Modern religion is just so confusing

You know I'm sure that somewhere in the foundational documents of Christianity somewhere there's a story about how the money lenders and the Temple aren't supposed to be too closely entwined. I think that was one of the stories beaten into me over those years at the hands of the monks at least, vague memories of shouting and tables being over turned as our man JC told them to get out of his father's house. But here we have the new Archbish of Cantab insisting that the Church of England should actually become the money lenders. Shrug, I guess tempus fugit after all. Jan also had a joke about this idea as well.

However, underneath the inherent silliness is something much more welcome, a definite antidote to the increasingly shrill calls from the likes of Stella Creasey that payday lending must be abolished by legislative fiat. For what the Rev Welby is actually saying is that he wants to drive these lenders out of business by competing against them, not by hoodwinking credulous MPs into stealing away someone's livelihood. Welby is insisting that such short term and low value lending can be done at much lower prices than the current companies manage it. This would be to the benefit of the consumer, as competition always is, and this would thus be a good thing. And we around here do have a habit of welcoming goods things, whatever direction they arrive from.

So, after the sniggers have died away, full marks to Cantab.

Except for just one little detail: I'm entirely unconvinced that it will indeed be possible to offer such low value and short term loans at rates appreciably different from the current providers. It's absolutely possible to offer larger sums at lower rates: it's also entirely possible to offer longer terms at lower rates. But there's an inherent problem in small sums for short terms. There's some overhead to the making of any loan. Some irreducible minimum that it costs to make the decision to grant or not grant the facility. And the shorter the time period and the lower the sum then the more that minimum cost will be as a percentage. And, given the way that APR works, it becomes some vast percentage when a 1 week loan is calculated as if it is a series of 52 one week ones (which is pretty much what APR does).

I've seen a report that Goodwill (think charity shops) tried this in hte US and found that APr was well over 130% without even charging interest, let alone trying to make a profit. So I wish the CoE all the luck in trying to compete in this payday loans market. But I do think that they're not going to get very far. Simply because the costs of lending small sums for short time periods are inherently high.

We don't want a financial transactions tax because it's an extremely bad idea

The buffoons who are our elected politicians are calling again for a financial transactions tax. The only problem with having such an FTT being that it's an extremely bad idea.

In a report that calls for the Government to implement the Kay recommendations, MPs have called for the Government to consider imposing an FTT to help reduce high frequency trading. Professor Kay, whose report into short-termism in equity markets was published last year, did not contain any mention of the FTT. But Adrian Bailey, chairman of the Committee, said he had found support for the tax during evidence sessions. “The Government should assess the likely impact of the introduction of a Financial Transaction Tax and how the obstacles to its implementation can be overcome,” he said.

There's no particular problem with implementing an FTT. It's just that it's a very silly thing indeed to try and do. As the House of Lords Committee which looked at the same subject pointed out:

A  European tax on financial transactions could cost Britain’s economy up to 20 times the amount it raises, a committee of lawmakers said on Friday. Britain has said a transaction tax, dubbed a Tobin Tax after the U.S. economist who devised it in the 1970s, would only work globally and the EU plans are “deeply confused.” Britain is fiercely opposed to the proposed financial transaction tax (FTT), which the European Union said could raise 57 billion euros (49 billion pounds) a year if implemented across the bloc. “The FTT is likely to induce a loss in GDP between five and 20 times larger than the revenues raised from the tax,” according to an economic sub-committee of the House of Lords, the upper chamber of the parliament.

Perhaps part of the difference here is that I was asked to prepare evidence for the HoL report and did so, while the HoC one seems to have had no one who understood the EU's own report into said FTT. That EU report stating that by imposing an FTT the economy would be smaller than it otherwise would be and that the tax revenue losses from said smaller economy would be substantially larger than the direct revenues from the tax. The FTT is thus a method of reducing tax revenues. We even have a pair of Nobelists (Mirrlees and Diamond) insisting that transation taxes are in and of themselves a bad idea.

Or, as we might more cogently put it, the FTT a damn stupid idea that we really don't want to implement.

Is the NHS really the kind of health service we want?

