Libertarian film screening of Brazil

Tom Stringer has arranged a really fun Saturday morning outing on Saturday August 3rd.  It's a showing of the movie "Brazil" in the Everyman theatre at 96-98 Baker Street.  There's a coffee bar for pre-movie snacks, and a real bar for those who can't wait for their gin and tonic.  Everyone's in for a treat, with most going along to local pubs afterwards for lunch with a pint.

"Brazil is set in a dystopian world in which there is an over-reliance on poorly maintained (and rather whimsical) machines. Brazil's bureaucratic, totalitarian government is reminiscent of the government depicted in George Orwell's Nineteen Eighty-Four, except that it has a buffoonish, slapstick quality and lacks a Big Brother figure."

Sign up quickly for this on the facebook page.  You won't want to miss the movie and the camaraderie of like-minded  fans.

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It must be difficult being Willy Hutton

Will Hutton presents us with this startling statistic:

Britain is 159th in the world league table that ranks investment as a share of GDP. This is not new. Owners of British companies have long been permitted a feckless lack of responsibility. Smart countries, from the US to Germany, make sure that they insulate their companies as far as they can from the myopia and short-term greed of stock markets. Instead, the British approach to ownership exposes our companies to stock market thinking: shrivelling investment, cutting back on innovation, minimising training and hoarding cash to please their irresponsible, transactional owners.

As usualy in HuttonWorld this means we must have much more investment, a more socially democratic form of investment, more politics and bureaucracy about investment and generally we must buck up and stop being so Anglo Saxon about things. And it is true that on this list the UK is a long way down ther rankings concerning fixed investment as a percentage of GDP.

But do note the general distribution (there are exceptions of course) there. The countries at the top of the list are the places that are poor. They're still trying to build things like a basic road system, a primary education system. We've already done all of those things: thus we need to invest rather less. A second related observation is that of course the richer countries will have lower levels of fixed investment. Firstly for the obvious reason that there's a diminishing marginal return to anything at all. Secondly because the richer nations are, almost by definition, those with very much larger portions of the economy in services, not manufacturing or basic commodities and agriculture. Services famously require less such fixed investment (and correspondingly higher human capital which is not included in Hutton's number).

So we'd expect a rich nation to have lower fixed capital investment as a portion of GDP. That's something (again, with exceptions like Singapore) that we can see by eyeballing the list.

But if we restrict ourselves to those already rich nations we do see that the two most "Anglo Saxon" economies, the UK and US, do have lower portions than the more socially democratic places. Does this mean Hutton wins? No, sadly not. For the economic performance of those various rich countries doesn't vary that much, certainly not in any direct proportion to the variance of the investment as a percentage of GDP number.

The background to this is that we don't in fact care how much is invested: we care what is the return on what is invested. That is, we're interested in output, not input. And if we're getting generally the same sort of output from a lower input this is regarded as a good thing. We're more efficient in the use of our investment than those more socially democratic, politically directed and stakeholder inclusive places that Hutton thinks we should be more like. This is of course a recommendation for the more Anglo Saxon form of capitalism as against the Rhineland that Hutton has spent his life trying to force down our throats.

Which is why it must be so difficult to be Willy Hutton. To set oneself up as the arbiter of how the world should be, only to find that everytime one calls facts into consideration in support of one's basic contention, that the Man in Whitehall knows best, one finds that the facts contradict the contention. That we invest less while getting much the same result is evidence that Anglo Saxon marketism is a better system than others. For we spaff less of our money on investment as a result of having fewer politicians, bureaucrats and stakeholder interests lowering the efficiency with which that investment is deployed.

How the European Union is shafting the Cambodian farmers

Apparently the actions of the European Union mean that scores of thousands of dirt poor Cambodian farmers are being thrown off their land. This could indeed be something that we could become righteously outraged about: despite the fact that the information source is The Guardian.

If you're reading this article with a cup of coffee, you should think twice before adding sugar to your brew. If it's from Cambodia, it may be tainted – not by chemical pesticides or fertiliser, but by human rights abuses. And if you're reading this in the European Union, here's something else you should know: EU trade policy is encouraging these abuses, and the European commission has yet to do anything about it.

Cambodia falls under the Everything But Arms (EBA) tier of the EU's Generalised Scheme of Preferences (GSP), which means that it – like other least-developed countries – can export sugar and a host of other products to the EU duty free. It might seem like a pretty sweet deal in theory, but it has not been so great in practice for many Cambodians. In fact, it's been a disaster. The underlying issue is a fight over land. Cambodia is in the midst of a massive land-grabbing crisis that has seen nearly 2.2m hectares taken from mostly poor farmers and given to private firms as long-term economic land concessions.

