Fixed odds betting terminals - Mancur Olson was right

The government has announced that the stakes on fixed odds betting terminals will be reduced to £2. This is proof that governance does in fact work as Mancur Olson insisted it does. It's a fight among special interests for who gets to extract from us.

The news:

The maximum stake on addictive betting machines will be cut from £100 to £2, ministers announced today after reaching a compromise to limit damage to the public purse.

New rules on fixed-odds betting terminals (FOBTs) — described as the “crack cocaine” of gambling — will come with tax rises on bookmakers.

There's been a sustained campaign to get this to happen:

It’s nearly 20 years since I was put in charge of fixed-odds betting terminals (FOBTs) for one of the major bookmakers, rolling out some of the first ones, and it’s six years since I put the boot into them by turning whistleblower on Panorama.

Why did I turn whistleblower? To highlight the absurdity of £100 spins, in what was then a relatively lax regulatory environment around FOBTs. I wanted to expose the failure of the industry to recognise the impact of £100 stakes and the roulette game itself on the daily life of betting shops – customers and staff.

The point being not that the individual realised how damaging they were. But that other gambling interests were able to coopt those feelings:

Reducing the stake has always been a red herring. As opponents of FOBTs now admit, a £2 stake will make the machines 'unplayable'. The campaign isn't called Stop The FOBTs for nothing. And if FOBTs are removed from the high street, punters will move online, thousands of jobs will be lost and horse-racing will lose millions of pounds.

Gambling is going to continue, problem gamblers will still be problem gamblers. Who makes the money out of them will change, that's all.

As Mancur Olson did point out. Democratic governance does become the fight of the special interest groups over who is able to farm us. By altering the law in their favour and against their competitors.

Polly's just found out that most of us don't care

Polly Toynbee is outraged by her latest discovery - the British people aren't up to having her guidance. We're just not good enough for her - no doubt the calls for another people will be along soon enough.

 The more precise complaints are about big business. Pay for CEOs is too high, according to Our Poll,  tax dodging too high and all that. Labour has excellent policies on these matters, so she says, the Tories don't. And yet, and yet, we don't vote for Labour and their policies? 

The answer being, as she says:

Good, say I! Class war! riposted the Mail. But when Trickett averred, “People have had enough of the elite pinching wealth from the pockets of working people,” the trouble is that they haven’t really, or not enough of them. 

Truly we are not worthy of such a visionary.

For what is happening here is that we are in fact a democracy. Not a system where what happens is determined by the enlightened in the elite. Instead, we hoi polloi have our say about what is important to us. And the basic point is that we just don't care about these things. Or don't care enough to live up to Polly's vision of the Good Society.

But then that is the point of our being a democracy, isn't it? That we don't have visions of the Good Society imposed upon us but get to choose for ourselves? 

No wonder she's disappointed in us.

The proof that millennials should love the market

It's not obvious that millennials - the young and unwise of our society - like or even understand markets. Yet here we've a little story which shows that they should love them.

That story being a little listicle of things which have fallen out of fashion as the portion of purchasing power deployed by those millennials rises.

It’s not just frozen food that millennials have helped bring back. Millennials get a bad rap for killing things, but they’re also helping saving a number of industries. But are they reviving as many industries as they’re killing? I’ve conducted an investigative analysis to find out.

In are diamonds, golf, and vinyl records apparently, out go bar soap, chewing gum, focus groups, napkins, thongs and the Olympics.

Now let us think of an economic system which accommodates such changes.in desires. There's nothing particularly rational about some of them, they're just changes in taste. Rational in the sense of being calculable that is. Thus a planner could not possibly forsee them nor, well, plan for them. 

Who, after all, knows why the desired shape of knickers changes? 

We thus need some sort of system which indicates to producers that tastes are changing, preferably with a vicious feedback system to clear out those who don't take note. That being exactly what the market does provide for us. Those who fail to rise those changing tastes go bust an vanish from our economy.  And precisely because changes in taste aren't predictable they cannot be planned for at the system level - only by individual market actors who may or may not strike it lucky.

Millennials, whatever their thoughts about markets, really should love them. For they're precisely what caters to their tastes.

MaxFac

What does MaxFac mean? What might it mean for Brexit? In this week's #MadsenMoment, Dr Pirie explores the option on the table to solve the Irish border question after we leave the EU. 

A remarkable example of missing the point entirely

Even to seasoned readers of the newspaper like ourselves there are still gobsmackers to be found in the pages of The Guardian:

Back when local councils directly funded nurseries, there was at least some democratic accountability for how public money was being spent. But now that subsidies are channelled via individual parents, there is too little oversight for how £6bn of taxpayer money is being used to help give children the best possible start in life. Instead, the care of young children has increasingly become a commodity to be bought and sold.

