Is Britain really out of recession?


All economic statistics are iffy, and growth figures are the iffyest. There is no doubt that we have been through the deepest and longest recession since the Second World War, but are we really out of it now? Yes, says the Office of National Statistics (ONS), delivering a message their political masters will love to hear – there's an election looming, after all. The UK economy actually expanded over the last quarter of 2009. Not by much – 0.1% – but as they used to say in black-and-white films, 'That's your story, boys!' And the story is 'Recession over – official.'

Maybe it is, but a 0.1% statistic hardly proves it. Economists measure growth by comparing output at the start of the period with output at the end of it. Both figures can be wrong, so the difference between them can be doubly wrong. It is hard enough trying to measure growth over quarter of a decade, never mind quarter of a year. And 0.1% is well within the possible error. Quite possibly, the economy actually shrank again.

Additionally, the calculations are done on sampling, rather than measuring the whole economy. You would need to be a statistical superhero to measure everything, particularly most businesses probably will not know exactly how they did last quarter until all the bills are settled and the spreadsheets are made up at the end of January, or beyond. So again, big mistakes are possible.

Even if the ONS guess is correct, we are not necessarily out of the recession woods. The £175bn of new money that the Bank of England created must have done something to stimulate business – though no more, it seems than to keep its nose above water. Now that this stimulus has come to an end, business might just slip under again. Don't trust any economist – nor statistician – who says they know for sure.

From Russia with thoughts


Just back from Moscow, where the locals were managing perfectly well with temperatures of -18C. There must be a point about climate change there. No, I'm not saying that the freeze invalidates the idea of global warming (though you have to ask how many more years of falling world temperatures would be needed to do so). Rather, it shows just how adaptable we are. Maybe adapt (if necessary) is the best and cheapest policy after all.

The reason I was there, though, was to tell the deputy head of Russia's central bank, Alexei Ulyukayev, that he might as well take a holiday. China, not him, is going to determine monetary policy hereabouts. China is overheated, and know that they have to rein in. That means their demand for commodities will grow less fast, and the all-important oil price is likely to hover around $40pb for the next half-decade. That too suggests that Alexei could take a break, because the resulting downward pressure on the rouble makes a strong rouble policy unsustainable (you can't buck the market, after all), which will have the beneficial result of lowering inflation.

Russia has been addicted to oil, and to inflation, for too long. High inflation makes rational investment impossible, because the signal of real price changes get hidden in the noise of all prices soaring upward. And 10% annual price rises make quite a bit of noise. Dependency on oil is fine when prices are booming as they have been, but it looks pretty sick now. Output is already falling, and Russia needs to diversity – not by trying to 'pick winners' but by making it easier for people to invest in Russia and get a fair reward for their investment. But when you are around 120 out of 181 countries on the World Bank's list of good places to do business in, something radical is needed. Like asserting the rule of law, cutting back bureaucracy, standing up against protectionism, and changing the culture whereby politicians and officials think position is about lining their own pockets, rather than the country's. When things are booming, you can indulge conservatism, put off reform, and endure inefficiency and waste. In tough times, you need to be a lot keener. It is a lesson that not just Russia needs to learn.

The proposed privatization of BBC Worldwide


News that BBC Worldwide - the corporation's commercial arm - has been put on a list of public assets that could be for sale as part of a government "operational efficiency programme", and that this is now backed by the House of Lords Select Committee on Communications is welcome, but not for reasons of operational efficiency.

The committee has it right when it says that a privatised company "would be capable of becoming a major global brand for distributing UK content". This begs the real question - why isn't the BBC that now? Why is it a localised brand that does not distribute well across the globe?

One of the reasons I have always favoured privatising the BBC is that I believe its total reliance on public funding damages British media. It creates a quaint organisation, with its peculiar "Auntie Beeb" culture; arrogant, statist, often inward-looking, prone to artisitic cliques, and always struggling with rationed resources. Letting the Beeb go free would make it go fully global, levering its huge competitive advantage - the English language - and able to take on the world through its creative genius and anarchic energy.

Yes, get BBC Worldwide out there in the global media marketplace, not just to make money today, but so that it's executives can come back to the broadcasting priesthood in White City and explain to them where tomorrow's money can be made from new audiences - by a commercialised BBC.

Economic growth no longer possible?


According to a new report from the hair-shirt brigade at the New Economics Foundation, it just isn't possible for the economy to grow any more with destroying the planet. The press release contains this partcularly inspired piece of analysis:

We tend to think of growth as natural for economies, forgetting that in nature things grow only until maturity and then develop in other ways. A world in which everything grew indefinitely would be strange indeed. A young hamster, for example, doubles its weight each week between birth and puberty. But if it grew at the same rate until its first birthday, we’d be looking at a nine billion tonne hamster, which ate more than a year’s worth of world maize production every day. There are good reasons why things don’t grow indefinitely. As things are in nature, so sooner or later, they must be in the economy.

