Nope, they're still not grasping the basics of trade here

That there has to be a government is true - we really do want someone to organise getting the bins emptied. But it really would be useful if those doing the governing, even those yearning to do the governing, were up to speed with this reality thing. Or at least that modicum that we've found out about it.

For example, since, ooooh, 1776, we've known that it is the imports which are the part of trade which make us rich. We get to consume those yummy and lovely things made by J. Foreigner - we're richer. Mercantilism is incorrect that is:

A powerful cross-party group of MPs is plotting to thwart Theresa May’s attempts to drive through a hard Brexit amid rising fears that UK businesses could soon have to pay huge export tariffs on goods they sell to the EU.

It is not the businesses doing the exporting which pay the tariffs. It is the consumers doing the importing who do. Yes, obviously, there's a second order effect, where some exports simply do not happen as a result of the imposts but in that case no one pays the tariffs.

It is a nonsense because the United Kingdom would have much more to lose from a trade war than the European Union. They buy 44% of our exports, while we buy just 7% of theirs. In a negotiation, the smaller partner gets what it wants through subtlety and goodwill – not bluster and hollow threats.

They really do have this entirely the wrong way around. What happens if we do not export these goods to the EU? We either export them elsewhere or we consume them ourselves. This does not, notably, make us worse off. The important question is what are we going to do about those imports from the EU which we do desire? Quite clearly, it would be ludicrous to tax ourselves for buying what we want therefore we won't.

And so we arrive at the only logical trade stance at all. Unilateral free trade. You want to tax yourselves on the purchase of our shiny goods? Well, off you go then, we'll do nothing so damn stupid ourselves.

And that's the problem with rule by government. It is actually necessary that those desiring to govern are plugged into the most basic reality. Not something greatly in evidence on the subject of trade, is it? 

Half marks here for getting half of the answer right

But it is still only half marks for while they've managed to get the incentives correct they've missed whether we should be doing the activity at all:

Ministers are considering plans for a plastic bottle tax as part of a crackdown on waste clogging up landfill sites and entering the sea.

Customers could be forced to pay an extra 10p or 20p for every plastic bottle or container they buy, which they would be able to reclaim if they return it as part of a deposit return scheme.

If you are going to try to incentivise then yes, money is the way to do it. Quite apart from anything else every schoolboy in the country looking for some extra pocket money will be scouring the hedgerows looking for some to hand in.

But this still leaves that much more important question unanswered - should we be recycling plastic bottles at all?

Think back to the days of glass ones, when we did have a deposit scheme and returns? Why did we stop doing that? Because making new plastic bottles and throwing them away after one use costs less that collecting up all the glass ones and using them again. We also know that recycling plastic bottles makes a loss (very definitely when including those collection costs) and that thus we expend more resources doing this than just the one time use would cost us.

Finally, we don't even have the knowledge that the population desires that the recycling happen. If that were true then it would not be necessary to institute a deposit scheme in order to increase the recycling rate, would it? 

People don't want to do this, it costs us all money and resources to do it and aren't those rather more important points than having finally stumbled across the correct way to force people to do it? 


London needs real road pricing

Nine miles per hour. Few predictions have stood the test of time better than the R.J. Smeed's. Back in 1949, the statistical genius hypothesised that the average speed of traffic in London is fundamentally stuck at nine miles per hour. It doesn't matter whether new roads are built, whether better cars are designed, the speed ain't ever getting faster than nine miles per hour.

Smeed thought that nine miles per hour was the minimum speed a driver would tolerate. Any slower and they'd switch to public transport or stay home. Any faster and the reverse would happen. Smeed's been right all the way up to 2012, where the average traffic speed in central london was 8.98 miles per hour.

It's got worse. It's now a sluggish 7.4 miles per hour thanks to major overhauls to our road system and a boom in new uses like home deliveries which are less sensitive to road speeds.

Smeed's prediction held true for so long because he thought like an economist.

Roads are scarce resources just like oil and coal. And as history has shown (100 years since the Bolshevik revolution) when scarce resources are given away for free they're overconsumed.

Instead of willingness to pay, they're distributed by willingness to wait. Brits may be famously polite queuers, but it's Russians who've had the practice.

It means our roads are clogged by those who place the lowest value on their time.

Smeed knew this. That's why he advocated for road pricing as early as 1964. And why the Adam Smith Institute has advocated it since the early 80s.