Half of Britain's family doctors, according to a survey this week, now believe that their patients should be charged to see them. Their workload, they complain, has become 'unmanageable', their waiting rooms clogged up by people who have very minor ailments and do not need to be there.

I write this from a car repair shop outside Cambridge. I had a problem with my car, so I called up yesterday and made an appointment, to suit my convenience, for 8am today. I rejected the offer of a courtesy car while mine was being looked at, but was invited instead to spend the intervening hour in their gleaming air-conditioned customer lounge and to help myself to coffee, tea, sandwiches, biscuits, fruit juice and lots more besides. So I have been reading the newspapers, watching the TV news, and I will shortly be sending this to the blog on the free customer wi-fi. Through the plate glass window I see the engineer plugging various computers onto my vehicle to find out exactly what is wrong. The fee for that hour of his time and all that customer service? £50 (including VAT). The difference between this and a doctor's waiting room could hardly be more stark. If I could pay a fee to get that kind of service from the NHS, I would be absolutely delighted.

Britain has a National Health Service that was constructed during the years of wartime austerity (which was real austerity, not the bogus 'austerity' we are told we are experiencing today), and it presumes that most of us are on the breadline. But there seems no shortage of people who, like me, are willing to pay £50 to sit in comfort while their car is fixed. Do we really think they would not pay £50 to get the health of their own body diagnosed? The first thing we need to do is to take the middle classes out of the free healthcare scam and focus our resources on people who genuinely can't afford a doctor.

As for them, just look round the world – there are innumerable ways of making sure that people who cannot afford the full cost of medical care still get it. In France you pay, but get a rebate if you are on low income – so you are aware of the cost, but do not suffer it. Other countries have insurance systems in which the state pays the premiums of the hardest-up. Britain's trouble is that nobody has the faintest clue how much medical care costs, so don't think about whether their sniffle is really worth the doctor's time and the taxpayers' cost.

I find myself visiting the doctor more, now that I have given up on the NHS and pay privately. Instead of fearing that I might be wasting the doctor's time on something minor, I know that the doctor is pleased to see me because I am a paying customer. It doesn't cost a huge amount, in fact – nothing like the £150 charge that the NHS doctors survey worryingly suggests. But like the car showroom, I get seen immediately in pleasant surroundings and get treated as a valued customer by someone who is not overloaded and stressed out. Isn't that the sort of health service we want?

Holy Credit!

So Archbishop of Canterbury Justin Welby wants to make the Church of England’s property available for Credit Unions so they can wipe out those dastardly payday loan sharks. This is a brilliant idea with wide-ranging opportunities for both entrepreneurial clerics and banks.

Just consider the convenience for consumers of banking and praying at the same time. After the queue for communion, you simply shuffle over to the bank teller next to the altar to pick up your loan or maybe deposit whatever spare change you have after passing the collection box.

Meanwhile, over in the confessional, the priest can follow up an absolution prayer with a financial product pitch – “Have you considered insurance for seven years of drought?”

Recruitment of young folk into the priesthood has become a real problem for the Church but Credit Unions on site offer an added attraction in the area of branch security. Wearing body armour under cassocks, learning a martial art or designing bank vaults disguised as crypts will broaden the profession’s appeal.

Of course, established banks won’t be sitting still against this new competition on the High Street. Many branches surely have space available for any number of religious sects to set up shop.

What depositor with a bag full of cash could resist first lighting a candle in the hopes his deposits won’t attract the attentions of the taxman? Impatient couples could stop off at the on-site wedding chapel before opening a joint bank account.

Imam calling for midday prayers while you’re stuck in the queue behind the old lady counting out thousands of pennies? No problem – step aside to our prayer rug area and we’ll hold your place in the line.

And what customer wouldn’t appreciate an evangelical choir lifting the spirits before meeting  the bank manager about those persistent overdrafts?

Keep those ideas coming, Mr Welby!


The unprecedented $60 trillion of costs of Arctic melting

Much ado about a new study published in Nature. Arctic melting could lead to methane emissions which would cost the world $60 trillion. This is an unprecedented danger say scientists. Sadly, whatever one thinks of the scinece in this, those damages aren't unprecedented at all. Indeed, they're already written into the costs which we use to worry about what to do over climate change.

