Do we really need to explain supply and demand again?

Sadly, apparently, yes we do, we need to explain supply, demand and the role of prices once again:

Rail passengers facing further misery from strikes have described fare increases effective from today as a “kick in the teeth” after it emerged some are paying 43 per cent more for season tickets than they did seven years ago.

The average fare increase of 2.3 per cent across Britain came into effect this morning, though Virgin Trains East Coast has imposed a 4.9 per cent average increase on its services, the highest of any operator.

It is the biggest fare increase since January 2014, despite overcrowding and cancellations getting worse year on year.

One campaign group warned that passengers are being “priced off the railways” by fare increases that have far outstripped wage rises in recent years.

The problem there is the use of the word "despite" - it should be "because".

And to give that basic lesson in supply and demand and the interaction with prices. It is simple enough for demand for something to rise above the possible supply of it. Similarly, demand can fall below the available supply. We call these shortages and gluts. Which is what brings price into it. Prices are the method of rationing such things. As prices rise fewer people desire whatever it is and thus the pressure upon supply is loosened. As prices fall more desire and so that extra supply is snapped up.

Prices move more when either supply and or demand are inelastic (obviously, because elasticity is just the amount that prices move in relation to a supply or demand change) and less when elastic.

The provision of train services is inelastic. At the times that people actually want to travel those iron roads are full. We can't add more carriages because of the lengths of station platforms as well. We can go off an build new railways, yes, or get the signalling better or.....but these all take time. Supply of new capacity is this "chunky" rather than fine grained and as such is inelastic.

Given that this is so then if, as and when demand increases then prices should rise and rise strongly. That is, prices are going up not despite overcrowding but because of overcrowding. What is more they should be too.

Roughly speaking fares pay for the operation of the railways these days even if not for the capital projects to expand capacity. The difference between British railways and continental ones being, roughly, that passengers here receive no taxpayer subsidy while they do there. And why should the general taxpayer be paying for someones' preferred method of travel? 

That the capital costs of expansion are indeed still subsidised from the general revenue rather tells us that fares should rise again, if not again again. For there is no good reason why those who travel upon the railways should not pay the full costs, operating and capital, of travelling upon the railways.

Fares are going up because overcrowding, not despite. And overcrowding will cease if they go up again, either to limit demand or to pay for the expansion of supply.

This supply and demand stuff, the changes in prices, it all really does work. About time that people grasped it, no?

 

We're really very amazed at how this works

It's really very impressive when the government manages to do both these things at the same time:

The government faces a huge cross-party revolt next week over controversial reforms of higher education that would make it easier for new colleges to award degrees, become universities and make profits from teaching students.

Labour, the Liberal Democrats and crossbench peers in the House of Lords have joined forces in an attempt to scupper what they believe is an attempt at full-scale “marketisation” of the sector – a move they say would lower standards and damage the UK’s reputation for running many of the best universities in the world.

The peers – and university leaders – also say the reforms would destroy the cherished autonomy of UK universities and allow political interference by ministers into how they are run, teach courses and conduct research.

The government is to allow a rather more free market approach. A college might become a university, a college which charges students for the education they receive and then makes a profit or not based upon the results. This is done without the government allocating money to them, funding them with grants nor, actually, having much to do with them at all.

This is then going to lead to the government having more say over how universities work?

We are impressed. We're just not sure what it is that we are impressed about. The nefarity of the plans or the misunderstandings of the Lords.

As to the basic concept we think it's great, of course. Why shouldn't people be able to offer to educate? And why shouldn't people be allowed to choose to be educated? The only problem we can possibly think of is that the new universities won't have much space for the critical studies bods and nor will the students be so indoctrinated.....ah, yes, we see the problem now, having spent two generations marching through the institutions it would be galling to find that they were replaced without you, wouldn't it?

The NHS should be fit for us, not us for it

This is a small, note small, reminder of what Hayek was warning us about:

The NHS is being put under intolerable strain by "selfish" partygoers getting "blotto", the head of the health service has warned.

Simon Stevens said the NHS was being treated as the “National Hangover Service” as international research found Britain has one of the worst records for binge drinking, drug taking and sexually transmitted diseases.