In just half of the country where the Cambodian League for the Promotion and Defence of Human Rights (Licadho) works, land-grabbing has affected at least 400,000 Cambodians since 2003. These victims are rarely, if ever, paid appropriate compensation. Sugar is among the worst sectors for land-related human rights abuses, marked by violent evictions, the use of the military against civilians, and attacks and arrests of community activists.

OK, yes, I am righteously outraged. The EU gives trade preferences to Cambodian sugar, these trade preferences lead to evictions and further impoverishment of some of the poorest people in a very poor indeed country.

The question is, what should we do about it? The suggestion in the article is that the EU should refuse those trade preferences for Cambodian sugar until there is evidence from the various NGOs that such abuses have ceased to happen. Hmm, forgive my cynicism but that sounds like a great way to embed the NGO budgets in the Brussels one.

So why not have a truly radical policy? Why don't we just abolish sugar trade preferences for everyone? Including, of course, all those sugar beet farmers within the EU who currently get vastly over the world price for their sugar. And the massive import duties imposed upon cane sugar from elsewhere that allow that sugar beet price to stay high. For if there are no import duties upon cane sugar then there will be no benefit to thowing Cambodians off their land in order to grow sugar that doesn't have to pay those import duties, will there? Cambodian sugar would be worth only the world price and that's not enough to encourage these evictions: clearly not, for the evictions didn't start until the sugar barons could get that vastly higher EU price for the Cambodian sugar.

That is, the whole problem really starts with the way that the EU makes the intra EU price of sugar some multiple of the world price. Remove that distortion and we remove the Cambodian one.

Oddly, that's not a solution that the NGOs suggest: but then I'm already sufficiently cynical to have an idea why.

Krugman the economist and Krugman the commentator

Scott Sumner, a friend of this blog, has noted that there's something of a difference between Paul Krugman the excellent economist and essayist of the nineties and Paul Krugman the political commentator of the teens.

I suspect that Krugman wants to believe that government regulation can improve the appalling working conditions in Bengali factories. So would I. But wanting to believe something doesn’t make it true.

That's actually something of a forlorn hope. For Bangladesh has many regulations about factories and buildings: it's just that everyone ignores them or bribes their way around them. Introducing more regulation into such an environment does not improve conditions, it increases either the ignoring or the bribery. The more specific complaint is that Krugman today says this:

At this point, however, there really isn’t any competition between apparel production in poor countries and rich countries; the whole industry has moved to the third world. The relevant competition is instead among poor countries — Bangladesh versus China, in particular. And here the differences aren’t as dramatic: McKinsey (pdf) estimates Bangladeshi productivity in apparel at 77 percent of China’s level. Given this reality, can we demand that Bangladesh provide better conditions for its workers? If we do this for Bangladesh, and only for Bangladesh, it could backfire: the business could move to China or Cambodia. But if we demand higher standards for all countries — modestly higher standards, so that we’re not talking about driving the business back to advanced countries — we can achieve an improvement in workers’ lives (and fewer horrible workers’ deaths), without undermining the export industries these countries so desperately need.

As above, everywhere already has regulations: it's whether anyone takes any notice of them or not that is the issue. But beyond that, there's that very odd reference to productivity. For old Krugman wrote this very perceptive essay:

- Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model -- workers can earn more by moving into the industries in which you have a comparative advantage -- simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn't happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists. Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

New Krugman is implicitly equating working conditions with wages: for obviously, the cash is coming out of the same pot whichever it is spent upon. In a static analysis more spent on conditions will mean less for wages and vice versa. But he then goes on to say that we can adjust those working conditions without any blowback because productivity rates are close enough to be similar..

Old Krugman saw through that assertion: wages and working conditions are not set by the productivity in whichever sector it is. They're set by the productivity levels of the entire economy of the nation. That's why Bangladeshi wages are low, why working conditions are crap. Not because of anything about the apparel industry at all and certainly not because of any measurement of the productivity inside it. They're, respectively, low and bad because the rest of the Bangladeshi economy is a basket case.

It's worth recalling that Krugman was and is an excellent economist, that Nobel was truly deserved. Read and enjoy his early essays by all means. The stuff that turns up in the New York Times not so much.

Would you prefer your subsidy to a public good as a tax break or a grant?

Let us, for the sake of the argument, agree that tertiary education is a public good. I'm not so sure myself, it being both rivalrous and excludable but let's just accept that it is. Now, having determined that it is a public good then there's a reasonable argument that there should be government subsidy to it. For we're pretty sure that markets unadorned don't produce quite the quantity of public goods that might be desirable. If you prefer, public goods are, like negative externalities, one of those times when we might righteously consider intervention in the pure and unadulterated free market.

