The FTSE 100 is entirely useful, as long as you know what you're using it for


It's entirely true that the FTSE100 is not a very good guide to the performance of the UK economy, as The Telegraph points out:

To some degree that might be telling us that the economy is not quite as strong as it might look on the surface. But, more significantly, it is telling us that the FTSE has become completely unfit for purpose. It no longer reflects what is happening in the British economy.

But then again, no one has ever claimed, or no one has ever sensibly claimed, that the FTSE100 is supposed to be a guide to the performance of the British economy. It's a guide to the performance of shares listed in London, not of companies doing business in the UK. As people have known and have been pointing out for many years:

Research by the Capital Group, which manages more than £750 billion of assets, has shown that more of the FTSE 100’s revenues are earned internationally than had previously been believed.

Previous consensus estimates had held that two-thirds of FTSE 100 companies’ turnover was derived from overseas sales.

But the new study has raised this to 77%. According to the Capital Group, 30% of the FTSE 100’s revenues now come from emerging markets, 19% from the US, 17% from Europe excluding the UK, 5% from Japan, 4% from the rest of developed Asia, and 2% from Canada.

Having an economic measure is just lovely. But it does help if one understands what is being measured. In this case, the economic performance of corporations who happen, for legal, historical, or just the general plain flat out honesty of the place, list their shares in The City. As that, it works just fine.

On interest rates

In his 2015 Ayn Rand Lecture, US investment banker Ken Moelis explained why low interest rates might be the new norm – and a perfectly rational one, rather than just a desperate attempt by central banks to keep things afloat. The reason he gave is that, thanks to capitalism, things are getting better and cheaper. If you don’t spend your money today, and put it under the mattress, it will buy even more in a year or so. And if you lend your money to someone and they repay you interest-free in a year’s time, your principal will buy you more than it could a year ago. In certain sectors – consumer electronics, for example – it buy you a lot more, so fast are prices falling. Thus a nominal interest rate of zero is actually a real, positive interest rate. Investors are willing to accept lower rates because falling prices boost their real returns.

This made me think more about falling prices – not prices that are falling because of inept, over-restrictive monetary policy, but prices that are falling because we are getting better and better at producing stuff. Specifically, I reckon that we are getting better and better at producing stuff at an accelerating rate.

Why? Well, we have been building up capital for a long time, so it is not surprising that production is getting more efficient. But something else has magnified that productivity. In the last 25 years, countries such as India, China and those in Eastern Europe have become part of the global economic system. And I think the economic network is a bit like a phone network – the more connections you add, the (exponentially) more useful it becomes. Add a fair chunk of the world population onto the capitalist network, and its performance rockets spectacularly too. New ideas, new resources, new competition – it sharply and disproportionately boosts the efficiency of the economic network, drives costs and prices down and quality up. And each improvement breeds others. So things get cheaper and cheaper, faster and faster.

Globalisation, in other words, is making our money go further at an increasing rate. We no longer need large nominal returns in order to do well by lending it out. Which is why nominal interest rates in the future are likely to be much lower than they have been in the past.

We always said this was a mad idea and almost certainly illegal


We've been saying ever since the idea first came up that minimum pricing on alcohol was a thoroughly silly idea and one that was almost certainly illegal to boot. Yet there were people who just insisted that it just must be introduced. That second, that it's illegal, has been confirmed:

The European Court of Justice (ECJ) has ruled that the Scottish Government’s plan for a minimum alcohol price would breach EU law if less restrictive tax measures could be introduced. Judges at the Luxembourg court concluded that the policy would restrict the market, which could be avoided by the introduction of an alternative tax measure designed to increase the price of alcohol.

We do get the basic contention of the puritan prodnoses behind this. If something is more expensive then people will presumably consume less of it. Yes, demand curves do slope downwards. But why on Earth you'd do this via minimum prices, rather than simply a generally higher excise duty on alcohol is something that's never been explained in any satisfactory manner. Because all you do with a mandated minimum price is fatten the profit margins of the people who make the cheap grot. And since when has that ever been a valid goal of public policy?