Interestingly, the London Transport Committee has come around to the idea too.

When it works road pricing means that those who need to use the road the most spend much less time stuck in traffic.

The problem is London's first attempt at road pricing, the congestion charge, was badly implemented. It's set so low that it barely affects traffic flow, and it's set at a uniform rate, so it fails to push drivers toward off-peak hours and routes. Motorists see it as just another tax (and they already pay a lot of tax).

As a result, we've got a congestion charge that's way too low and way too inflexible. Not a proper system of road pricing.

But, I bet motorists wouldn't hate paying more if they'd seen the alternative – Singapore.

Singapore squeezes five and a half milion people into a city half as big as London. Yet, traffic isn't a problem. The average speed in rush hour is nearly 20 miles per hour.

Imagine that. If you lived in Singapore rather than London, you'd spend half as much time stuck in traffic. That's great for motorists but it's also great for pedestrians; cars pollute more in traffic than in free flow.

Singapore's had congestion charging since the 70s and brought in the world's first digital congestion charge in '98. And they've set their congestion charge based on consumer reality not what's politically easy (it helps that there is no functional opposition in Singapore).

It means they can have variable pricing. Encouraging efficient use in rush hour and giving less-well off drivers bargain prices the rest of time. The tech developed in Singapore could in theory allow for Uber style surge pricing when demand increases rapidly.

That'd be useful when tube unions bring London to a standstill. Rather than traffic grinding to a halt the congestion charge could rise to keep traffic flowing smoothly.

Properly pricing roads would of course raise revenue for city hall to fritter away on vanity projects. But the beauty of the system is that it'd make things much better whether we spent the money on strike-proof driverless tubes or simply burnt it.

Indeed, with the cost of congestion an estimated £8bn a year, it seems we're already quite used to burning money.

Planning laws are not the whole housing problem—we should blame politicians too

There is a very good and persuasive argument that planning laws contribute to making us all poorer. We know, for example, from the work of Hilber and Vermeulen (2014) that “house prices in England would have risen by about 100 percent less, in real terms, from 1974 to 2008 (from £79k to £147k instead of to £226k) if, hypothetically, all regulatory constraints were removed”. Many other estimates agree and as Kristian Niemietz notes in Redefining the Poverty Debate these likely understate the issue considerably because they assume that no planning controls existed prior to 1974 and the model assumes further development restrictions.

The literature is fairly consistent: planning laws reduce supply, increasing house prices for us all. This is an issue that the left and right should care about. If you are on the left, and you haven’t read Sam’s primer on not caring about inequality, housing makes up a large portion of why capital as a percentage of national income - one of the favoured measures of inequality by economists like Piketty – is as high as it is, as can be seen from the graph below from


That said, I think focusing on laws which contain restrictions rather than laws which contain powers lets our elected officials off too easily. Notwithstanding the huge detrimental effect of planning laws, we have laws that would allow for a lot more house building than we currently have and they aren’t utilised for political rather than legal reasons. This distinction matters: politicians cannot be allowed to fall back on “the planning system constrains me” by default. In addition, if there are political reasons, we can try to impress a countervailing political pressure.  

The Mayor of London, for example, could use his powers to call in any planning application of strategic importance (this includes where more than 150 homes are proposed). This power would essentially allow the Mayor to act as the planning authority for a particular application – giving the application friendlier treatment than a local council might.

The Mayor also has powers to set up ‘Mayoral Development Corporations’ for the purpose of securing regeneration of an area. These MDCs have the power to be a local planning authority and determine applications directly. To date, there have only been three MDCs.  These MDCs have their own local development plans (used to determine planning applications) and have the power to direct other local authorities to amend their local development plans so that they are more pro-housing.

This is not restricted to London, Urban Development Corporations can be set up across the country – and they simply are not. Infrastructure provides yet another potential example: the government recently amended the Planning Act 2008 so that housing could be incorporated into the streamlined process for obtaining consent for large infrastructure projects (for example, a rail link or even nuclear power plants). But the government limited this to 500 homes – an entirely arbitrary number.

Moreover, the government could use transport infrastructure bills to accommodate housing. Acts of Parliament have no limitations and, indeed, in the Crossrail Act 2008, a process was implemented which essentially allowed for circumnavigating local councils on some issues.