The claim being made is that bureaucrats, overseen by politicians to some extent, care more about the quality of goods and services being delivered than private sector economic actors do.

Well, to be honest, that might even be true. It's the next stage which is so important though. The only way we will get decent supply from the bureaucrats is if they do care. Those private sector actors have to care for if they don't then they lose business, go bust, get fired.  

Which is why that move to commoditisation, the insistence that care for children is something to be bought and sold. The decision makers being the very people to whom the welfare of the children is most important, their parents. Because, as hard won experience has taught us, it's the pressure from buyers that makes suppliers deliver the goods.

That, after we surveyed the rubble heading east from the Brandenburg Gate in 1989, anyone can seriously argue otherwise really is a gobsmacker.

In which we refute Piketty - thusly

All too few of us really understand the scientific method. Certainly, whenever it comes to the social sciences the truth of the technique rather goes by the wayside. So, to repeat, we come up with an idea, this becomes the hypothesis. We then look around for facts which will refute this idea. For as long as we find no facts that do disprove our idea then it stands as a possibly useful description of our world.

But note the truly important part. When we find a fact which cannot be true if the hypothesis also is then it is the hypothesis, that idea about how the world works, which is rejected, not the fact.

That's the bit the social sciences have such difficulty with, the rejection by fact-finding. Clearly, if this were not so then we'd not have as many as we do insisting that socialism and planning will make us richer given our evidence of 1989.

Thomas Piketty made waves with his insistence that inheritance of wealth is leading to a division in society., one where place in that society is solely determined by membership of the lucky sperm club. We also have certain facts about wealth and who has it and why:

The number of people who inherited their wealth has gone down, with 94 per cent of the rich list being comprised of self-made entrepreneurs. 

Yes, that's a strong enough fact to refute the hypothesis. The idea is wrong and we not just should but must discard it.

Those concentrations of wealth are not being inherited, they're being newly created. Which is great of course, we like new wealth being created, given that we know how much of - some 97% or so in fact - entreprenurial wealth flows to us, the consumers, only that fraction sticking with the entrepreneur.

An elegant proof of why planned economies don't work, the efficient markets hypothesis

The efficient markets hypothesis tells us that it's not possible to regularly beat the market. For information about what prices should be is already incorporated into those prices. Sure, some beat it for some period of time because that's just the way statistical variability works. Some, like Warren Buffett, beat it for a long time but then his cost of funds is lower than the market's.

We also have all sorts of people out there who insist that the use or markets to allocate economic resources is the wrong way to be doing it. That the wise people in government should be doing this for us instead perhaps. 

At which point, an interesting comparison:

The message is clear: the beat-the-market efforts of professionals are impressively and overwhelmingly negative. In any asset class, the only consistently superior performer is the market itself. It is well to consider, briefly, the connection between the socialists and the active managers. I believe they are cut from the same cloth. What links them is a disbelief or skepticism about the efficacy of market prices in gathering and conveying information.

Odd to equate socialists and money managers, true. But the underlying point does stand. If we had evidence from our unfettered (no, don't titter at the back there) financial markets that they could consistently be beaten by good planners, then it's possible that good planners with adequate powers could improve upon a market economy.

We don't see that market outperformance - thus the planning part isn't going to work either, is it? For all the evidence we have is insisting that we cannot beat the market.

Why shouldn't the people who benefit pay for infrastructure?

There's a certain amount of shock, horror, being expressed at the idea that property owners near Crossrail 2 stations might chip in some of their value gains to pay for Crossrail 2. It being a reasonably obvious observation that being close to a station running in and out of London increases property values.

Home owners living within a certain radius of Crossrail 2 stations could be forced to stump up millions to pay for the project.

Transport for London is considering introducing a levy to fund the £30 billion scheme, which will run from Broxbourne in Hertfordshire to Epsom in Surrey, through central London.

It would create three zones stretching a kilometre around each station. Each zone, mapped out in concentric circles, would have a scaled charge, known as the Transport Property Charge, descending with the distance from the station, according to Estates Gazette.

This is of course close to, a variant of perhaps, land value taxation. The society around you has increased the value of your land. Why not a tax to pay for the process of increasing your land value? 

We might also note that this is not uncommon in transport circles. Hong Kong's metro is largely paid for in this manner, the Jubilee Line to Canary Wharf, the more recent Northern Line to Battersea. Property owners benefit from this, why not property owners pay for it at least in part? 