We're not, around here, and this writer especially, great fans of the European Union. But woe for national politics is that's the last defence against this sort of foolishness.

The case against Minimum Alcohol Pricing


The EU seems to have killed Minimum Alcohol Pricing, for now at least. That's good news, but the case against it will still need to be made as its advocates push for it despite its illegality. Last week I went on Ireland's flagship news programme, Prime Time, to argue against it. In Ireland, the price floor being proposed is €1 per 10g of alcohol, which is 12.7ml – so a can of beer with 20g of alcohol must be sold for at least €2.00, a 14% ABV bottle of wine with 85g of alcohol for at least €8.50, and so on. Drinks that are already priced above this floor will be unaffected.

Minimum Alcohol Pricing does not even succeed on its own terms, for two reasons. One, it is extremely regressive. And two, it will probably not affect problem drinkers as much as moderate drinkers.

  1. Minimum alcohol pricing is regressive.

Galahad lager is Aldi’s own brand beer here in Ireland, and you can buy normally buy twelve cans of it for €9 – 75¢ per can. It contains 16g of alcohol per 500ml can, so its price floor under Minimum Pricing would have to rise to €1.60 per can. A man and a woman who drink within the recommended amounts (which are very low – more than three pints in a day is defined as being ‘binge drinking’) can drink 170g and 110g of alcohol respectively, 280g in total, per week. This equivalent to 17.5 cans between two people per week – just over one can a day each. Almost everybody would agree that these are moderate drinkers.

At the moment, they can do this for €13.13 per week (if they buy a couple of weeks’ worth at a time). Under Minimum Alcohol Pricing, this rises to €28.00 per week, a difference of €14.87. Over the course of a year this means that a couple who drink within the very low recommended limit at home would be €773.24 worse off under Minimum Pricing.

When I put this to Dr Steven Stewart, an advocate of Minimum Pricing, on Prime Time he said this was “just wrong” and the true figure was 70¢ per week (€36.40 per year) per person. That might be true of someone who drinks a quarter of a bottle of wine a week, or for someone who buys more expensive brand name beer, but it is not true for people who shop at Aldi or buy other budget lagers and wines.

The impact of Minimum Pricing is not felt disproportionately by people on tight budgets, it is felt exclusively by them. Not only is this regressive, it is misplaced – alcohol consumption rises with income, as does drinking large quantities of alcohol. So we’re hammering the poor even though the poor don’t actually seem to be the problem.

  1. Minimum alcohol pricing doesn’t deter problem drinking, and the health benefits are overblown.

As we demonstrated in our 2012 report by former NHS statistician and epidemiologist John Duffy, “The minimal evidence for minimum pricing”, the model that Minimum Pricing advocates use is deeply flawed. Among the assumptions it relies on is that alcoholics and other problem users are more sensitive to price than moderate drinkers. That is, when the price of booze goes up, alcoholics are more likely to drink less than people who don’t drink very much.

This assumption is based on a misinterpretation of data. When the price of one brand of alcohol goes up, alcoholics are the most likely to switch to another brand – they are indeed price sensitive in regard to the type of alcohol they drink. But they are actually the least likely to reduce their consumption of alcohol in general – as meta-analyses of the evidence have shown. For the heaviest drinkers, price elasticity of demand is “not significantly different from zero” – they won’t drink less almost no matter how high the price goes.

Advocates of Minimum Pricing typically point to Canada’s success in reducing deaths from alcohol abuse after introducing minimum pricing. But the studies that show this are typically quite bad – most lack any control group which is essential in a situation where alcohol consumption has been falling anyway, almost across the Western world. Apart from this, the research is dubious:

The key finding was that over the period 2002–2009, “a 10% increase in minimum price for all alcoholic beverages was associated with a 31.72% reduction in wholly alcohol attributable deaths”. Whilst this study was greeted as a breakthrough by public health lobbyists, independent statisticians have demurred.