Planning reformers are rightly concerned about the Town and Country Planning Act 1990. But its not the only way to get more housing: there are legal powers that allow for a more liberal approach to be taken, and they are not used. The pressure we can exert to get officials to use their powers is no substitute for changing and amending the laws – but whilst we’re waiting for full liberalisation, we might as well have a go at officials who can make a difference, but choose not to. 

So Gordon Brown was right then, Britain should not have joined the euro

That Gordon Brown was in fact right about something is a bit of a shock but he was indeed correct that Britain should not have joined the euro. One of his points being that the housing finance system was too different.

In an optimal currency are the different components will react to interest rate changes the same way. But if we've got largely variable rate mortgages and other places have largely fixed rate then they won't react in the same manner. A change in rates will affect, for us, all paying a mortgage, for others only those considering new ones. Our reaction will thus be of greater amplitude.

Some new research on this more generally:

Business-cycle synchronisation is a key criterion for optimum currency areas. The standard argument is that membership in a common currency area becomes costly for any country whose national cycle diverges significantly from the common cycle.

We find that for most EMU member countries there is a tight correlation between the national cycle and the common cycle. At first sight it thus appears that, with the exception of Greece (and possibly Portugal), the standard optimum currency area criterion is fulfilled. But our key argument is that it is not sufficient to look at correlation patterns. Countries that share the same business cycle might nevertheless experience quite different cyclical positions, and thus require a different monetary policy stance if the amplitude of the cycle is very different. We indeed find large systematic differences in the amplitude of national cycles and the degree to which the national cycle reacts to the common one, with many countries registering a ‘beta’ that is significantly different from one.

The practical conclusion for the Eurozone is that the main problem for the ECB might not be a de-synchronisation of cycles, for example between the core and the periphery. Instead, a more relevant problem in practice might be that individual countries have cycles that are tightly correlated, but of very different amplitudes, thus requiring at times a different monetary policy stance at the peak than at the trough. The more general conclusion is that a high degree of correlation is not a sufficient optimum currency area criterion. Having a beta that is close to one is equally important.

As it turns out, nor should anyone else have joined the euro either.


But why wait until the EU is being beastly Prime Minister?

Theresa May has told us all that if the Europeans are beastly to us over the Brexit negotiations then she'll show 'em. It will be more than just wind signifying nothing too, she'll create a lot tax and low regulation Britain just to show those continentals:

In comments that were hailed by Eurosceptics, the Prime Minister told EU leaders that any attempt to “punish” Britain would be “an act of calamitous self-harm for the countries of Europe” that her Government will not accept.

She said she would rather do “no deal” than one which is a “bad deal for Britain” and said that any attempt by the EU to harm the UK would force her to change the country’s “economic model” by lowering tax and cutting regulation to compete with Brussels.

The question that pops into mind here is, well, why do we need to wait for Brussels to be beastly? 

Of course, around here, we generally support a lot tax and low regulation model anyway. But the PM is stating there that such  a model would be good for the UK. For it would allow us to compete with Johnny Foreigner - presumably making us richer as we did so. And given that that is the case, both from her logic and also from the basic fundamentals of the subject, why are we waiting upon J. Foreigner? 

Why don't we just get on with having a low tax and low regulation economy and country? That is what Brexit gives us the freedom to do after all....

Bit of a blow to The Spirit Level idea, isn't it?

In The Spirit Level, by Wilkinson and Pickett, we are told that inequality is the source of most social ills. So much so that a more unequal society raises murder rates, makes even the rich die younger and ....well, you get the picture.

This is shown by lots of comparisons a cross countries, more equal places have better results by certain measures, more unequal worse and so on. It is, of course, a great big steaming pile of foetid dingoes' kidneys, as Chris Snowdon has memorably proven. But now comes another little blow to the thesis.

Japan is one of those places which they claim is more equal. So much so that quite a number of their projections  are anchored by the Japanese result. At which point:

Their plight is a rarely seen consequence of Japan’s struggle to steer its economy out of the doldrums after more than two decades of stagnation and deflation. Four years after Shinzo Abe became prime minister for a second time, campaigners say the rise in poverty is evidence that his grand plan for growth – known as Abenomics – has failed to deliver for many families.

Japan now has some of the worst wealth inequality and highest rates of child poverty in the developed world, according to a Unicef report released in April that ranked Japan 34th out of 41 industrialised countries.

