Odd where you can find wisdom these days

The political classes are in conniption fits about the evils of ticket touting. We've insistences that the very idea of a secondary market should be illegal. We've also the same people shouting that of course tickets must be reasonable in price, it's wrong that people must pay what appears to be the market value for something they wish to go and do.

On this very subject Matthew Syed discusses what happens in the Bundeliga, where ticket prices are deliberately low and yes, there's a massive ticket touting operation

On the wider point, history suggests that manipulating prices is generally a bad way to provide poorer people with access to valuable things, creating distortions, rackets and expensive counter-measures. Much better, as a rule, to redistribute income and wealth through the tax system. Either way, the Bundesliga is not the paradise we are sometimes led to believe. It has many strengths, but many covert defects, too.

Entirely so. As we remark often enough, changing the distribution of consumption is simple enough if that is what one is determined to do. Change the distribution of the cash which allows the consumption, don't mess with the markets nor the prices of those things being consumed.

And yes, just for the avoidance of doubt, there is always going to be some changing of that consumption distribution. We might have arguments about how much of it there should be, in fact we do, but the basic concept is clearly going to go on.

But the way to do it is to subsidise people, not things.

Sadly, we seem to find this obvious truth being expressed on the sports pages rather than in Parliament. 

Are we cynical enough we ask ourselves?

We're not exactly unusual around here in finding that much of the modern world makes more sense when viewed through a slightly cynical eye. But the question we must keep asking ourselves is, well, are we cynical enough? 

Take this complaining by Unite about Ineos buying the Forties pipeline off BP:

BP’s £200m sale of a major North Sea oil pipeline to petrochemicals company Ineos should face scrutiny by MPs, the Unite union has said, claiming the deal poses a risk to jobs and puts key infrastructure in the hands of one man.

Ineos said it had agreed with BP to buy the Forties Pipeline System, which transports nearly 40% of the oil produced in the North Sea and employs 300 people.

Given that Ineos owns the refinery at the end of that pipeline it seems unremarkable enough that the two pieces of infrastructure should be owned by the same organisation, or even person.

“Unite firmly believes that this sale is bad for Scotland and the UK.”

“We demand that both the Scottish and Westminster parliament carry out inquiries and that every MSP and MP in Scotland has a responsibility to make their position clear.”

“Do they believe this sale is in the national interest?”

That's really a pretty strong demand for what is a trivially sized transaction. At which point we begin to think a little cynically about this:

Unite added that it had “serious concerns” about the livelihoods, pensions and employment conditions of 300 people employed by BP on the Forties Pipeline System.

The union had previously fought a bitter battle with Ratcliffe, afterIneos threatened to close the huge Grangemouth refinery altogether in 2013 during a bad-tempered cost-cutting dispute.

Ah, yes, that's right. Ineos faced down Unite so Unite will never be in favour of anything the company does at all. So, we're being cynical, yes, but are we being cynical enough?

The Essence of Neoliberalism

Tomorrow sees the publication of my book, “The Neoliberal Mind.” This is a summary of its conclusions:

Neoliberalism is anchored in the real world of things that actually happen and can be observed to happen. In other words it is an empirical outlook, one that can adapt to observable reality. The test of its precepts is of whether they achieve the desired results in the real world. It is not rights-based, nor is it to be deduced from allegedly necessary truths about the universe. Instead it is an approach that seeks to achieve things generally desired, things such as prosperity and freedom, by means that have been shown to work in practice.

Most neoliberals are characterized by an optimism that human effort and ingenuity can achieve worthwhile goals. They are not gloomy about human nature or fearful that humanity is headed for catastrophe. On the contrary, they hold the view that human problems can be solved if people are clever enough and sufficiently resourceful.

They tend to compare the present with the past, rather than with some imagined and hypothetical future. They look at the tremendous strides humankind has made in the modern world, they examine the causes behind those successes, and try to apply the same kind of practices to stimulate further improvement.

Neoliberals are conscious that investment is the key to growth, and seek policies to encourage it. They know that because it involves deferring present gratification, there must be rewards to motivate people to do it.

