The Future of Energy

Last week, we hosted Purdue University’s Dr. Lynne Kiesling who spoke eloquently on what falling transaction costs and platform business models mean for the future of the electricity market. Her new working paper is titled From Airbnb to Solar and she is also the author of the 2015 Adam Smith Institute paper Power Up: The framework for a new era of UK energy distribution.

You can view the slides from that lecture by clicking here, and listen to our Facebook Live recording here.

Witch hunting, South Sea, Mississippi, tulips, dodgy mortgages, recycling

Human society is subject to fads and fashions. We’re most familiar with those in financial markets, where speculations give way to manias as with the South Sea Bubble, John Law’s Mississippi scheme, tulips, possibly dotcom and subprime mortgages. But it’s us humans subject to the fads, the manias, not financial markets. As witch trials and now recycling show us.

Monthly bin collections have been introduced for the first time in England and Wales, causing fury amongst residents who say they are having to burn their rubbish.

The controversial scheme was launched in the county of Conwy, North Wales, following a year-long trial for its 11,000 households.

Almost the first duty of local governance, the reason for it being instituited in the first place, is to rid the city of piles of foetid, stinking, waste. That local government now insists upon creating piles of foetid, stinking, waste in urban areas would seem to be an error in our system of governance.

The reason given is that we must recycle more and that’s where the error is:

At least 18 councils across England and Wales have moved to three-weekly rubbish collections, with a handful trialling four-weekly collections as they come under increasing pressure to reduce waste and increase recycling rates.

Some recycling is an excellent idea. Collecting up all that scrap gold makes money, we’re adding value by doing it. Other examples present themselves. But this is not then to agree that the mania, that all must be recycled, makes sense. For recycling everything doesn’t but that is the delusion under which modern society is being driven to act.

We’re even told that we must recycle plastics. Something that costs us money - subtracts value, makes us poorer - and the basic justification doesn’t even exist. For we’re told that we must “save resources” and it costing more is evidence complete that we’re expending more resources. But without that, what resource are we to save? Plastics are made from natural gas (not so much oil these days) and these very same environmentalists will tell us that we’ve already found enough fossil fuels, that we cannot use those we’ve got. There’s no resource here for us to save, is there?

True, we don’t want to choke the whales but that means that plastics are a waste management issue, not a resource and recycling one.

The idea that everything must be, or even ought to be, recycled is a mania as extreme as any of those financial market ones. One we’ll wake up from at some point but it might end up being more expensive than any of those tulip and trade ones. For what is going to be the cost if public health breaks down because local government insists upon the creation of foetid, stinking, wastes in urban areas? Doing so in opposition to the very reason we have local government in the first place.

Jeremy Corbyn to reverse most successful economic policy of all time

It might be possible to cavil that this description of Jeremy Corbyn’s ambitions is a tad unfair. Certainly some would so complain. Yet we do think it fair to point out the counterparty to the claim he’s making:

Jeremy Corbyn has warned that the rich are on “borrowed time” as Labour unveils plans today for a multibillion pound raid on companies which would force them to handover 10 percent of their shares to workers.

The Labour leader last night said he would break the mould of “neoliberal economics” which had dominated political thinking since the Seventies, adding that a Labour government “was coming” for the “very richest in our society”.

Speaking at The World Transformed rally at the party’s conference in Liverpool, Mr Corbyn said: “What we're doing is challenging a neoliberal ideology that took over the world in probably, let's say, 1970s or thereabouts.

Note the claim, took over the world. Thus there will have been global effects. As, indeed, there have been. The greatest reduction in absolute poverty in the history of our species. We think that’s a pretty good result from a socio-economic policy, Jezza clearly disagrees.

We think we should probably continue with this successful economic policy too. The UN, with the development goals, thinks we can actually abolish such extreme poverty in the next 12 years - we think that’s an excellent ambition whatever our views on the UN and targets.

Yes, we do understand how political opposition works. Everything currently being done must be opposed because that’s what opposition politics is. But now we’ve finally got that policy which really does lift up the poor it would be a pity to reverse it just so a different grouping of Britain’s chatterati can sit on the government benches, no?