Given all of that would we prefer our government subsidy to be in the form of tax breaks, taxes not paid, by those undertaking the activity or would we prefer that it be a system of grants to those who do? I ask because Felix Salmon over at Reuters thinks that the grants are, by definition, a better manner of subsidy:

If state and federal governments are going to spend billions of dollars subsidizing tertiary education — and they should — then they should spend those billions wisely, with a focus on education. Instead, they spend those billions through the tax code, with no kind of oversight at all, pushing their thumb on the scales so as to encourage, at the margin, the purchase of buildings and the building-up of large endowments.

At which point I entirely disagree: I think that tax breaks are much the better subsidy delivery scheme.

This is really a difference of world views. If you believe that politicians, those who direct such subsidies, are knowledgeable, clever and honest beings, striving only to do what is right for the common weal, then you might well argue that they should direct, in detail, where the taxpayers' money goes. If you're over the age of seventeen you will have been disabused of that notion, that politicians are honest, knowledgeable and clever, and so would prefer that politicians do not direct in detail. Rather, we might accept that public goods exist, that they should be subsidised in some manner, but having done that we want to keep the politicians as far away as possible from the details of what happens next.

I would go further too. A tax break means that anyone who meets the rules gets the tax break. A grant making system means only those who suck up to the politicians get the grants. And let's face it, we really don't want our impressionable youth educated by those who can stand interacting with politicians now, do we?

All of which leaves me with only one problem. I know very well that Felix is over 17 so how come he still thinks of politicians as they are not?

Great moments in economic punditry

This is an interesting assertion by the American writer Matt Yglesias:

The big issue that gets left out in pious lectures about comparative advantage is that Smith and Ricardo didn't believe that long-term economic growth was possible! This was the era of economics as the "dismal science", meaning that political economy was essentially the study of how to optimally allocate a fixed pool of resources.

Well, no, the dismal part of the dismal science came a little after Smith and Ricardo. The coinage is actually from Thomas Carlyle in 1849 (long after the deaths of both Smith and Ricardo) and was referring to the awkward fact, awkward for Carlyle, that economics indicated that reintroducing slavery might be a not very good idea. A very bad one in fact and given that Carlyle was advocating its reintroduction in the West Indies a finding that he was a tad angry about and thus the naming.

But over and above that it's quite remarkable to think that the man who has bored us all senseless for two centuries with that reading about the pin factory thought that long-term economic growth was impossible. For that passage, in exhaustive detail, is laying out the foundation of what we now call Smithian growth (or at least Deepak Lal calls it that). The division and specialisation of labour makes that labour more efficient in production. This is exactly how this form of long term economic growth actually happens: more division, more specialisation and trade in the resultant production in fact. Further, to think that Ricardo thought such growth was impossible is most odd. For in laying out comparative advantage he showed how it was true that even if you were worse at doing everything than everybody else then you'd still gain from the economic growth that would come from that division and specialisation: if you and everyone else concentrated on their comparative advantages.

This is more than just a minor snark: Yglesias is edging towards the idea that mercantilism might not be such a terrible idea. Yet it is a terrible one: precisely and exactly because it puts artifical barriers in the way of that division and specialisation of labour across national boundaries. Something that limits that Smithian growth: as Adam Smith was pointing out when he gave us the theoretical basis as to why there can indeed be long term economic growth.

Whether or not whole-life sentences are right, the ECHR is taking over British sovereignty

Jeremy’s Bamber’s successful appeal to the European Court of Human Rights (ECHR), has significance further than simply declaring whole life terms to be against human rights, and therefore allowing those sentenced to have their sentence reviewed and seek appeal. Although many will regard this as a great success for human rights in the UK, this is debatable, whilst it allows familiar concerns about the slow erosion of our sovereignty to emerge.

As  seen in the saga of the only very recently successful attempt to deport Abu Qatada, the ECHR reigns supreme over the UK, and as such, it can overrule decisions by British Courts and Parliament. This has only been confirmed by today’s ruling, which clearly illustrates how Parliament has lost its sovereignty, as the laws it has made no longer necessarily take effect in the UK, as illustrated by the alteration of the whole-life tariff today. The fact that we no longer have power over our own sentencing, and that the Parliament, supposedly the most powerful institution in the country, has been usurped, should be a cause for alarm, and illustrates one of the main problems with our relations with that other overbearing European institution—the EU. 