But, they say, economists are missing the big picture. "Neither the World Economic Forum nor the International Monetary Fund currently recognise the economic danger of Arctic change. [They must] pay much more attention to this invisible time-bomb. The impacts of just one [giant "pulse" of methane] approaches the $70-tn value of the world economy in 2012", said Prof Gail Whiteman, at the Rotterdam School of Management and another author.

The problem with this assertion is that all of the standard estimations do indeed include damages like this. Let us take the Stern Review for example, that's the one that tends to be used as a benchmark (and is indeed the benchmark that these scientists have used). In that Stern Review, drawing from the estimates in the Special Report on Emissions Scenarios, the assumption is that the global economy will grow by some 5 to 11 times over the course of this coming century. Global GDP will be between $250 trillion and $550 trillion. Stern then says that the damages from climate change could be as much as 20% of this sum. That is, that GDP would have been in that range but will now be in the $200 to $400 trillion range. Note that that is his worst case argument.

And here we have an estimate that damages could be $60 trillion over a 50 years time period: say, $1 trillion a year with a bit of rounding. Or one half of one percent to one quarter of one percent of global GDP. We have already got this included in our top whack estimate of damages of 20% of future potential GDP.

All of which brings us to the real point at the heart of the entire climate change discussion. No, not whether it is happening or not: let's leave the range of possibility open from nothing is happening at all all the way through to the sort of disasters being predicted here. It is still true, wherever on that spectrum we are, that we want all humans over time to be just as rich as is possible. We are therefore trying to balance the costs of not doing something about climate change against the costs of trying to do something about climate change. And as these century long figures show there are significant costs to both, or at least potentially there are.

But we should be measuring the costs of doing something as against the loss in GDP which doing something will cause. Just as we should be measuring the costs of not doing anything against the cost that not doing anything will cause. It's worth trying to avoid such methane releases if the cost of doing so is less than the economic growth that will be foregone. Which is where throwing around numbers like $60 trillion becomes unfortunate. For it's a cost over many decades: $1 trillion a year is more reasonable to use. And compared to the benefits that economic growth is going to bring to our descendants that's however large it is in one manner, really rather a trivial figure.

The Wonga delusion

The Church of England’s plan to drive payday lenders like Wonga out of business by competing with them is wonderful. After years of politicians demanding ‘action’ on the payday loan industry, an organization has finally decided to tackle this perceived social evil by giving people a better alternative, not trying to legislate problems away.

Critics of payday lenders quote the loans’ astronomical APRs — Wonga’s representative APR is 5853%. But this is extremely misleading. Representative APR is designed to show interest-on-interest compounding over a year, and is an inappropriate measure to use for a loan whose term is a month or so. A Wonga loan does not and cannot compound for longer than 60 days beyond the initially agreed loan period (which can be between 1 and 46 days).

Borrowing £200 over 46 days accrues £100.03 in interest and fees, an effective interest rate of 50% over this period. After this point, interest only continues to accrue for 60 days, after which point it stops. It simply does not make sense to look at representative APR for a short-term product that does not keep compounding for long enough for anything like that APR to ever apply.

No Wonga borrower can end up with a 5853% interest rate – the existence of this number is just an quirk of our financial regulations which require all lenders to express their rates in annualized terms. Journalists and politicians who report this 5853% APR figure as the ‘standard’ Wonga rate are mistaken and are misleading the public.

The real problem is that people are poor enough to have to rely on these sorts of lenders. Wonga et al only exist because their customers have no better alternative. Before the emergence of the formal payday loan sector, people had to rely on tattooed guys with a Rottweiler who’d happily break your legs to recover their investment. Nobody wants to borrow from a firm like Wonga, but they're a damn sight better than the existing alternatives.

The Archbishop of Canterbury appears to recognise this. Giving people more choices by offering a cheaper alternative is the sensible way to help payday borrowers.

If you'd like to know why economic growth is slow....