In fact, the actual finding was that a 1% increase in pricing gives an estimated 3.172% decrease in wholly alcohol attributable deaths. Despite the complex statistical analysis used elsewhere in the paper, the authors then used a simple multiplication factor to estimate that a 10% increase in prices would therefore give a 31.72% decrease in mortality rates. Even this lawyer can see that a simple linear relationship cannot hold true. If it did, a 33% increase in price would reduce the estimated level of deaths by over 100%!

Got that? They found that a 1% rise in the minimum price led to a 3% fall in deaths and then just multiplied that by ten. This is sloppy in the extreme, obviously wrong to anyone with even a basic understanding of the issue, and advocates of Minimum Pricing should treat it and the researchers who produced it with caution.

Other points

There are other points to be made against Minimum Alcohol Pricing. It is not justifiable on cost grounds – unlike excise duties, it does not raise any more money for the government, only for supermarkets. Ireland has the second highest alcohol taxes in the EU already and, morbid as it may be, because heavy drinkers die young they usually end up saving the state money on other healthcare, social care and pensions costs.

We don’t really need to do more to curb drinking, despite what doctors like to tell us. Under-age drinking has fallen by 25 percent in the last ten years, and alcohol consumption across the board has been falling for decades.

The Irish health minister, Leo Varadkar, likes to point out that Ireland consumes much more alcohol than the OECD average. But the OECD average is skewed because it includes large countries where large sections of the population barely drink at all, like Turkey, Japan and the United States (where a third of adults don’t drink alcohol at all). In fact, Ireland is behind Austria and France and just barely ahead of Germany in terms of alcohol consumption – countries not exactly known for their sobriety, but not problem cases either.

People drink alcohol because they enjoy it. Being drunk can be fun, and having a beer or a glass of wine after work can help us unwind and relax. Everybody knows this, yet the debate that is taking place seems to ignore this fact altogether.

Doctors advocating this should back off – they are here to give us advice about how to live healthily, not force healthy lives upon us through the law.

But you don’t need to be a liberal to oppose Minimum Pricing – the case in favour of it is paper-thin even on its own terms. It will not affect problem drinkers, but it will give a kicking to any moderate drinker living on a tight budget. For once, thank goodness for the EU.

Among the things this capitalist free market thing can deal with


We admit it, guilty as charged. Among the things we have never considered is the pernicious effect upon the malleable minds of young children of Lego not having any disabled figurines in their range. Fortunately, in this capitalist and free market world we live in, one that allows that division and specialisation of labour that Adam Smith so lauded, others have:

But the brand continues to exclude 150 million disabled children worldwide by failing to positively represent them in its products.

We'd say that's a rather strong statement of whatever problem there might be but this is the opinion of another and opinions, well, as with fundaments, everyones' got one. Apparently there's a reasonable number of people who feel the same way:

In response to a 19,000-strong petition calling on Lego to act, Lego said: “The beauty of the Lego system is that children may choose how to use the pieces we offer to build their own stories.”

So, they can rally 19,000 people to their cause. Excellent: so why is it that change has not already happened?

The practicalities of capitalist market forces, the need to make a profit, perhaps determine this exclusion.

Ah, yes, capitalism, possibly even neoliberal sophistry, must be causing this. So, why is it that this mixture of capitalism and free marketry that we have not offer a route to solve such problems? The answer being that it does. For as the article concludes:

Vote for the #ToyLikeMe Wheelchair Santa on Lego Ideas. If it receives 10,000 votes Lego will consider it for production.

That capitalist and free market competing organisation, Lego, actually has a system set up to aid people in advising the company of the products they would like to see being made.

But, of course, the blame needs to be laid at capitalism's feet, as the article does indeed do. At which point I think we might argue that this is Peak Guardian. No, not because of the actual subject matter itself, although whining about what toys aren't being made does seem a pretty strange occupation for an adult. Rather that blame being laid upon capitalism: when firstly, capitalism provides exactly the communications channel they desire and secondly, the only reason it hasn't worked as yet is because those protestors have been sending their letters to the wrong place. To change.whatever it is instead of to Lego.