Greetings everyone!

A Gap Year Intern at the Adam Smith Institute is a title both piercingly thrilling and intimidating. When I found out I’d secured the place, I was glad to know I would escape the usual gap yah pressures of lavish drinking and virtue signalling, instead enjoying witty office banter and an obligatory Google Scholar addiction. I cannot wait to get started.

Having observed the ASI’s work whilst at school and won their essay competition, I decided to go from merely intellectualising on ideas of freedom to being an active participant in bringing such policies about. I feel the best way to achieve such a pursuit is, of course, through copious amounts of tweeting, witty memes and coffee. I am certain the upcoming year will provide all three.

Speaking of which, I am keen to spill the beans on future technological and innovative trends through my blogs. I am particularly interested in ways to ensure technological developments in the near future, such as in vitro meat and driverless cars, are allowed to flourish. I am intrigued by the (arguably ambitious) idea of private currencies and how property rights can be used to improve trading relations. Furthermore, as a recovering teenager I would find it hard to resist covering topical issues from feminism to fisheries, and I look forward to engaging with like-minded (and unlike-minded) people who are keen to exchange views. My more niche interests involve Viking economics (or as I prefer, Vikonomics!) which I have found fascinating paralleled with contemporary economic philosophy.

Finally, through far too much time spent on JSTOR and the ASI’s plethora of research papers, I look forward to not only witnessing the economic past of the U.K. but the economic future as well!

Venezuela Campaign: Individual tragedies lie underneath refugee statistics

Individuals stories should always be at the centre of reporting on humanitarian and social catastrophes. Venezuela is no exception. Staggering numbers of people have left the country, at least 2.3 million in recent years and up to 4 million since the election of Hugo Chavez in 1999. Early emigrants tended to be those who had suffered discrimination or persecution at the hands of the regime. In the last 5 years, however, many ordinary Venezuelans, including a large chunk of its young people, have fled the country as its economy and social fabric is falling apart. Here we will consider some of the stories of those who have left:

Yerilin & Richard

Yerilin and Richard are a young couple. They fled to Brazil when Yerilin was 8 months pregnant. They chose to have the baby in Brazil as Venezuela suffers from acute food and medicine shortages. Describing Venezuela, Yerilin says: ‘It was awful. Sometimes we’d eat just one meal a day, or sometimes we just ate rice and tomatoes, or salad and that’s all we could get.’ She says she was anaemic for months because of her poor diet and couldn’t get the necessary vitamins. Like hundreds of other mothers, Yerilin came to Brazil to have her baby in a safer country. She hopes her child will get Brazilian nationality, but their main concern is bringing up little Max in a refugee tent on the edge of Brazil. Despite the mosquitoes and the heat, however, the couple agree that it is much better than back home.

Sex workers on the border with Colombia

Two Venezuelan women sell sex on the streets of Cucuta, a town on Venezuela’s border with Colombia which is now home to tens of thousands of refugees. The women insist on keeping their identities secret. One of them has left her children behind in Caracas, while the other has brought her baby with her. ‘I can’t really tell anyone about my work, because people just discriminate against you,’ says one. ‘Most people just won’t understand that this is a huge sacrifice that I do for my family.’ The other also admits that being a sex worker is far from ideal. ‘I don’t really feel good about this work,’ she says. ‘Because you have to cope with a lot of horrible stuff, and I don’t sleep very well. But I have children and a family and I have to deal with it.’ Trapped and powerless, these women sell sex as they are unable to get a job in Colombia, a precarious situation which leads towards exploitation by gangs.

Curaçao

In January this year 18-year-old Jeanaury Jiménez was travelling to the island of Curaçao for the second time, having been deported back to Venezuela once before. This time, however, her fragile boat capsized, leading to her death and ten others’ who had made the journey in search of a better life. Jeanaury left behind two newborns, who are being cared for by their grandmother in a country where baby formula is all but unaffordable. Jeanaury’s family, like almost every family inside Venezuela, wonder where their next meal will come from. 20% of Venezuelans rely on CLAP, a government-run food distribution system which, in the absence of other sources of food, assures their compliance to the regime. Around 3 million Venezuelans receive money from abroad, mostly in dollars. Since the regime is greedy for cash, it takes a cut from all foreign transfers.