The NHS chief executive said services already under heavy pressure were being compromised by those hell bent on hard living.

Not that government provision of health care would immediately turn us into a Soviet state. But that it was indeed going to be a pace or two along that path.

For look what the message is here. We British are not worthy of that National Health Service which government, in its munificence, provides for us. We get ill from the wrong things, we must change our ways so that we can be worthy of the Wonder of the World that it is.

It might be that some form of collective health care provision is a good idea. We can argue about the benefits of government provision, of monopoly, of Stalinist management and so on. But let's lay out what it is that we should really be getting from any such system.

Here's us, the people. We pay a portion of our incomes into this scheme, whatever it is, for health care. That system should thus be treating us of the diseases to which we are subject. That is, the system has to be worthy of us, not we of it.

And if it turns out that we're clap ridden dopehead drunks then that's what the health system we pay for should be treating. Simply because we're paying for a health care system to treat us, not one to offer what some mythically perfect population might theoretically deserve.

Which is where Hayek's point comes in again and where government provision rather fails. Hayek told us that we would be told to buck up and live as the planners think we ought to if they got that control and the very lack of choice means that we don't have the opportunity, by our actions, to change what is provided. Unlike a market system which really does reflect consumer desires because it has to.

The very fact that the NHS is complaining about what actually ails us Brits is what is wrong with the NHS.

 

Corporations should not donate to charity at all

It's amusing to find both a factual misstatement and a logical one in the same piece in The Times:

Britain is a rich nation that does not give away as much of its money as it should. 

The measure of should is of course something of a movable feast. But the fact is that Britain is indeed a rich nation - and it's also one of the most charitable on the planet. We hesitate to state that the forced removal from our wallets of 0.7% of everything to spend upon Ethiopia's Spice Girls is charity but that is how some see it. And the truth is that we have this highest in the world ODA as well as also retaining that older habit of doing it ourselves without government as the intermediary. 

Another way to put this is that forced extraction of foreign aid has not yet crowded out the more personal charitable giving. So unless our definition of "should" here is "vastly more than everyone else" it's not really true that we don't do enough.

We also get the logical error:

The real philanthropic failure, in fact, is corporate. Of the donations of more than £1 million in 2014, less than a quarter came from corporations. Only 23 per cent of FTSE companies donate 1 per cent of their pre-tax profits to charity. The whole of corporate giving, at £2.5 billion per annum, is only just more than the amount given by rich individuals. It is a quarter of the amount raised in tiny increments by the British public. This is a feeble effort.

No, that is £2.5 billion too much. A corporation is an artificial person constituted for one single purpose, to make money for the owners. Once it has done so it is up to those owners what they do with it. And while we might indeed gain an agreement among the hundreds of thousands who have a part of Unilever that selling soap to make a profit is a good idea we are not going to gain similar agreement that donating to the donkeys, the RNLI, or whichever NGO employs the Chairman's idiot niece this year, is deserving.

Thus the money should flow back to said owners, the shareholders, for them to do as they wish with it. Not be allocated in a manner which makes the managers (aka employees) feel good.

Quite apart from anything else corporate charitable donations are the spending of other peoples' money on other people. Which is to truly fail Milton Friedman's test of the four ways in which money can be spent. As PJ O'Rourke almost pointed out this is how we get that spending upon Ethiopia's Spice Girls. 

Globalisation makes us fat apparently

In this slow season over the holidays we have some alarming news. It is globalisation which is making us fat apparently:

Globalisation has been a health disaster, creating a generation of people who expend so little energy each day that they no longer need to eat the same amount of calories as their parents, a new study by the London School of Economics suggests.

An analysis of 30 years of data by the LSE has proven that the obesity crisis is largely driven by modern lifestyles, which have allowed people to become so inter-connected that they barely need to leave their desks or sofas to work, socialise or shop.

It means that traditional meals recommended by parents are now simply too much for a less-active generation.

Trade deals between countries have also caused food prices to tumble, creating virtually unlimited access to unrestricted calories for most people, while on-tap entertainment through television, smartphones and personal computers has replaced many traditional hobbies and activities.