Separately, the claims that this is a victory for human rights, are, at best, dubious. Whilst it gives some of this country’s worst criminals a chance for release, it does not consider the rights of the victims of the crimes, or their families, who will either be forced to relive extremely uncomfortable events during retrials, or, even worse, be faced with the prospect of someone who has seriously harmed them or their family being released out into the world again. In addition, the threat of a whole life tariff is significantly diminished by this ruling, as lacks the weight it previously had, and so is less of a deterrent to crime.

Then there is the claim that prison offers the possibility for rehabilitation, and so releasing these criminals back into our society is not necessarily a bad thing. This may be all well and good in the case of more minor offenders, but those on whole life tariffs are hardly what you can call minor offenders, with some of Britain’s most notorious criminals, including Bamber himself, Peter Moore, and the more recently convicted Mark Bridger and Dale Cregan. The prospect of such violent and dangerous criminals being released, on the pretence that they have “reformed” is both unreliable, given their often deceptive characters, and disconcerting, as we may see serial killers returned to our streets.

This ruing, therefore, can be seen to have had a strongly negative impact on both sovereignty, sentencing processes, and even our own safety, and, as such, should be regarded with great concern.

Whole-life sentencing is wrong

The European Court of Human Rights has ruled, sixteen to one that whole-life jail sentences, with no possibility of release are "inhuman" and "degrading". I applaud their judgement. Teddy argues that the ECHR deciding for the UK takes away UK sovereignty, but that's fine with me so long as they make the right decision. Given the justifications we have for prison in general, complete life sentences make little sense.

Why do we keep people in prison? There have typically been four reasons people have given for punishment of any sort: deterrence, direct prevention, rehabilitation, and retribution. I think it's clear that retribution has no place in a just system, and should be dismissed out of hand. In discussing the import of the others in the question it must always be kept in mind that there is a very strong presumption in any instance that someone should not be in prison. Firstly, this is because prison is the archetypal restriction of freedom, and secondly because prison is extremely costly and we know that there are always other good uses for the resources they take up.

If there is any place for prison in a good society, then it is to keep dangerously ill people away from the others. The restriction on their liberty is justified by the extremely high costs they impose on others. But even in these cases we must always be vigilant. Even if someone is incurably violent when sentenced, they may not be five years later. If they are incurably violent deterrence may play little impact, and rehabilitation may not be possible. So the only question is whether they pose further harm to society. If they do not, we lack any justification for keeping them in prison. Given that individuals' circumstances, mentalities, and tendencies do change—and indeed should be expected to change more extensively if we expect more advanced treatments to become available—then we must surely not tie our hands in the future. And bear in mind that the boards deciding these issues are by no means unerring in the first place.

What of deterrence? Certainly it is clear that the prospect of one's entire life spent in prison is more unattractive than say, 25 years. And since it may be impossible to distinguish between incurable threats to society and crimes of opportunity in original sentencing we might need to sentence individuals longer in order to preserve prison's deterrent effect. But I'd question how different the expectation of a long stretch, say 25 years, and life really is to an offender, given how heavily people tend to discount the future. This compounds when we remember there is no certainty an offender will get caught or given the maximum sentence. If the difference in perceived costs to potential offenders is low (as I suspect), then it's likely the benefits from extra freedom, lower costs, and a more rational system outweigh the cost in lower deterrence.

Finally, we turn to rehabilitation. The statistics on recidivism and rehabilitation are fuzzy for various reasons, but 2011 data suggests around half of ex-prisoners are proven to reoffend (unproven numbers may be higher). Given that the same stats show that those who committed similar crimes, but who were given community orders, were much less likely to reoffend, I think there is a basic case for what seems obvious—putting people together with criminals, depriving them of time to gain skills and experience, and stamping with the badge of a convict is unlikely to guide them away from a life of crime. In any case rehabilitation is basically irrelevant for those sentenced to a whole-life, since they will by definition never be released into society.

So rehabilitation doesn't help the whole-life case, prevention by incarceration doesn't either, and deterrence only helps slightly. Therefore I believe the basic right individuals have to liberty, combined with the huge cost of prison means the ECHR is right to bring an end to the practice of life sentences without review.

I really don't believe in macroeconomics you know

I've long been making the point that in the long run it's all microeconomics. How the world will look, the wealth of the people, the consumption opportunities, the technologies used, by our grandchildren will have almost nothing at all to do with whatever macroeconomics is practised right now. They will all, however, be hugely dependent upon the microeconomics we practise now. The incentives in the economy to innovate primarily. If we look at the economy over a couple of centuries, for example from Adam Smith's day to our own, seemingly vast macroeconomic events like the Great Depression are little squiggles away from the long term fundamentals.