They reject preconceived visions of what the future should be like, concerning themselves instead with the mechanisms by which a spontaneous outcome can emerge from the interaction of millions of people. They regard the resulting order as one that contains more intelligence and more knowledge, dispersed though it is, than any that can be dreamed up by a few planners. They also see it as more compatible with a free society.

They take a realistic view of history, especially that of the Industrial Revolution. They regard it as the development that made possible the improvement of the lives of ordinary people, lifting them from rural poverty and squalor. They welcome the fact that trade and industry and the wealth they bring are helping the world’s poor today just as they helped the poor in Britain’s industrialization.

Neoliberalism seeks to remove barriers to trade and investment, not to help the rich in developed countries, but to raise the living standards of people in poor countries, and applauds the progress made recently in lifting a majority of humankind up from subsistence and starvation. It works to do more of what has worked before. It rejects notions that growth should be curbed, and takes the opposite view that growth is limitless.

Neoliberals look at the world as it actually is, not seeking to reduce it to models of it that omit its ever-changing complexity. They do not seek to make it conform to some prior precept of what it ought to be, but to allow it to develop where people want to take it. And their optimism persuades them that people can make it better.

US healthcare: most people don't know what they're talking about

US healthcare is famous for three things: it's expensive, it's not universal, and it has poor outcomes. The US spends around $7,000 per person on healthcare every year, or roughly 18% of GDP; the next highest spender is Switzerland, which spends about $4,500. Before Obamacare, approx 15% of the US population were persistently uninsured (8.6% still are). And as this chart neatly shows, their overall outcome on the most important variable—overall life expectancy—is fairly poor.

But some of this criticism is wrongheaded and simplistic: when you slice the data up more reasonably, US outcomes look impressive, but being the world's outrider is much more expensive than following behind. What's more, most of the solutions people offer just don't get to the heart of the issue: if you give people freedom they'll spend a lot on healthcare.

The US undoubtedly spends a huge amount on healthcare. One popular narrative is that because of market failures and/or extreme overregulation in healthcare, prices are excessively high. So Americans with insurance (or covered by Medicare, the universal system for the elderly, or Medicaid, the government system for the poor) get the same as other developed world citizens, but those without get very poor care and die younger. A system like the NHS solves the problem, according to this view, with bulk buying of land, labour, and inputs, better incentives, and universal coverage.

But there are some serious flaws in this theory. Firstly, extending insurance to the previously-uninsured doesn't, in America, seem to have large benefits. For example, a recent NBER paper found no overall health gains from the massive insurance expansion under Obamacare.* A famous RAND study found minuscule benefits over decades from giving out free insurance to previously uninsured in the 1970s. In fact, over and above the basics, insuring those who choose not to get insurance doesn't ever seem to have large gains. Indeed, there is wide geographic variation in the life expectancy among the low income in the US, but this doesn't even correlate with access to medical care! This makes it unlikely that the gap between the US and the rest is explained by universality.

To find the answer, consider the main two ingredients that go into health outcomes. One is health, and the other is treatment. If latent health is the same across the Western world, we can presume that any differences come from differences in treatment. But this is simply not the case. Obesity is far higher in the USA than in any other major developed country. Obviously it is a public health problem, but it's unrealistic to blame it on the US system of paying for doctors, administrators, hospitals, equipment and drugs.

In fact in the US case it's not even obesity, or indeed their greater pre-existing disease burden, that is doing most of the work in dragging their life expectancy down; it's accidental and violent deaths. It is tragic that the US is so dangerous, but it's not the fault of the healthcare system; indeed, it's an extra burden that US healthcare spending must bear. Just simply normalising for violent and accidental death puts the USA right to the top of the life expectancy rankings.

This is what we'd expect if we approached the topic more honestly, and dug into the detail of healthcare stats. You might think—you might think!—that this is what international healthcare rankings like those from the WHO or the Commonwealth Fund do. Not so. The WHO just looks at a corrected life expectancy measure, but not one corrected for any of the factors which attempt to isolate the impact of healthcare. The Commonwealth Fund's is a mix of high level aggregate measures like physicians per capita and a survey asking people around the world questions like whether "Doctor or other clinical staff talked with patient about a healthy diet and healthy eating". Neither are useless, but they are not the real deal.