My response is quoted on the BBC website, but here it is in full:

The nef’s latest report exhibits a complete lack of understanding of economics and, indeed, human development. To compare to the growth of an economy to the growth of a hamster, as the report’s authors do, is juvenile and misleading. Growth is emphatically not a zero-sum game. Trade brings mutual gains, and drives a process of innovation and technological advance that no-one can predict in advance.

It is because of this endless human ingenuity that we can and will continue to create wealth and raise living standards, so long as we are not prevented from doing so by foolish government policies. And it is precisely this economic growth which will lift the poor out of poverty and improve the environmental standards that really matter to people - like clean air and water – in the process, as it has done throughout human history.

There’s only one good thing I can say for the nef’s report, and that’s that it is honest. Its authors admit that they want us to be poorer and to lead more restricted lives for the sake of their faddish beliefs. I suppose they deserve some credit for making that admission.

Death and taxes


According to the World Health Organization, an estimated 30 percent of the world’s population lacks regular access to medicines, with this figure rising to over 50 percent in the poorest parts of Asia and Africa. Governments have often blamed this on the price of medicines, and have responded with a number of market interventions such as price controls and compulsory licenses.

However, our new research released this week shows that governments themselves are major contributors to the final retail price of medicines, through import tariffs and a range of domestic taxes. While such tariffs are gradually declining around the world, they are still as high as 15% – thereby acting as a tax on sick people.

Other low-income countries such as Ghana and Bangladesh increase the cost of medicines with import duties of between 6% and 8% - self-defeating in countries with such high disease burdens. Some countries levy especially punitive tariffs on antibiotics, hampering the fight against infectious disease. The worst offenders are Nigeria (20%), Burundi (15%), Nepal (15%) and Congo (15%).

In contrast, countries like Rwanda, Kenya, Gabon and Saudi Arabia have recently abolished import duties on medicines, joining the likes of wealthy European Union countries, Canada and the USA, as well as poorer countries like Benin, Malawi, and South Africa. Indian tariffs have fallen from 35% to 10% since 2001.

In 2005, a coalition of Switzerland, Singapore and the USA proposed at the World Trade Organization that all countries should abolish tariffs on medicines, as they are a regressive tax on the sick. It’s encouraging that many countries are moving in that direction, but there are still too many governments who needlessly price their own citizens out of treatment.

A global interactive map of medicine tariffs is available here.

Philip Stevens is Senior Fellow at International Policy Network, a London-based think tank

On the Citizens United case


The US Supreme Court has just ruled that corporations have more of the rights as "legal persons" that "natural persons" enjoy than was previously thought. In particular, that they've many of the rights of political free speech. They're allowed to spend money on advertising for and against political ideas and even politicians. This of course has created all sorts of screamin' ana wailin' from those who regard companies as the earthly spawn of Beelzebub himself.

Well, no, because as my liberal friends all seem to be indignantly announcing in the aftermath of the Citizens United ruling, corporations aren’t really people! They’re creatures of statute, and “corporate personhood" is just a convenient legal fiction.

And that argument I'm afraid rather leaves me in giggles. For of course it's exactly the argument that we around here have been using about companies over taxation. You can't tax companies because they're just a convenient legal fiction. The tax will end up being paid by people, for only people, not legal fictions, can pay tax. Which rather means that, taking both together, those who are arguing that as "legal" not "natural" persons, corporations don't have the right to political speech should agree that we should abolish the corporate income tax.

For who can tax a legal fiction?

An education in education


Having read his superlative The Beautiful Tree, I have been working my way through Professor James Tooley’s E.G. West: Economic Liberalism and the Role of Government in Education. Stunned also by E.G. West’s magnum opus, Education and the State, I was thus keen to read Professor Tooley’s analysis of the great man and his work. It did not disappoint. In thoughtfulness it put shame to my scribbles in the margins of my copy of Education and the State.

Although unknown to far too many people, E.G. West’s work was, and remains, groundbreaking in scope and depth. Using the lessons of public choice theory he convincingly explains how and why the state came to dominate schooling. The initial usurpations in the 19th Century can be broken down in to six stages:

  1. 1833 – The Committee of Council encouraged private schools to take money in exchange for being regulated.
  2. The Committee of Council then produced dubious statistics to argue that there were deficiencies in the population’s education
  3. Through the elaborate pupil-teacher system, the Committee of Council aligned teachers’ interests with those of the Council’s.
  4. Churches were restricted from helping the poor and strict building codes were introduced.
  5. 1870 – The Education Act set up the board school. This increased the domain and influence of the Department of Education.
  6. 1878 – Board schools given the right to supply deficiencies ahead of voluntary establishments, who were now ineligible for any subsidies.