There most certainly can be specifics wrong with such charges - come on, this is government, of course there will be errors. But the basic idea, that those who profit from infrastructure pay for it seems fair enough.

Is Eurovision worth the cost?

This morning I jumped onto BBC Radio Wales to discuss the costs and benefits of the Eurovision song contest to the UK. 

Back in 2013 Dr Eamonn Butler wrote a great blog piece on the cost of the contest to the UK. In it he detailed the payments that the BBC makes to the European Broadcasting Union that hosts the contest: £279,805 in 2009, and £283,190 in 2010, £310,000 in 2012. What does this buy us? Well it buys the BBC the right to show the programme and it buys us a guaranteed place in the final. 

It doesn’t buy us the cost of the BBC’s production though. So I thought I’d update that a bit with some more figures, to give a better picture of what we spend and for you to decide if we’re getting bang for our buck. 

The benefits are obvious of course, so I’m going to focus on the costs. 

While the beeb isn’t keen to be open on how much it spends on Eurovision coverage, we can get an idea based on the spends the BBC is open about elsewhere. 

In their commissioned tariffs structure the BBC says the Premium Entertainment (including ‘one-off specials’ broadcast on flagship national TV networks like BBC 1) price per hour the BBC expects a show to cost is between £400,000-£750,000. 

Eurovision isn’t just a one-off on one day. As any die-hard fan will let you know it’s many months in the making and the actual contest is a week-long phenomenon, with two semi-finals broadcast live and then the Saturday final. The semis last around 2-3 hours and the final has been known to go beyond 4. In the UK we also have the BBC’s ‘You Decide’, run live on BBC 1 and BBC Radio 2. So we’re looking at a potential spend of between £4m and £7.5m on top of the payments made to the EBU (if any rogue BBC journalist wants to drop me the true figure, my DMs are open). 

And of course there’s the salary of our superstar presenters. One who earns £900,000 per annum direct from the BBC (not to mention his fees for his regular show on the beeb), another who earns £250,000-£300,000 and two that earn through producing companies for this one-off so don’t show up in the superstar earnings breakdowns. 

This year’s first semi final saw UK just half a million watching the first semi-final, just over that amount last night for the second semi. Tomorrow is the final and based on audience figures being up for the semis we might expect it to beat last year’s 6.73m who turned in (which was about 36.6% of the Saturday night audience). This year’s contestant picking show had fewer than 1m viewers. The final in particular is a pretty substantial number – comparable regular annual events are the Voice (5.7m) or the X Factor Final (4.4m) with the FA Cup getting over 9m. This is of course nothing compared to the audience share for the final in Sweden (70%) or Iceland (98%). 

Eurovision costs are borne by Licence Fee payers and the EBU has been pretty vocal about its support for the system. We are, as you might expect, slightly less keen on a fee that makes up 10% of our criminal cases and which crowds out private competitors. 

The good thing is we’re not likely to win the contest any time soon. When Azerbaijan hosted the contest in 2012 they spent £48m on it and got just £7m back in tourism revenues, Copenhagen in 2014 spent £36m and got £13m back. It’s better if you do it on the cheap, Malmo spent £17m and got an estimated £16m back. Last year’s hosts Kiev ended up spending around £30m, it destroyed plans to reform the state broadcaster into a private one and took up nearly a quarter of its annual budget. 

I’m not going to say whether Eurovision is worth it (I have spent a lot of this week listening to the songs on repeat via my private subscription to Spotify, or watching videos supported by adverts on YouTube) but we should know how much our publicly funded broadcasters spend on events in our name and perhaps we should be more open to private broadcasters taking up the reins. 
 

Not that we expect anyone to thank us but housing policy is working

We have, for a number of years now, been pointing out that what ails the British housing market is really very simple. We have a shortage of permits that allow one to build on specific pieces of land.

We do not have a shortage of land - housing is 3% of so of our land area. We don't have a shortage of land where people wish to live either - given the inevitability of positional goods like a mansion in Mayfair at least - nor even, over time, of the ability to build more housing.

We've just a legal structure and a bureaucracy dedicated to not allowing people to build housing without those permits in artificial shortage.

Recent policy has been, not as fast as we'd like, not as big a change as we'd like but in the right direction at least, to issue more of such permits. The result being, as even The Guardian notices: 

At last, a reason to celebrate: house prices are falling.

We're not the sort who would boast of having told you so, heaven forfend that we should be so self-regarding.

But, you know, we did tell you so.

These markets things, the interaction of supply and demand changing prices, they really do work, are a useful description of that reality out there.