Academic papers that drill down into the detail find that the US does well in cancer survival, heart attack and stroke survival, and successfully medicating those with long-term conditions such as diabetes. In fact, when the Commonwealth Fund did this sort of analysis themselves decades ago, the US ranked among the best of countries. This is partly because the US has much more advanced equipment, partly because it funds more costly treatments in general, and partly because it funds the newest treatments, when their marginal costs are often stratospheric. This may subsidise medical research for everyone else.

Now this is not to say the US system works well. The fact that the US spends vastly more than everyone else, and only does a bit better, if that, makes the system pretty unimpressive. But it's important to understand why. The UK really does have "death panels" that refuse treatments because they're extremely costly relative to their tiny impact. The USA has a system where most people can buy—are even subsidised through the tax system to buy—insurance that is as extensive as they like, paying for ever more expensive and marginally beneficial therapies. Eventually you're spending a fifth of your GDP on it.

Maybe if the US government straightened things out—scrapped the incentives that push people to get too much healthcare and deregulated the system to increase competition and push down costs the US would spend a more rational share of its income on health. I think this is pretty likely. But I bet the gap wouldn't go away fully. Americans just have a lot of cash, and want to spend an increasing share of it on their wellbeing as they get even richer. As long as the system is mostly open, I'd expect that to continue.

*see tables 3, 7, and 8 for subsample analysis; doesn't look like any sub-group has seen any significant gains at all

Owen Paterson is exactly correct here

One of the things that Brexit allows us to do is the sensible thing which EU membership stops us from doing. Kill off entirely the subsidies to the agricultural sector:

Farmers reacted with fury last night to a proposal to axe their £3 billion in taxpayer handouts after the UK leaves the EU.

Former Environment Secretary Owen Paterson told a secret ‘Brexit seminar’ of former Cabinet Ministers at an Oxford college that Theresa May should follow the example of New Zealand, which ended government help for farmers virtually overnight in the 1980s.

The shock forced a radical shake-up in the country, with sheep farms replaced by deer parks and vineyards.

Well, yes, they would react in fury of course but it's still the sensible thing to do. As we've noted before the current subsidies don't in fact achieve much anyway, other than a rise in hte price of land:

We have an alternative policy framework to suggest. Let's just not have a policy. No subsidies, no payments, no department, no Minister, nothing, nowt, zippedy dooh dah. The New Zealand option. You've had it good for a century or more now there's yer bike and have a nice ride.

For that major support is these days the flat payment per acre being farmed. And as David Ricardo pointed out, that's just an addition to the rental value - and thus increases the capital value of the land. The current system of subsidy thus just raises land prices, meaning that people who want to go into farming must pay more to do so - it doesn't increase incomes over the long term at all.

Kill the entire system stone dead.

That's the way it's going to work in a system like ours

This complaint here is so normal, usual, these days that it requires a certain change of mindset to understand why it's so odd:

The richest will reap 80% of the rewards from the tax and benefit changes that start to come into effect this week, while the poorest will become worse off, according to detailed analysis by the Resolution Foundation.

The independent thinktank’s research shows that the effect of £2bn of income tax cuts and more than £1bn of welfare cuts will add up to a huge transfer of wealth from low- and middle-income households to richer ones.

Assume that they've got their numbers right, not always a given with the Resolution Foundation. They are still of course wrong on logical grounds.

What is being transferred is income, not wealth and we're never going to get good economics unless we remember to distinguish between a stock and a flow. We would also need to recall that if we are to insist that this is wealth being transferred then all of Piketty's (and Saez and Zucman's) measures of wealth inequality - yea even including Oxfam's - are entirely wrong. For they specifically state in all those calculations that they do not count government transfers as being wealth.

Further, this isn't a transfer being done, is the stopping of a transfer already being done. It's more normally conservatives who insist that current arrangements are the natural ones, any changes from them being an upset to the natural order - but then there's nothing so conservative these days as a whining leftie, is there? 

But more importantly, what did anyone think would happen? The general aim at present, whether rightly or wrongly, is that the state should become rather smaller than it is. The aim is that that 44% or so of GDP which went through government in 2010 should decline back down to something more like 35%, something very much closer (if a little below) the post war average.