As should be clear by now, the Venezuelan government has no interest in the welfare of its citizens, at home or abroad. This tragedy can be met with determined action from the international community to help those who have fled Venezuela – and push for Venezuela to end its embargo on international aid, which is still in force and worsening the crisis there.

More information on the Venezuela Campaign can be found on their website. 

Market efficiency is market efficiency even when it's Albanian cocaine gangs

We’re not as coy as this:

“They have a long-term approach to success. They have got rich slowly. They now dominate drugs market prices by selling at the lowest price. They don’t impact upon purity by adulterating it — they make relationships upstream and establish staging posts through Europe and they have done everything in a slow, efficient, sustainable way.

“If they weren’t doing what they are doing, you’d take your hat off to them and say this is a fantastic business model.”

As is well known we’ve argued that such drugs should be legalised along with all of the associated branding, quality assurances and so on that would come with it. At the very least there should be decriminalisation.

And yes, market efficiency is still market efficiency and to be admired for that alone even when it is Albanian cocaine gangs. They’re providing people with what they desire at lower prices - leave aside that little difficulty over law breaking and that is indeed a Good Thing.

The point to this story though is this:

Saggers said the Albanians were so successful that they had “individually and systematically brought the price down from over £45,000 a kilo five years ago to about £30,000 a kilo now”.

OK.

One kilo of cocaine can be bought for as little as £3,800 in the jungles of Colombia

Right.

“I don’t think there is another commodity on the planet that generates that sort of difference between production and retail value,” he said.

We’re not entirely sure about that. These prices are rough estimates, but. Wheat is around £150 a tonne. Bread is in the £1 to £2 a kg range at the supermarket. That’s around a ten times price difference for the basic ingredient and the finished product. £3,800 to £30,000 is around ten times….

Yes, yes, yes, man does not live by toot alone and all that. But a ten times multiple from raw ingredient to finished product price isn’t that unusual.

It's not that the NHS won here, it's that drug regulation lost

This is being written up as the NHS having won a victory over the Big Bad Pharmaceutical Companies. When in fact it’s a failure of the Big Bad Pharmaceuticals Regulation System

.The NHS has won a landmark battle against drug giants paving the way for the health service to save millions by prescribing cheaper medicine.

Bayer and Novartis brought a High Court action against 12 NHS clinical commissioning groups (CCGs) in the north of England, relating to a drug to treat the biggest cause of age-related vision loss in the UK.

The companies challenged the lawfulness of a policy adopted by the groups which prescribed Avastin "as the preferred treatment option" for wet age-related macular degeneration (wet AMD).

Avastin, which costs around £28 per injection, is widely used around the world. However, despite being recommended by the World Health Organisation, it is only licensed for cancer treatment in the UK.

Yet the NHS groups were offering it as a course of treatment for patients with AMD alongside drugs called Lucentis and Eylea - drugs licensed for eye treatment.

Novartis and Bayer manufacture the two more expensive licensed drugs - Lucentis which costs £561 and Eylea which costs £800 a time.

Pretty much everything we know about Avastin does tell us that it’s just as good as the more expensive drugs. There have been proper tests of this contention.

However, it is not licenced for the treatment of this eye disease. It’s got all the documents and permissions to be used against certain cancers, but not in the eyes. Lucentis does have that eye licence. And it cost some hundreds of millions upwards to gain that licence for use in the eye as well. We’ve two different drugs (although we can have the most lovely arguments about how different they are) equally effective at treating this eye disease, one is licenced and expensive, the other is not for this purpose and is cheap.

This is Big Bad Pharma or a problem with the licencing system?

If government starts with a logical failure then they're not going to get the solution right, are they?

The government has decided to turn its attention to female entrepreneurship. What excellent news that is. However, if they start with a logical error - even an empirical one - they’re never going to find a solution to the problem they identify, are they?

The complaint is that fewer women than men start businesses. OK, but the important question then becomes, well, why?