We have been saying much the same thing for some time now. We expend less energy than previous generations and don't eat as much less than previous generations as we perhaps should do. Thus the obesity.

However, blaming this upon globalisation seems a little off. For as the actual paper itself says

However, the effect only becomes significant after we controlled for the reduction in food prices and the increasing percentage of active women in the labor force, which has a consistently positive and significant effect on obesity. When we decompose the globalization index on that of its components, economic components appear to be either not significant or exhibit negligible coefficients, while social globalization effects are robust. Similarly, when we in turn decompose the social globalization in its components, we find that the significant effect is driven by changes in personal contacts, and information flows.

We're all sending cat pictures to each other on Facebook instead of walking around the corner to see our friends.

This is not what we would really refer to as globalisation if we're honest. Technological advance, possibly, but globalisation not really.

In a nutshell, we find that social globalization—and more specifically changes in information flows and personal contact—stands out as a robust explanation for the expansion of the obese and overweight population and the rise of calorie consumption.

That really just is not what we would term globalisation.

 

Perfect piffle on a pogo stick

There are times when nonsense upon stilts is just not a strong enough description of a logical position:

The proliferation of internet-enabled private GP services has made a trip down Harley Street passé. Fast access to a general practitioner only needs a mobile phone. No need to wait weeks for an NHS appointment — these companies promise instant relief. The catch is, of course, that the customer pays: appointments tend to cost between £40 and £60.

This might still seem pleasantly convenient. You can shop around — we get takeaways, clothes, and sexual partners after browsing online, so why not choose the look of your GP? But these companies are hammer blows to the stability of the NHS.

That's right, private supply of a service undermines public supply because, well, because something.

As with baking bread for private sale undermines the Soviet Bread Service.

Apparently the solution is that all should pay more tax in order to pay more to GPs so that none would want to work for such a private service. Err, yes, and there were were thinking that medical students were generally drawn from the brightest among the population.

One more thing we'd just like to add. Dr. McCartney is aware that GP services in the UK generally are private sector businesses? The NHS contracts with said private businesses-thus the complaint about private business arrangements is more than a little odd, no?

Isn't this just wonderful news for the coming years?

Nations that were poorer than us are going to be richer than us soon enough:

Britain’s place among the world’s largest economies will have slipped significantly within two decades as developing nations jump ahead, long-term forecasts have suggested.

Booming populations, huge levels of state investment, growing consumption and increased trade in India, Brazil and South Korea mean that all three will overtake Britain’s economy by 2030, according to the Centre for Economics and Business Research.

We'd argue more than a little about the effect of those huge levels of state investment. Brazil did have some little worries with such into a car wash, didn't it?

The report itself is here.

It isn't, of course, quite what it is being made out to be. They're looking at the aggregate economic output of each country and there's really no reason at all to think that's all that important. How much is going on inside arbitrarily drawn lines on the map isn't important.   

What is important is the GDP per capita, because that's the measure of the consumption opportunities of the populace. And on that measure we'll continue to be at the leading edge of the pack for some time yet.

But then even that's not all that important. Sure, we'd like to be as rich as we can be. But why should or would it worry us if others became as wealthy, or more, than we are?

It's always the bit after the but that's the problem

A reminder that the word "but" is one of the more dangerous in the language:

South Yorkshire’s police and crime commissioner, Alan Billings, said a case could be made for banning certain groups from demonstrating because of the community tensions they caused and the cost to the public purse.

“It’s very difficult to call for the banning of assemblies because, for all of us in politics, there will be times when we want to protest and be on the streets saying our piece,” he said. “It’s very hard for us to say that’s fine for us but not for somebody else but, with the far-right groups in Rotherham, I’d say a case could be made because they’re not just coming and saying their piece and going away.

It does not matter who and why nor even what. Free speech is one of these things which is indivisible. Either it extends to the ideas and people we don't like or we'll rapidly find that it is extended to those that we do.

There is a further point here, which is that the complaint stems from how much it costs to police such gatherings and demonstrations. Which brings us to the freedom of association, something just as important as that freedom of speech.

It is not for the police, nor the government, to stop us from assembling on the grounds of cost or, in fact, anything other than the danger of riot. Their job is to enable us in exercising our rights. And there's absolutely nothing at all more valuable that government does than the protections of our freedoms and liberties. Yes, even those of people we don't like.