In a system where it's the richer people who carry the major part of the tax burden then it's going to be the richer people whose tax bills lighten more with a reduction in the size of the state. It's difficult to see how it could be otherwise, unless we're to load an ever greater portion of that smaller bill upon their wallets.

Actually, we'd be fine with that. Why not have a state burden of a size where it is only those on above median incomes who have to pay into it? As we say, we'd be fine with it, but given the Laffer Curve constraints on marginal tax rates we would have to point out that such a state would be very much smaller than even 35% of GDP. Something which would undoubtedly produce more whining lefties than the current lightening of the burden is.

That appalling food insecurity report explained

We could say that these numbers are appalling:

One in four low-income households struggles to eat regularly or healthily because of a lack of money, according to the first substantial survey into the scale of food insecurity in the UK.

The survey showed that food insecurity was more highly concentrated among the unemployed, over a third of whom reported that they had either reduced the quality of their diet, or missed meals out altogether, because they had insufficient cash to buy food.

The Food Standards Agency (FSA) carried out the survey as part of its biennial look at consumer attitudes to food. It categorised 8% of all respondents as having low or very low food security, suggesting that almost four million adults regularly struggle to put food on the table.

But we should be more accurate and concentrate upon the appalling misuse which will be made of these numbers. It is not - although this is what we'll be told it is - that 25% of low income households are starving themselves in their garrets. This is a UK version of an American survey which defines itself thusly:

An estimated 12.7 percent of American households were food insecure at least some time during the year in 2015, meaning they lacked access to enough food for an active, healthy life for all household members. 

One household member misses their 5 a day once in a year, that falls into this definition of food insecurity. One person misses one of the previous 1,000 meals for lack of money and that's food insecurity.

Actually,  the British definition seems to imply that if people worried about either of those two possibly happening then they're food insecure.

Thus we must note what  the figures actually are. They are not of people continually being in such a state - they record any one episode in a year as being part of that total. And it's also not the number of people starving it's the number of people who might not have had 3 squares on any of those one days.

It might even be a real problem but it's not the problem we're all going to be told it is.

But what can we do about the robots coming to take our jobs?

Tim Dunlop has worked himself up into a lather about the robots stealing all our jobs. That latest paper from Daron Acemoglu has got him seriously worked up. So worked up that he makes two mistakes.

The first is that we've been automating labour for 250 years now. We are not poorer today than we were then. It isn't therefore going to be true that automating labour will make us poorer.

Interestingly, we do in fact have fewer jobs these days - relative to population at least. Because 250 years ago except for that small landowning elite everyone worked or they starved. This is not true today. We have people who are retired, just as one example. And we do generally think that stay at home mums, retirees, students and so on are doing just fine without having a job. 

That is, we have indeed taken some of this extra wealth from automation in the form of fewer jobs. And we're happy to have done so too.

But then there's this mistake of what we should do about it all:

The report also challenges the neoliberal tenet that unregulated markets are a surefire way to full employment, and it can reasonably be taken to imply a large role for governments in managing the change that is coming. Additionally, it undermines the persistent claim that technology will create enough jobs in the future because this is what happened in the past.

The claim isn't that technology creates jobs at all. It's that technology frees up labour. Which then applies itself to sating some other human want or desire. It's not the technology creating jobs, it's those unmet human wants which do. And as long as we don't run out of them then there will be jobs - and if we do run out of unmet needs then that's not a problem.

Given which, we can only use the free market to work out which those new jobs are going to be. Government cannot plan when we don't know what new need could be met, nor how, nor what it would be valued at. Only market experimentation can possibly achieve that.

That is, even if the analysis is correct, this is evidence of the need for even freer markets.

The Great Re-labeling Bill

Many of us voted to leave the EU, in part, to get away from all their pesky regulations. The British Chambers of Commerce (BCC), for one, spent years calculating their excessive cost to British business and castigating MPs and Whitehall for failing to obstruct them.  Technically on Brexit, all EU Directives would remain, because they are enshrined in British law, whereas Regulations which are the vast majority of EU laws by number, would automatically fall away.  Whoopee!