The UK is virtually unrivalled as a place to start and grow a business. Today there are nearly six million of them, a 25 per cent increase since 2010.

Yet, shockingly, only one-fifth of these businesses are run by women – even though there are almost one million more women than men living in the UK. Men are twice as likely as women to be entrepreneurs.

OK, then the error - or what should be perceived as one:

“The fact that Britain is home to so many new, innovative businesses is something to be proud of,” said Mr Jenrick. “But the fact that so few of them are started by women is shocking. This is not because of a lack of talent or appetite.

“Therefore, it’s vital that we identify the barriers that are hampering entrepreneurial women from securing the backing that businessmen have taken for granted.”

That error is in that assumption about appetite. For we do have substantial research into patterns of male and female entrepreneurship. If we think of the spectrum, from self-employment to trying to found the next Google, we find that for many women it’s self-employment and the manner in which that mixes well with family responsibilities which is a driver. Female owned businesses tend to be smaller, depend less upon outside capital and are less profitable. As an EU funded study tells us:

Women accounted for only 29% of the 40.6 million entrepreneurs in the EU in 2012. Women entrepreneurs tend to operate in smaller businesses; usually go solo; tend to concentrate on sectors that are considered by financiers to be less profitable; tend to have lower growth and turnover compared to male-owned businesses. Women entrepreneurs tend to self-assess the level of innovation of their own business lower than male counterparts. They tend to start off with less capital, borrow less and use family, rather than debt or equity finance. Domestic circumstances often force women into periods of intermission; this hinders their ability to accumulate social, cultural, and financial capital, and constrains the generation of a respectable credit history. Women entrepreneurs are more reluctant to assume a position of debt compared to men. This is down largely to lower levels of self-confidence in their business. Women entrepreneurs generally have less powerful professional networks, compared to men.

Note that all of this is, of course, on average. That there are female entrepreneurs as rapaciously accepting of risk as any male counterpart is entirely true. Just perhaps not of the entire population - which accords well with our more general observations about risk appetite across gender.

We do know that male and female entrepreneurs are different along some axes, that the businesses they found are. Crudely, but not entirely inaccurately, women tend to found something which is either self-employment or a small step up from it. Men are more likely to try and hit that six out of the ground.

Which brings us to our question - why? It could be because societal expectations or structures are that women have a harder time accessing finance, mentoring and so on, thus the government’s attention to such things will be welcome. Well, in the manner that anyone from the government claiming they’re here to help might be. It might also be that the appetite for high risk billions or bust start ups is higher in men - on average again - than women.

Which is where the error is. The government is already ruling out that second possible explanation. But that’s the very question we want answered first, isn’t it? If people don’t want to do summat then that’s that, isn’t it.

We need to find out why female entrepreneurship is different from male before we go to try and cure whatever ails it. For it might be that nothing ails at all, it’s just a matter of personal preferences - and why should we be trying to change those?

A useful example of why we're liberals not socialists

Owen Jones tells us what socialism really is:

Socialism is the democratisation of every level of society, or it is nothing. It is based on an understanding that the concentration of wealth and power leaves democracy hollowed out, and that simply trooping to a polling station every few years is an insufficient counterweight to the behemoths of global capital. Under the prevailing system, the same vested interests remain in power whoever is in office, which is why a transformative government must seek to democratise the workplace, the economy and all of society’s pivotal structures, from the media to local government.

We’re agin this. We’re rather in favour of certain types of socialism - you want to set up a commune, a workers’ cooperative, a Friendly Society, you go right ahead. That sort of voluntary cooperation without the capitalist ownership structure, why wouldn’t we be in favour? Our only objections to such things are when they become compulsory.

But this idea of total democracy, sorry, no. Certainly, that democracy is a necessary and desirable method at times. Working out which group of poltroons get to set tax rates for the next few years, well, all other methods of deciding this seem to devolve down to heads on pikes at some point. But all of society? All of the time?

