What should she say?

After seven weeks down under, I return to find the Brexit scene decisively altered. This is not so much by the Supreme Court’s judgement, always expected, less hurtful than it might have been and readily overcome given the parliamentary climate. The pivotal development is May’s trip to Washington this Friday, as the first overseas Head of Government to meet President Trump. This establishes that the stumbles immediately after his election have been overcome and attests to the mutual interest of both sides in constructive dealings. 

So what should May say to him? Is she simply trying to cement a personal relationship, or should she get into specifics? This has only to be asked to be answered: any relationship is built upon specifics. In this instance, both sides will also want a concluding press-conference which puts flesh on the bones. 

So let’s ask ourselves, what do the two sides want? At this early point, Trump is demonstrating credibility by signing executive orders which do what he promised (parenthetically, not the least by complying with the news values of his antagonists). He’s still keen on differentiating himself from Obama, but the fact of May’s visit achieves that. Friendship with Britain also plays well with many of his core voters - constitutionally well-disposed to this country - but May will do well not to rely on sentiment alone. In the medium-term, the success of Trump’s presidency will turn on his central economic promise: jobs for American workers. As to foreign policy, he will be less interested in giving signals of reliability to fractious allies than in pressing his foreign policy agenda: bilateralism in trade negotiations, burden-sharing in defence, and the defeat of Islamism. 

In principle, this poses few challenges for May, bearing in mind her fundamental objectives with the new man: a clear commitment to NATO and trading alternatives to the EU. The former should be fine, though we may have to goose up our expenditure on the military and suchlike (eg, GCHQ) to show willing. Trade is more problematic. May’s dilemma is that Trump is raising the stakes with his proposals for border taxes and the American way with trade talks is not encouraging: their negotiators take a notoriously tough line, animated by private sector cues. This means that May needs to prevail upon Trump to break the mould in some way, but without challenging his commitment to American jobs. To turn to one or two specifics: 

  • The two countries don’t export much by way of consumer goods or food to each other, so this ought to be upside all round. Of course we’re bonkers about GM crops and the Americans might not welcome cheap cars from Nissan, but would these be deal-breakers?
  • As to capital goods, both sides are already well ensconced with their customers. The civil business of our biggest exporter, B.Ae, is entangled in the Airbus joint venture and its European military business similarly in EADS. Rejigging any of this this would threaten jobs at Boeing and elsewhere, unless B.Ae also brought along new customers. This would be extremely disruptive, as the joint ventures are central to European - in particular French - industrial policy and underpinned by Government to Government agreements.
  • As to services, the two countries are more or less on the same page about IPRs. The Americans have much larger private sectors in healthcare, tertiary education and broadcasting but it is hard to imagine more politically sensitive topics here. May is fortunate that Trump is in a position to ignore any clamour for access as unrelated to US jobs. 
  • Finance poses few problems. Each country is already the largest FDI and portfolio investor in the other. The commitment of US investment banks to London is up in the air: May could ask Trump to lean on them to stay their plans to lighten their City footprint. He has shown that he’s willing to bully the private sector so you never know.
  • Finally, when negotiating TTIP and TATP, the US raised hackles by pressing for the private sector to be able to sue for access. If still the thing, the topic lends itself to compromise, as to transition periods, adjudicatory body and so on.

More generally, Trump could press May to sign up to his bilateral agenda. At this point, we’ve got nothing to lose, so there may be text to that effect. Net, net, May has something to offer, Trump has no reason to mess her up, so we should expect a positive closing communiqué. Will there, however, be a timetable (other than the well-signalled State Visit)? May will be bearing in mind that Trump’s piston could have a short shelf-life. After all those executive orders, he’s going to need support from Congress and the government machine. I’d be looking for serious blow-back from those whose interests are hurt or who are determined to be offended by him personally. It’s always possible that his opponents will be cowed as his policies begin to speak for themselves, but Trump could equally become another lame-duck á la Obama in short order. So May had best push things along.

It's forward to the Middle Ages time again with the New Materialism

Once again those giant brains at the new economics foundation wish to tell us how we can all be poorer:

Far from eschewing materialism, a deeper understanding of humankind’s place in a living world of materials suggests the need and opportunity for a different kind of love affair with “stuff” – a long-term relationship of appreciation, slow pleasures, care and respect. Instead of abstinence and austerity, embracing the New Materialism could have profoundly positive effects. Inverting classic expectations of productivity in which fewer people produce more stuff for consumption, the New Materialism points to an economy in which, in effect, more people produce less stuff for consumption.

More people labouring to produce less stuff which can be consumed is a synonym for making us all poorer. For it means, obviously, that we all work harder in order to be able to consume less.

This is in one part just a repeat of William Morris and the Arts and Crafts movement:

“The laborer with a sense of craft becomes engaged in the work in and for itself; the satisfactions of working are their own reward; the details of daily labor are connected in the worker’s mind to the end product; the worker can control his or her own actions at work; skill develops within the work process; work is connected to the freedom to experiment; finally, family, community and politics are measured by the standards of inner satisfaction, coherence and experiment in craft labor.”

