzerland, Iceland, and Lichtenstein sit outside the European Union but are members of the European Free Trade Area. This allows them to trade freely with members of the EU. These four EFTA states are richer and freer than the average EU state. Over the last decade, they have enjoyed higher employment, lower inflation, plentiful trade with the world, more EU trade per head, healthier budget positions and relatively robust economic growth. The only jobs that need disappear are those of our MEPs, and the supporting EU bureaucracy targeted at Britain.

Openness to trade

Outside the EU, we could still join the block in trade negotiations. We could also pursue our own free trade deals (potentially with EFTA members) to deepen our ties with the Commonwealth, America, China, and all our favourite country groupings (from the BRICs to the Asian tigers and the Next Eleven). We could even move towards a policy of unilateral free trade.


Outside the EU, we would  be free to determine our own policies and regulations. Much of the European Parliamentary election debate was dominated by immigration. You don’t need to agree with UKIPs proposals to believe that policy is better set by our Parliament, and our voters, rather than imposed from abroad. we would be free from silly laws imposed by Brussels, ranging from the needless bureaucracy of the “bendy banana law”, to proposals for an actively harmful financial transaction tax.

The exact proportion of law that comes from Europe is a matter of debate. It depends how you measure laws, and calculations rarely account for their impact. Regardless, even if the EU share is only around 15%, this is a loss of our fundamental sovereignty and equates to a vast body of regulations costing us hundreds of billions. In just four years, 3,580 new laws have been passed affecting British business. This equates to over 12 million words, which would take the average British business person over 92 days to read.

Do not allow the case for leaving the EU to be misrepresented.  It is an opportunity for a better relationship, greater openness and choice over Britain’s own affairs and future.

Where next for capitalism?

Writing for the BBC today, Madsen outlines his ideas about what capitalism should do to renew itself:

What capitalism should now do is to free itself from these rent-seeking perversions and spread its benefits as widely as possible.

It should act against anti-competitive practices to give people instead the power of free choices between competing goods and services. It should spread ownership of capital and investment as widely as possible through such things as personal pensions and individual savings accounts.

Read the whole thing.

The Bank should raise rates now

No, not the European elections – the really significant news is that the Bank of England's outgoing deputy governor, Charlie Bean, says he expects UK interest rates to rise pretty soon. He expects the official interest rate, which has been at its post-crisis 'emergency' rate of 0.5%, to rise in "baby steps" to around 3% between 2017 and 2019. That is below the rate of about 5% that prevailed before the financial crash, but then world conditions remain shaky, so this is where Bean expects things to settle for a while.

We have long known that all nine members of the Bank's interest-rate-setting Monetary Policy Committee concur that interest rate rises will need to be very gradual, but there seems to be a growing mood that the process needs to start sooner rather than later if this gradualist plan is to succeed. Many economists (including me in my new book The Economics of Success) have been saying for a while that the UK economy is racing ahead too fast – reminiscent of the unsustainable credit and house-price boom that got us into our financial fix in the first place.

Any rise in interest rates, even "baby steps", will cause problems for business and domestic borrowers. When rates are at 0.5%, even a baby step of 0.25% represents a big increase. Sure, real-world interest rates are already above this figure set by the Bank, but the point remains. There will be mortgage defaults, and some of those 40,000 zombie businesses identified by the Adam Smith Institute will fail.

That is not entirely a bad thing. Our present economic pain is the result of our cheap-credit binge of the late 1990s and early 200s. It is the hangover after the party, and sadly, a hair of the dog will not cure it, but make the inevitable reckoning worse. Boom-time assets, financial, physical and human, need to be reassigned to more productive uses. We cannot live in a fantasy economy forever.

The most pain, as usual, will be felt by taxpayers. The government does get away with paying very low rates for its borrowing – partly because in these turbulent times it is regarded as about the least-unsafe place to put your savings. Even if rates go up in baby steps, the impact on the government's interest bill will be large. There will be more business-killing calls to "make the rich pay more".

It all goes to show: F A Hayek was right: the best policy is not to get into boom-bust cycles in the first place.