It is important to note that most, if not all, of this happened without ill intent; yet it is still best explained by the self-interest of bureaucrats through public choice theory. Disturbingly, despite this increase in government expenditure, these policies lead to a decrease overall in spending on education. West calculated that by 1882, 27% of private investment had been crowded out by the state.

In light of West's and Tooley's works it is odd that so many people who are open to free markets in so many functions of the state are still remarkably statist with regards to education. It is not only that they fail to make the ‘leap of facts’ to support a system with no, or almost no, government intervention, they are even averse to anything that goes beyond the limited terrain of Friedman’s voucher system, despite all the state controls that would still be left in place. As such, I can do no more than suggest they read West and Tooley, required reading for anyone that requires an education in education.

Well, we all knew we'd get to this


Yes, inflation, the last refuge of spendthrift governments. And to make matters worse we've actually got The Guardian praising the idea:

But the panic is plainly preposterous: living costs are rising at just shy of 3%, as opposed to just shy of 30% in the dog days of disco. The truth – although it is unthinkable for central bankers to say it – is that cheaper money can be a force for good. It was not (just) to be flippant that Keynes claimed Shakespeare's genius required inflation in order to flourish. At least until savers get wise and demand extra interest, it boosts enterprise by reducing the debts of people who borrow to do useful things, at the expense of those who squirrel their money away. It could also eat up the public borrowing that hangs over us all, just as it did with vast bills for the second world war. The downside? If prices rise steadily and in step, the costs are measured in the shoe leather worn out by extra trips to the cashpoint and in the endless reprinting of price tags – neither a truly crippling burden for UK plc.

Well, at least someone there has read at least one economics book to get the reference to shoe leather costs. But, umm, the rest of it smells like months old tripe really. "Saving" so that others can invest that money is squirrelling it away now, is it? 3% inflation over 25 years halves the value of money: not greatly helpful for those who would save for their retirement now is it?

But the truly gargantuan problem is the supposition that inflation would eat away at the debt burden. Firstly, of course, what this really means is a hidden default on that debt. You know, sort of a "Tee hee...we'll pay you your money back but it won't be worth anything by then. Aren't we clever!". Well, no actually, this isn't big and it's not clever. Those gilts largely exist in the pension funds of us out here in the general population so that suggestion is really that you'll steal from us in our old age in order to fund your fiscal incontinence now.

Worse than that though is that it won't actually work. For markets have been stung by that inflation ruse once already and so matters are now different. Some 25% (so I'm told) of long term gilts are now inflation linked. Inflation does nothing to reduce that burden then. Short term gilts will of course need to be refinanced at the new, higher, (nominal) interest rates that inflation will bring. And the largest parts of government debt, things like the PFI exposures and the public sector pension plans are all inflation indexed. So inflation would be both a default upon those who are not inflation protected and wouldn't solve the debt problem either.

Inflation simply won't cure the debt problem. We're back to either raising taxes so as to choke off new economic activity or firing some portion of the army of wastrels who consume the current tax take. Given my language choices there you can probably guess which course I regard as sensible....

Just not cricket


It was pretty depressing watching England get hammered in the final test match in South Africa last weekend. However, it was even worse hearing English Cricket Board (ECB) Chairman Giles Clarke interviewed about the potential effect of the government’s Davies Review on English cricket – yet another example of the law of unintended consequences at work.

Basically, the government set up the Davies Review to consider which sporting events should have to be shown on terrestrial TV (i.e. not on Sky). And one of the events that the Review decided should be ‘listed’ was the Ashes – the famous test match series between England and Australia. The government has accepted the findings, and seems intent to introduce the relevant legislation before the general election.

But the trouble is English cricket is heavily dependent on the money the ECB gets from selling broadcasting rights. The £30m they estimate they will lose if they have to sell the Ashes to ITV, Channel 4, Channel 5 or the BBC rather than Sky represents a third of their annual turnover. To put it another way, that’s more than the entire ‘Team England’ budget. Take that money out of the game, and it will suffer.

Moreover, while it’s easy to be populist and say that more sport should be shown on free-to-air channels, people ought to bear in mind the extraordinary impact that Sky has had on British sport. Without the money they brought to football, for example, there is no way the Premier League would be what it is today, attracting the world’s greatest players and showcasing some of the world’s best football.

But of course, that’s not really the key point here. Nor is the fact that Sky’s coverage is vastly superior to that of the terrestrial broadcasters. It’s not even that the terrestrial broadcasters show no real interest in showing cricket. The key point is that private sporting institutions should be able to contract freely with whomever they want for whatever price they want. End of story. The government just shouldn’t be involved.

P.S. Another sign of the times came when Clarke discussed the increased burden of government-mandated CRB checks - £600,000 last year, up from £300,000 the day before.