Then I shall tell you why economic growth is slow. We've become infested with an overweeningly bureaucratic state. I have examples from my own work but perhaps one from the public domain is better:

There was some bad news for York Potash project developer Sirius Minerals last week, after approval of its mine was delayed yet again, causing the shares to plunge.

I'm perfectly happy with the idea that a mine needs planning permission. Indeed, I've no problems at all with the idea that you need a permit to go dig a girt big hole in a national park. However, there's parts of this process that look absolutely absurd:

The second study essentially concluded that its authors did not see a market for the form of potash Sirius would produce. “In the conclusion, AMEC states that it does not believe there is a significant market for polyhalite and therefore stated economic benefits are unlikely to occur,” Sirius said. “This is followed with a view that, as polyhalite cannot be sold in sufficient volumes, the economic and employment benefits cannot be realised.”

What? One the one hand we've got Jeremy Grantham and vast numbers of enviros and organic nutters insisting that potash (and another fertiliser, phosphorous) is about to run out and therefore we're all gonna die and then we've these nutters employed by the government to say that no one will buy the stuff. A very quick Google indeed shows that there is a market for the stuff. Here. But much more than that, in order to get permission you've got to show the bureaucrats that there is indeed a market for your goods. What?

That's a planned economic system, not a market one. In a market system sure, you might need permission to go dynamiting the North Moors but whether you make money doing so is what you're there risking your capital to find out. It's absolutely damn all to do with functionaries in offices whether you do or not: that's your risk. And the only way anyone will ever find out is by going and doing it.

And this is indeed one reason why economic growth is slowing: because we've erected this system whereby the bureaucrats get to second guess everyone in their atempts at new economic activity. Yes, this is beter than a system in which only the bureaucrats ever initiate new activity: but it's still vastly worse than one in which people get on with what they want to do without having to spend several years waiting for a signed chitty. Economic growth has slowed over the past few decades simply because we've put more paperwork obstacles in the way of economic grwoth.

The good news about world poverty and globalization

On my own website today I draw attention to the Economist story about the progress of world poverty between 1990 and 2010. I point out that:

"World poverty has halved in two decades. The measure used is the $1.25 a day of consumption that is the average poverty line for the 15 poorest nations. This figure shrank from 43 percent in 1990 to 21 percent in 2010. This was not achieved by redistributing wealth from richer countries, but by having wealth created in poorer ones by economic growth."

The ASI responded to the "Make Poverty History" wristbands that celebrities popularized in 2005 by pointing out that the slogan did not indicate how this might be done. It implied redistribution, with more aid to flow from rich countries to poorer ones.  We produced our own wristbands that read, "I buy goods from poorer countries," and sent them out free to anyone who asked for one.  We gave away many thousands. 

Our point was that poorer countries become richer if we open our markets and buy their goods.  It is this, rather than aid, that has made a difference to the lives of a billion people over those two decades, and can change the lives of the billion still to be lifted from poverty.

Political ignorance and the porn filter

Recently I wrote about the problem of political ignorance: most voters don't know much about political issues, and most of the informed elite is also very closed-minded. Today we have an example of the worst of both worlds. Claire Perry MP has accused Guido Fawkes of 'sponsoring' the hacking of her website and of linking to it by putting a screenshot of her hacked site on his website:

Given "the fact that she evidently doesn’t understand the difference between a hyperlink and a screenshot", as the Ministry of Truth blog puts it, isn't it a bit worrying (and revealing!) that Ms Perry is the driving force behind the government's plans to require people to opt-out of a block on pornography?

Chart of the week: Eurozone car sales flat for 10 months

Summary: Euro are car sales have moved sideways for ten months

What the chart shows: The chart shows sales of new cars in the euro area as well as in the four largest EA members, expressed as an index with the average for 2008=100

Why is the chart important: The biggest purchases of households, the ones for which they usually borrow money, tend to be cars and houses. For this reason, both purchases are excellent leading indicators of activity, in that they are usually only undertaken when they buyer is feeling optimistic. EA car sales data give rise to cautious optimism that economic activity in the single currency zone has bottomed out. However, there is still little or no sign of any sustained recovery.