UKTI Fails Small Exporters

The primary purpose of UK Trade and Investment (UKTI) is to help small exporters. Large companies, whether exporters or those concerned with inward or outward investment, can mostly look after themselves, calling on Whitehall when they need to.  Small and medium enterprises (SMEs) have neither the strings to pull nor the resources to divert to tangling with bureaucracy.

Following the crash, banks rebuilt their capital by reducing credit, especially to those most in need of it.  Exporting SMEs were seen to be high risk and had their credit withdrawn across the board.  Rebuilding the banks’ capital at the expense of the economy was the right medicine at the wrong time.

You might think that UKTI would have leapt to the defence of small exporters and taken their part in securing credit or, at the very least, preventing banks from taking punitive action without warning.  You would be wrong.

Many SME directors only discovered that their credit cards had been cancelled when they were checking out of overseas hotels at the end of their export missions. Some were trapped in foreign countries until alternative payments could be made. Each of these episodes cost the SME hundreds of pounds as it made alternative arrangements.  One director, in the USA, landed up in gaol.  And of course the embarrassment did nothing for the SMEs’ export market credibility, never mind the inconvenience and loss of working time.

Apparently word buzzed around the SME community quickly and they began using travellers’ cheques again.  This may be old (2011) news to some but it has not been widely published.  It was brought to my attention by a group of Cambridge based SMEs which had read my recent ASI report (“Is government helping exports?” 16 May 2014) on UKTI.

Apparently my critique was not the half of it.  They are mostly technology companies and, I was told, UKTI does not even get to first base when it comes to technology.  Time for a serious review of UKTI?

On Mike Milken being history's greatest feminist

This will cause much spluttering amoung the bien pensants of our age but it is at least arguable that Mike Milken, the corporate raider, was actually history's greatest feminist. The case is ably made by Noah Smith:

Unless, of course, it can’t. Becker theorized that regulation and other government protections can shield discriminatory companies against attack. That would protect the jobs of the people who worked at those old-line companies, but would perpetuate workplace unfairness in the process.  In other words, Becker thought that competition kills discrimination. Open up the floodgates of dog-eat-dog capitalism, and women and minorities will win greater equality in the workplace.

And what was it that opened up those flood gates of dog eat dog capitalism? The invention of junk bond financing in the late 70s and early 80s in the US. And this is also exactly the time when the gender pay gap (and also the minorities one) started to shrink in that country. True, this is correlation, not a proof of causation. But when you've got a theory that predicts that if A then B, and A happens and then B does, you can start to have at least a little confidence in causation.

Further, when examining the same theory, you see that not A happening leads to not B happening then your confidence in the theory can rise again. As in Japan where the very concept of a hostile takeover is impossible to imagine, let alone a successful one, we see one of the largest gender employment gaps in the world.

All of which leads to a certain puzzlement. We have the likes of Beatrix Campbell insisting that this market orientated neoliberalism is the neopatriarchy, something that is designed to continue to keep the wimmin down. But it's precisely that market dogmatism that has led to womens' advances so far. For as Gary Becker pointed out, in a free market discrimination costs the discriminator and thus they do less of it.

Or, as we might put it, we should and do support free market liberalism precisely because it sets everyone free, women and minorities included.

Recycling seems to have become a continental religion more than anything else

Apparently we're simply not recycling enough these days:

Every home in the country will have to cope with compulsory rubbish recycling schemes by next year, according to papers released by ministers yesterday. Instructions prepared for councils have revealed a move to bring in separate collections of paper, metal, plastic and glass in order to meet recycling targets set by Brussels. This will mean that many homes will need more bins and any local councils which have clung to traditional weekly bin rounds – there are thought to be around 100 in England and Wales – will have to establish compulsory recycling systems.

We can and should divide recycling into three different and distinct tyeps. There's the recycling that makes a profit at standard market prices. We've been reycling gold on these grounds for many millennia now, old cars are melted down to make new ones and so on. That there's a profit to made in doing this shows that value is added by doing it: the addition of more value meaning that we're all getting richer. This is fine, in fact it's just great.

Then there's recycling that costs vastly more than is gained from having done it. You can recycle just about anything if you expend enough energy on it but no one would advise trying to turn used concrete back into Portland cement. Better by far to bake some more cement and put the rubble into the hole we've just dug.