It is, possibly, just about permissible to think of the state insisting we do not do these things on the grounds of cost. But that would have to be long after said state has dismantled all of the other things it spends money upon. For our reason for calling that state into being is that protection of our freedoms.

How have we ended up with this idiocy?

Well, actually, the reason we've ended up with this idiocy is simple enough. The politicians just didn't take note of what the economists were saying. Another example of how the more the economists are united in a view upon a subject the less influence economists have over it:

Most of the wood fueling converted coal plants in England, Denmark and other European countries is coming from North American forests. Each month, about 1 million tons of tree trunks and branches from southern U.S. pine plantations and natural forests is being turned into pellets and shipped to European power plants, mostly to Drax power station in the United Kingdom.

The growing transatlantic trade is being financed with billions of dollars in European climate subsidies because of a regulatory loophole that allows wood energy to count as if it’s as clean as solar or wind energy, when in reality it’s often worse for the climate than burning coal. Only the pollution released when wood pellets are produced and transported is counted on climate ledgers. Actual pollution from the smokestack — by far the greatest source of carbon pollution from wood energy — is overlooked.

That's a rather large mistake of course. 

And how we ended up here is as simple as we've said above. From William Nordhaus through to Lord Stern the economic analysis said that, if (and obviously only if, whether is not an economic subject) something needs to be done about climate change then the method is to make the one intervention into the price system. Doesn't, on this point, particularly matter whether it is cap and trade or a carbon tax.

But just make that one intervention - do not, whatever else, try to address it piecemeal with detailed regulation of this and that. Because that will be both less effective and also more expensive.

What did the politicians do? Try to plan it all with a series of detailed interventions and regulations into this and that. And that's why dealing with climate change is so expensive, simply because the wrong method of dealing with it is being used.

Remind us why we allow the European Union to do things like this to us and them

It's the wrong major Christian holiday of the year to be getting obsessed with the price of eggs but there does seem to be a distinct lack of goodwill to all men in this action by the European Union:

The plight of his company, and the broader agricultural sector, has come to encapsulate a wider disenchantment in Ukraine with a trade agreement signed two years ago with the European Union. The deal, which went into force in January, included protections for farmers in the European bloc, and, as a result, one of Ukraine’s most successful industries has been effectively shut out of the new opportunities.

The Ukraine sits on one of the largest blocks of the finest arable land on the planet. The last time we had free trade with it, the 1870s as the railways extended into the steppes, this increased the living standards of all of us as we could buy yet more of ever cheaper food.

At the expense of our local landlords of course, this was one of the triggers of the agricultural depression of that decade and the great landed estates never really recovered. In the work of Saez and Zucman on the development of wealth this is made very clear. Agricultural land as the great store of wealth, monopolised by all too few, simply disappeared as an important part of the societal stock of wealth. Disappeared into the maw of the population as cheap food.

This we would argue is a Pareto improvement. And more than that, it's exactly the thing which the EU's CAP is designed to prevent. For example:

For a blend of economic and political reasons, Ukraine built a singular capitalist achievement after the fall of Communism: enormous, technologically advanced chicken farms that are among the largest in the world.

At its peak, Avangard had space nationwide for 30 million laying hens. Thanks to cheap grain and low labor costs, it is able to produce billions of eggs annually at a low price. The wholesale price of an egg in Ukraine is 4 cents, compared with 25 cents in Poland and 35 cents in Germany.

The quotas applied make it near impossible to import those eggs into the EU. And no one should be under any misapprehension that our own production comes from some happy farmer's wife throwing handfuls of grain to clucking free range chickens. The only question is whether the barns are there or here - and whether the people profiting are making a margin on 4 cents there or 35 cents here.

This is one of the things that Brexit allows us to correct. As with Cobden being right in the 1840s, the point of free trade is that we get to consume the cheaper food grown by others. And of course, the cheaper their food is the more open to their imports we should be, not this idiot system of refusing to allow food in precisely because it is cheap.

Unilateral free trade with the Ukraine, that's what we want for Easter, even if not for Christmas.