Regulations are like to teeth braces: they straighten things up and once that job is done, they can be thrown away.  Brexit is the ideal opportunity to do just that.  In those, relatively few, cases where correction is still needed, new British regulations (braces) could be installed to suit the current needs. 

HM Government published its Great Repeal Bill White Paper, 2017, on 30th March: “The Government’s approach to preserving EU law is to ensure that all EU laws which are directly applicable in the UK and all laws which have been made in the UK in order to implement our obligations as a member of the EU are converted into domestic law on the day we leave the EU, subject to the exceptions set out in this paper.” (A.1)   The “exceptions” are relatively minor, such as those concerning Gibraltar.

The rationale for this is risible: “1.13 If the Great Repeal Bill did not convert existing EU law into domestic law at the same time as repealing the ECA [European Communities Act 1972], the UK’s statute book would contain significant gaps once we left the EU. There are a large number of EU regulations and many other EU-derived laws which form part of our law which, if we were to repeal the ECA without making further provision, would no longer apply, creating large holes in our statute book.”  Heaven forfend that we should have gaps in our statute book!

The secondary rationale is no better.  Apparently, retaining all EU law would provide “certainty”.  Getting rid of it would not only provide certainty but also simplicity and less cost burden on business.

No one seems to know how many regulations there are but 19,000 is the figure bandied about. The White Paper suggests “over 12,000” (2.6) and claims that we need to transpose all EU regulations and European Court of Justice case law into UK law in order to revise, remove or retain each one after Brexit.

Adam Marshall of the BCC rightly sees regulations as “red tape” but takes the superficially responsible view “business communities across the UK always like to see the back of red tape. But they want any change to be considered carefully.” (Daily Telegraph, “Cut the red tape choking Britain after Brexit to set the country free from the shackles of Brussels”, 30th March).

Unfortunately, Dr Marshall and others with that view are ill-informed.  As the BCC itself showed in its 2007 report, “Deregulation or Déjà Vu? UK Deregulation Initiatives 1987/2006” such government initiatives, of which there have been many over the last thirty years, are doomed to failure.  The largest and most ambitious was set up by Sir John Major in 1992 under Lord Sainsbury. Such candidates for the chop as it found were nickel and dimed away by Whitehall and absolutely nothing of any significance resulted. The only successful government (New Zealand) achieved its aims by the reverse strategy: namely abolishing regulations en bloc and then forcing ministers and the civil service to re-regulate those they really needed.  Few were.

In my own discussions with senior civil servants, they agreed that this strategy is the only hope.  Brexit gives us the opportunity: all regulations, but not directives, will fall away automatically.  The Great Repeal Bill White Paper has it the wrong way round: we should let them all go and invite Whitehall to re-present those we really need.

When it comes to perversity, the House of Commons Constitution Committee takes things further. On 7th March they announced “The ‘Great Repeal Bill’ should not be used as a shortcut by the Government to pick and choose which provisions of EU law it wishes to keep and which to lose. If the Government wants to change the law in areas which currently fall under the authority of EU as, just to give one example, it has said it intends to do on immigration, it should do so via primary legislation which is subject to full Parliamentary scrutiny.”  Requiring that for the 19,000 regulations, EU case law and all the directives would pretty much guarantee that we would keep all the EU law we hoped to escape, for ever.

This subject is perhaps too big for a blog but the nub is simple: the so-called “Great Repeal” is no such thing.  It is simply re-labeling EU law as UK law.

In defence of 'dog kennel' flats

The Guardian writes:

"Hundreds of tiny studio flats, many smaller than a budget hotel room, are to be squeezed into an eleven-storey block in north London as its developer takes advantage of the government’s relaxation of planning regulations.

Plans for Barnet House, used by the London borough of Barnet’s housing department, reveal that 96% of the 254 proposed flats will be smaller than the national minimum space standards of 37 sq metres (44 sq yards) for a single person.

The tiniest homes will be 16 sq metres – 40% smaller than the average Travelodge room. They are legal because of government deregulation designed to promote the conversion of underused office space to help meet housebuilding targets.

Local residents have labelled the Barnet scheme “ridiculous” and “immoral”, comparing the planned homes to dog kennels."