However, I also am not sure that I believe in much of macroeconomics simply because we so often find people cooking the books. As seems to be happening in Italy

Beppe Grillo, leader of the opposition 5-Star Movement, has long hammered on this point. In April, during the post-election interregnum, he’d clamored for “the immediate payment of about €120 billion” that the government and public entities owed the private sector. The government’s refusal to pay its suppliers violates EU rules. But the EU has soft-pedaled the issue, for two very big reasons: payment of arrears would force Italy to sell a truckload of bonds when there might not be any demand; and it would push the deficit way beyond the 3% line in the sand. Thanks to cash accounting, only actual disbursements make it into the deficit figure. Italy has achieved its “austerity” goals by not paying its suppliers. Once again, abracadabra.

Isn't that simply ridiculous? The targets set are because there's a thought that excessive debt (and 130% of GDP can be thought of as that) can lead to a debt spiral: ever more must be borrowed to pay off the old borrowings. This borrowing, above certain limits, must be discouraged, even an insistence on bringing the outstanding stock down.

But having done this everyone then carries on and allows said debtor to continue to borrow. €120 billion is a substantial sum, even when talking about government money, and is somewhere in the 5-10% range of Italy's GDP. That they're running it up in unpaid bills rather than Treasuries makes it no less a set of debts that the Italian taxpayer is going to have to cough up for sooner or later.

Either more debt is a very bad idea and thus all this austerity is a good one, in which case the Italian state cannot be allowed to stiff its creditors. That's just running up the same debt by other means. Or, alternatively, more debt doesn't matter so issue the Treasuries and stop stiffing the trade creditors. But you can only have what the EU is allowing to happen, debt's a very serious matter but keep on running it up all the same if one is being entirely inconsistent.

Which is, as I say, why I'm not sure that I believe very much macroeconomics. They seem to be making it all up as they go along far too much of the time.

The problem with democracy

The public is ignorant about politics and lacks even the basic facts that it would need to make sound judgments about political issues. A new poll by Ipsos-MORI shows just how deep this ignorance is. Among other things, the poll found that:

  • 29% of people think we spend more on JSA than pensions, when in fact we spend 15 times more on pensions (£4.9bn vs £74.2bn)
  • 26% of people think foreign aid is one of the top 2-3 items government spends most money on, when it actually made up 1.1% of expenditure (£7.9bn) in the 2011/12 financial year.  More people select this as a top item of expenditure than pensions (which cost nearly ten times as much, £74bn) and education in the UK (£51.5bn)
  • the public think that 31% of the population are immigrants, when the official figures are 13%. we greatly overestimate the proportion of the population who are Muslims: on average we say 24%, compared with 5% in England and Wales.
  • people are most likely to think that capping benefits at £26,000 per household will save most money from a list provided (33% pick this option), over twice the level that select raising the pension age to 66 for both men and women or stopping child benefit when someone in the household earns £50k+.  In fact, capping household benefits is estimated to save £290m, compared with £5bn for raising the pension age and £1.7bn for stopping child benefit for wealthier households.

These are not just little mistakes, they’re absolute howlers.

This ignorance is perfectly rational and understandable. The problem is that these are the people who decide who runs the country. How can you choose the best set of welfare policies – ‘the best’ being what you would choose if you had all the information available – when you know absolutely nothing about welfare? How can you choose which of the two main parties is offering the best immigration policy if you haven’t got a clue about immigration?

Obviously, you can’t. And giving more power to well-informed elites seems even more foolish. Political psychology suggests that that the more information you have about something, the more resistant to new, contradictory information you are – or, in other words, the more dogmatically ideological you are.

That ideology is often dressed up in terminology that sounds neutral but makes significant assumptions about the role of the state and its ability to effectively solve society’s problems. Anyone for some ‘evidence-based policy’?

This is a problem not just for elections, but for any kind of administration of the state that gives experts decision-making power. If they are inherently dogmatic then giving them power may be even worse than putting every policy issue up to a referendum may be the lesser of two evils (while still being very unappealing).

The choice we have in a democracy appears to be between open-minded ignoramuses or well-informed ideologues. There is no reason to think that either will choose anything like the ‘right’ policy for any given problem. And, as Jeffrey Friedman has argued, unlike when you buy the ‘wrong’ flavour of ice-cream and can immediately buy a different kind next time, the feedback mechanism in politics is weak and difficult to discern.

The answer may be to recognise these crippling limitations of democracy and, wherever possible, prefer decentralized market mechanisms. We cannot solve the problem of ignorant voters or dogmatic elites in democracy, but we can at least try to take as much power out of their hands as possible.