As all of us with any knowledge of either large organisations or student politics know that voting on everything all the time really means rule by that small number of people who run the agenda subcommittee. And as Mysterioso’s formulation of Worstall’s Law has it:

Any large organisation ends up being run by the kind of perverts who enjoy committee meetings

This isn’t something we would wish upon society as a whole. As PJ O’Rouke has pointed out if we all vote on dinner then every meal is pizza. But given the cranks who end up doing that voting it’ll be organic vegan pizza free of cruelty to tomatoes. You know, toast.

Which is where the liberal vision of society diverges from the progressive. Other people get to determine, vote upon, our behaviour only when that’s entirely necessary - Mill’s harm to third parties. Other than that we all get to partake of that stately progression to the grave on our own terms.

Everyone voting on everything all the time is simply the institutionalisation of the tyranny of the majority and why would any liberal want that?

Hancock's half hour

You will have by now noticed that the role of the Secretary of State for Health and Social Care is not to do anything important, like sorting out the NHS, but to provide gentle amusement whilst in transit.

Social care is a favourite. According to Richard Humphries of the King’s Fund, the last 20 years has seen a dozen consultations and green and white papers on how social care should be improved, and funded more fairly, but nothing has actually happened.

The present incumbent has now come up with the bright wheeze that "workers could have their pay docked to pay into a new social care fund". "People who made payments could either have all their future care costs met by the fund or, more likely, would benefit from a cap that would mean they did not have to pay care bills above a certain level."

Workers would be free to opt out of the scheme but those who did would get no benefits. Mr Hancock suggests that "auto-enrolment" for social care would just be a simple extension of "auto-enrolment" for pensions, introduced in 2012 and proving more successful than sceptics expected. But that was because employees got the benefit of employers' contribution. That would not be the case here.

Presumably workers, and everyone else, would be allowed to opt in and out according to their financial pressures at those times. Keeping track of what individuals have contributed, their entitlements, and the entitlements of their partners, would clearly be difficult. Maybe Mr Hancock, who must believe history repeats itself will come up with stamps as the solution.

A person’s entitlement, and that of their partner, would be calculated from the value of stamps purchased and when (because inflation will need to be taken into account). Just imagine how many civil servants will be needed to do these individual calculations on top of tax and pensions.

National Insurance was set up in 1911 with much the same mission, except it included pensions. They wanted to keep it simple with every worker (and employer) making the same contribution pro rata to wages. Mr Hancock no doubt has the same simplicity in mind. But his freedom to opt in and out will complicate matters. In pensions this became “Class 1” and then it dawned on the government that the self employed had to be treated differently so Classes 2 and 4 were born. Class 3 is for voluntary contributions. Labour governments are especially fond of complicating further – notably in 1948 and in the 1990s.

107 years on, HM Treasury are still fiddling with it. Class 2 is merging with Class 4 and white van man is unhappy: he thinks he is paying too much whilst others think he gets off lightly.

The key point here is that the handing out of benefits based on stamps (contributions) was deemed discriminatory. National Insurance is now simply a tax and benefits are part of state welfare available to all according (in theory) to need rather than contribution.

In short, National Insurance is a mess and it should be merged with Income Tax. But that won’t happen soon.

Mr Hancock wants to do it all over again. It will fail (if it ever happens) for the same reasons. The poor will opt out because they cannot afford the contributions but, when the time comes, will demand the benefits in the name of fairness. And based on all evidence of recent history, they will be right to assume government will capitulate and pay.

The rich do have an obligation to take care of the poor when social care is needed. There is a need to redistribute in an advanced economy that can afford it. And it is all becoming a great deal more expensive with longevity, increasing mental health problems and social care increasingly needed by those of working age: “It is notable that over half of these additional cost pressures arise from care and support to meet the needs of working age adults.”

Mr Hancock is wrong though to believe that his department, or local authorities or any other part of government, can run insurance schemes better than the free market can. Insurance companies have looked at this problem and walked away: too expensive as a whole. But the upper end of it, just like BUPA, could well be handled by the free market and that would have a small benefit for social care as a whole just like private healthcare has on the NHS.

The simple and effective way to enlarge the private social care insurance market would be to make the premiums tax deductible. What HMRC loses in tax, government saves on welfare. Then treat social care similarly and in harness, but not merged, with the NHS. Simples.