Japan isn't all that equal and therefore their assignment to the more equal class must be called into question.

Or, of course, perhaps it has only just become more unequal - in which case they must all be dying younger, there are more murders and so on because inequality is the cause of these things, no?

In the absence of the evidence that those social indicators are going the wrong way we'd be back where Mr. Snowdon says we are, wouldn't we - foetid dingoes' kidneys? 

Bleedin' Germans, coming over 'ere and nickin' our markets

A nice outburst of xenophobia here, apparently Deutsche Bourse is going to nick some markets from the City:

Deutsche Börse’s €25 billion merger with the London Stock Exchange will trigger a huge grab of business by Frankfurt from the City, a study claims.

Research, which was commissioned by the German exchange, says that the merger will give Deutsche Börse the opportunity to relocate billions of pounds of derivatives trading from the UK to Germany.

The findings raise fresh questions about whether the deal, which will have to be signed off by the Bank of England, is in the City’s best interests.

So, how is this to be done? It is, after all, customers who decide where they are going to trade:

“Deutsche Börse has a good chance of winning significant long-term market share in the areas of interest rate and currency trading and relocating trading from London to Frankfurt if the market participants in London are given unrestricted access to superior trading platforms in Frankfurt,” Dirk Schiereck, chairman of corporate finance at Technische Universität Darmstadt, wrote in the report.

"Hmm, if we could just get this straight professor. You're saying that a producer who offers consumers a superior product might gain market share? Are you absolutely sure about this very strange idea?"

At which point shouldn't we put that xenophobia back in its box where it belongs?

Yes, remarkably, these people are being paid by you

A standard analysis of the effects of the European Union would include the fact that it subsidises the production of certain agricultural goods. This is what led to those wine lakes and butter mountains of yore. Set the price well above the market price and watch as producers flood the continent with product that no one wishes to eat.

One such product is sugar. The EU price is well above the world price and has been for yonks. This keeps the sugar beet barons in business and leads to, as always with a price above the market clearing one, excessive production. Fortunately, this is about to change. We consumers will be less ripped off to favour some few thousand landowners, how excellent, eh?

Except there are those who think this is not a good idea

British efforts to tackle obesity could be rendered futile by a European Union deal that threatens to flood the market with cheap sugar, experts have warned.

Campaigners fear the reform, described as a “threat to public health”, will allow companies to laugh off Government measures such as the Soft Drinks Levy, aimed at forcing a reduction in sugar content.

Beginning in 2018, the levy promises to tax companies which make and sell sugary drinks almost £1.5 billion over the first three years.

The high mandated prices are accompanied by quotas, so that entire countries do not in fact disappear under the overproduction of sugar. Those quotas are to go, as are the guaranteed prices.

And here's the lovely thing. The people telling us that we should continue to be ripped off in favour of those few thousand land owners are in fact paid by us. The claim being that they are experts looking out for our interests. It being somewhat difficult to see that they are really.

That Carthaginian solution is looking better all the time, isn't it?

A coherent economic policy is a useful thing Mr. Corbyn

We thus suggest you take the time to acquire one:

A Labour government will take failing care homes into public ownership to protect social care provision, Jeremy Corbyn is to promise.

The Labour leader will warn the social care system is at "serious risk of breakdown" unless the Government invests more money.

OK, maybe there is a problem here and maybe there isn't. And we don't think that nationalisation is a good solution either. But leave that aside. Let's at least try to insist upon coherence here, shall we?

 In a speech to the Fabian Society new year conference, he will say rising costs and falling fee payments from councils had seen 380 care home businesses declared insolvent since 2010.
"So a Labour government would give social care the funding it needs and give a firm commitment to take failed private care homes into public ownership to maintain social care protection.

That coherence being what's missing here. The initial insistence is that the government isn't spending enough on care homes. The solution is thus that the government will take them over and become entirely responsible for them? That's going to help, is it?

And we can meet this coming the other way too. If funding levels are raised then the care homes won't go bust and thus need not be nationalised. Even, if government doesn't have to buy the homes (and they would, you cannot nationalise without compensation) then there would be more in the budget to pay for funding, wouldn't there? 

Yes, we realise that we and Jeremy are most unlikely ever to get on and all that but our wish for the new year really is that people start proposing actually coherent public policy, not just sound bites to please the crowd.