This is of course good news. Due to Britain's extremely restrictive planning laws it is incredibly difficult to get anything built. Supply and demand matter. If we effectively make it illegal to build enough houses (in the places people want to live) then we have two options. Either we effectively price out thousands of people who could live and work in cities like London, or we take existing property (residential and commercial) and divide it up into ever shrinking portions. Neither option is ideal, but for those who would otherwise be priced out the latter is surely preferable. Britain may have some of the tiniest homes in Europe, but better to have small homes than none at all.

Not everyone's happy. The plans have been attacked by local residents, councillors, architects and the Labour frontbench. They argue that these flats are cramped and living in them would be unpleasant even for singletons. I don't disagree. If I were living alone I'd certainly prefer to live in a bigger place and pay more. I suspect many feel the same way. But the law shouldn't inflict my personal preferences upon everyone else.

Economics is about trade-offs (e.g. Would I trade a smaller flat for more beer money?). Preferences differ dramatically from person to person. One-size fits all rules such as minimum floor space regulations can never fully take into account the fact that different people will choose to make different trade-offs.

Take the case of ex-ASI employee Charlotte Bowyer. When she worked for the ASI she was a 'property guardian'. Property guardians keep disused building (e.g. churches, libraries, and offices) safe from squatters and vandalism. In return, they get to live in the building at significantly discounted rents. The buildings they stay in fall well below the standards typically required by planners. As she puts it:

"The first guardians to move in reported mouse droppings (from cannibalistic mice, it turns out, for they proceeded to eat my taxidermy collection), people’s urine and general filth. It's covered in warnings about the asbestos, and we wash in temporary showers by the old cubicled toilets.

There's no way in hell that these kind of properties would get built for human habitation."

Because the normal regulations don't apply to property guardianship schemes she was able to make that trade-off. And while the trade-off simply meant cheaper rent for her, for others the opportunity was life-changing.

"The people I live with range from students to freelance artists to young professionals, some of whom have also signed up for the ‘luxury’ of lower rent and the excitement of living in unique spaces. For others, the scheme has allowed them to move to London to study or set up their business; an opportunity they otherwise wouldn’t have been able to afford."

The case is similar with Barnet House's so-called 'Dog Kennel' flats. If they are going to attract renters they'll have to offer cheaper rents. For some that means letting them trade comfort for more money to spend on eating and drinking out. For others, it could mean the security to take a big risk, like starting a new business.

Over at Market Urbanism, Emily Hamilton has wrote about how even the poorest people used to be able to move to great cities like New York. She notes that:

"People of very little means could afford to live in cities with the highest housing demand because they lived in boarding houses, residential hotels, and low-quality apartments, most of which are illegal today. Making housing affordable again requires not only permitting construction of more new units, but also allowing existing housing to be used in ways that are illegal under today’s codes."

In an eye-opening piece for Slate, Alan Durning describes how the ladder was kicked away for low-income people as planners decided to regulate truly affordable housing out of existence. Many of these regulations were well-meaning, but they tended to hurt the people they were designed to help.

As he says:

"In 1909, San Francisco banned most cubicle-style hotels, which were a common form of cheap lodging for itinerant workers and others on exceptionally tight budgets. The city rationalized the policy as a fire-safety precaution. Had fire safety actually been the goal, the city would have demanded fire escapes, fire-slowing walls at certain intervals, and fire doors.

In the following decade, California began regulating rooming houses and other hotels, setting standards for bathrooms (one per 10 bedrooms), window area per room, floor space per room, and more. Again, some of these rules may have had health benefits, and the rules’ proponents certainly thought they were helping. Yet they knocked the cheapest rooms off the market without providing substitutes. Over time, building and health codes demanded ever larger rooms and more bathrooms. They, like codes for other types of housing, also mandated legitimate safety standards such as more exits, better fire-protection features, and ratproof food storage in kitchens. Other jurisdictions followed California’s lead."

Developers taking advantage of lax rules on office conversions are providing the modern-day boarding houses and residential hotels. This time, let's not let planners stop them. We should trash one-size fits all standards and instead let developers provide housing for the very poorest.