There's also the class of things where the pure market numbers don't provide a profit but we'd like to recycle for other reasons. When there's an externality perhaps. Cleaning up a radioative waste site might not be profitable for the metals extracted from it but it could still be something we want to do anyway.

The danger is that we get confused about those possible other reasons. And then end up deciding that we should pursue that second, highl;y detrimental, type of recycling. And that's where the "recycle everything" movement is today. It's become an almost religious observation, one that's continent wide, that recycling stuff is a good thing to do in and of itself. But there's no actual reason to do this. There's no shortage of holes in the ground to put landfill into, only a shortage of licenced holes. There's no general shortage of resources for us to make new stuff from. But we are told that we must recycle ever more material, well, just because we must recycle ever more material.

We should take a step back from this sort of emotional observance and recycle only that which makes a profit. But trying to be rational about even secular religions never does get us very far, does it?

This craze for organic stuff is terribly dangerous you know

As we all know the internet was originally built so that we could propitiate Bastet by sending cat pictures to each other. So thus a picture of a cat.

But there is another reason for this image, which is to show quite how dangerous this obsession with organic materials is. For someone deciding to use organic kitty litter, instead of the required inorganic, might just lead to the closure of one of the world's radioactive waste depositaries. At a possible cost of $7.5 billion. To say nothing of the costs of climate change if we all stop using nuclear power as a result of being unable to get rid of the waste. Which is, when we look at it, quite a high cost of someone trying to go organic.

The background is that when you've got certain solutions containing radioactive particles you want to make sure that they're not going to dry out. For if they do they might go bang: and bangs with radioactive material are something that we'd rather enjoy avoiding. One of the things that can stop thing bangness is the use of kitty litter:

Nitrate salt solutions can ignite when they dry out – which is why it’s tricky working with nitrate solutions in the lab and why you need to make sure they don’t dry out, something many a chemistry student has found out the hard way. So you need to stabilize nitrate solutions before they dry out, or prevent them from completely drying out. Traditional cat litter is made from various inorganic geologic silicate minerals like diatomaceous earth, zeolites or bentonites, materials that are excellent in absorbing and stabilizing chemical species like nitrates, ammonia, and urea. This is the very reason we use minerals for cat litter. Unfortunately, someone working with this waste, before it was to be shipped to WIPP, used a new “green” cat litter, made with materials like wheat or corn. These organic litters do not have the silicate properties needed to chemically stabilize nitrate the correct way.

One of the barrels of waste, that had already been put into the depositary, has gone bang as a result of this new and unapproved ingredient. That's not too bad: the correct use of robots means that it is potentially feasible to clean up the mess. The problem is, well, how many other damn fool hippes have we had filling up all of the other barrels?

There's undoubtedly a time and a place for desiring things to be organic: that Welsh hill lamb or that grass fed beef are certainly worth chasing across the plate. But there are also times when the obsession becomes rather dangerous. This would appear to be one of them.

Isn't this nice? Crimea will adopt English law

This is an interesting little snippet of news. Crimea is going to adopt English law:

Lawmakers in Moscow are working on a draft bill that will offer tax and other incentives to stimulate exports, according to Savelyev, the minister for Crimea. Businesses there will operate under English commercial law rather than Russian legislation to attract foreign investment, he said.

Obviously they're not adopting English electoral law, nor that on referenda and the like. But it's an interesting observation they've made: that part of what generates a thriving and entreprenuerial economy is that English commercial law. I very much doubt that they'll get it right mind, but at least it's a start. For the cornerstone of that English law is that as long as there's no law against it then you can do as you wish. This isn't something that accords well with the pysche of those who have ruled Russia in the past it has to be said.

Back when the Soviet Union was newly dead Anatoly Sobchak, the Mayor of St Petersburg (and Putin's mentor) decided that you no longer needed any permits from City Hall to start up in business. Just send us a letter telling us what you're doing so that we can set up the tax system for you. The next day the office was thronged with those seeking the permit that they'd need not to have any permits. The idea of really needing no permits seemed not to be believable.

Two further things: having English commercial law will be all very well but you do also need to have English courts and the English enforcement of those laws. And the second is that wouldn't it be so lovely if our own rulers recalled the basis of our legal system which is they get to tell us what we may not do but then they have to stay silent on what we may.