And there's absolutely no doubt whatsoever that there's a joy in creation. This is why petrolheads spend months repairing something that then drives worse than any other car made in the last two decades. It explains those model cathedrals constructed entirely of matchsticks.

So, sure, why not? Connect with your inner creator by doing so. But that's a very different idea than the one being promoted, which is that we should all do this in all areas of life. That we should deliberately make ourselves poorer by hand cutting our own wheat, spinning our own wool and polishing our own turnips.

Work with a sense of craft delivers the benefits at the heart of the false promise of consumerism. In classic economic theory, we maximise our “utility” through what we buy. But in reality, what we do brings the greatest satisfaction. Lifelong learning – a natural part of a society in which we make and repair more – has multiple benefits: enhancing self-esteem, encouraging real social networks and supporting a more active and engaged life.

And that's where the gross error is. We do not maximise utility through what we buy. We maximise utility through what we do, this is already incorporated into the standard economic analysis. An increase in voluntary leisure is, in the standard analysis, an increase in utility. As is that Ferrari, that hand woven rug and the polished root vegetable. An increase in utility is defined as an increase in what we desire.

And as it turns out what human beings tend to desire is that they get more for less labour. With those little instances of constructing St Paul's out of Swan Vestas to leaven the pain of that increased utility.

It's not for nothing that Giles Wilkes called the nef "not economics frankly".

There's a gross logical error here

That the Great and the Good can be somewhat divorced from reality is a traditional left wing complaint. Hunh, what do those aristos safe and secure in their castles know about real life, eh? But if it is possible that the Great and the Good are in error it is possible that they are so when they agree with said lefties.

As here:

This fourth industrial revolution, just like all the others, will lead to a growth spurt. But the last big epoch of technological change was accompanied by political change that ensured those making the cars, the washing machines and the TV sets could also buy them. Full employment policies, capital controls, progressive income tax and strong trade unions ensured this was the case.

The first and second industrial revolutions were not accompanied by those policies and yet those making the products of the new technological revolution were still able to buy what was produced. Thus it cannot be those policies which led to that outcome and thus also it will not be necessary to have those policies to deal with the fourth such revolution.

This still leaves entirely open whether those policies are a good idea or not (they're not) but this particular justification of them is nonsense.

The WEF’s argument is that the ecosystem that once ensured growth was translated into higher living standards has deteriorated as a result of technological change, global integration, domestic deregulation and increased immigration. It has a comprehensive list of remedies, including fair and efficient taxes to ensure adequate investment in education and physical infrastructure, action to tackle corruption and the concentration of rents, an adherence to core labour standard and worker protections.

The World Economic Forum is the distillation of what today's Great and the Good do believe. And quite clearly they are wrong on the matter, as the lefties used to say about those of an earlier age.

Amusingly, it's actually Karl Marx who got this point right. Once there is no reserve army of the unemployed then competition between the capitalists for the labour they can exploit is the very thing which pushes wages up. It is this, alone and unadorned, which makes wages rise with productivity.

Or as we've been saying all these years, make sure we've competitive markets and she'll be right.

The BBC TV show about the health treatment you can't get on the NHS


There are two great Shibboleths that must have their obeisance in British public life. One is the National Health Service, such a wonder of the world that no one at all has copied the model. The other is the British Broadcasting Corporation, similarly something that no other wallah has deigned to clone.

At which point we get this

Now all of this is being laid bare in a TV documentary. I don't like watching myself struggle with physiotherapy, or walking badly. Who would? But after four years of recovery, it was time to be a bit more open, rather more honest. 

What we hope is that the film, which investigates exactly what happened to my brain when I had the stroke, will encourage some of my fellow survivors. If there's one thing I can do, it is say 'This happened to me' and offer to share the experience.

Could even be an interesting programme. But then there's this:

But then I realised that, so far, he has treated about 2,000 stroke victims, and while by no means everybody had a successful outcome, nobody seemed to have been harmed by the treatment. It costs about £5,650 a pop – and I plucked up my courage and decided to give it a go.

Give it a go in America that is. Of course, Andrew Marr is entirely at liberty to spend his money (even the money of the program makers who film it all) in any manner he desires. Yes, including on treatment which is only available to people not reliant upon the NHS.

But there is still a certain something to seeing one of the senior apparatchiki  of the tax funded British state revelling in, displaying even, to those tax funders the treatment that he, that apparatchick, can have but that they, the tax funders, cannot.  

We just wonder whether this crossed the minds of anyone at all involved in making this programme.

 

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

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

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

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

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

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

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

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

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

Half marks here for getting half of the answer right

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

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

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

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

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

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

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

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

 

London needs real road pricing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

Some new research on this more generally:

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

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

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

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

 

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

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

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

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

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

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

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