We really cannot see that an inability to select the correct address is a problem of capitalism, neoliberal or not. And it's most definitely something even more blitheringly stupid that any of Polly's output. Thus, Peak Guardian.

Or at least we can hope so. Otherwise we fear something like division by zero, or searching for Google in Google, the universe collapsing down to a point under the weight of the accumulated idiocy.

Why we don't want the government running food banks


There is, as we all know, a certain argument going on about food banks and their usage in the UK. It's most certainly true that the number of food banks, the number of people using them, has expanded considerably in recent years. This is used as an argument to insist that there's a gap in the welfare state: and that argument is also entirely true. That, in turn, has led to the argument that government must take over to fill that gap in said welfare state: that is lunacy of the highest order. Because:

People are at risk of going hungry and losing their homes because of avoidable delays to benefits, a cross-party committee of MPs has said.

In a damning report, the Commons work and pensions committee called on the government to work harder to cut delays to payments and set a new target to help reduce mistaken underpayments.

Hmm, bureaucracy is not swift and efficient, who knew?

Under the current regime, the committee said, advisory organisations such as Shelter and Citizens Advice reported that benefit underpayments left some individuals vulnerable and facing difficult decisions over whether to pay their rent or provide essentials such as food, gas and electricity for their household. Others found that individuals could become reliant on food banks as a result of underpaid benefits.

Actually, other figures show that from many to a majority of food bank users are there because of that noted efficiency of the state in processing the money to which they are entitled.

Which is why we're just copacetic with the idea that a smaller, nimbler, organisation like the Trussell Trust should handle that provision of food: something which does need to be done on a timely basis. Not because the State should not be involved in making sure that the poor have food to eat, but because the State is, provably, incompetent at making sure that the poor have food to eat. Thus it seems logical to have a private sector provider, one that is actually competent to perform the needed task, perform said task.

We are utilitarians here, we have no problems with, indeed desire it to, the State doing what it is better at. But obviously we don't want it doing what it is worse or incompetent at. True, that leaves us with a pretty small, minarchist even, government at the end of the consideration of what the State can do well but that's fine, so be it.

In memory of Jimmy Hill, let's stop calling for maximum wages


Vale Jimmy Hill: and in his memory perhaps we can stop this incessant whining for maximum wages emanating from over on the left. Before his campaigning footballers were the hired helots of their clubs: after it they became the major beneficiaries of the money flowing through it. All rather Marxist, and why not, the profits and value of the business flowing to those working by foot and head:

In 1957, Hill, then a bossy midfielder with Fulham, was elected chairman of the Professional Footballers Association (PFA), the players’ union. At the time the maximum weekly wage for footballers was capped at £20, although the best teams could draw crowds of 60,000 every Saturday afternoon. Stars such as John Charles were being tempted to leave the British game for Italy, where there were no limits on pay, while some clubs were paying illicit bonuses to players to persuade them to stay. The confrontation between the Football League and the PFA began when the former suspended some Sunderland players suspected of taking under-the-counter payments. Hill worked successfully to have them reinstated, and then challenged the League to end the wage cap and to allow footballers to move freely when their contracts ended. Astutely using television to win over public opinion, Hill – who always had something of the barrack room lawyer about him – took his union to within four days of an all-out strike in January 1961 before the League was forced to capitulate. The lid of Pandora’s Box had been forced open, and football would never be the same again.

British football is certainly different and almost certainly vastly better for the change. It would certainly be difficult to see what would be left of it if wages were still capped at around those of a skilled working class job.

This is not just about footballers of course: parts of Wealth of Nations are Smith railing against the wage and price fixing of the medieval guilds, and how those distort an economy to the detriment of the consumer.

We do not want to have price fixing of any kind, because prices are signals about how scarce resources should be used to best effect. If that means that rare skills, from nutting a leather ball to running a 100,000 person corporation bring in large incomes (and the two are, these days, comparable in amount) then so be it. As long as the result comes from a free market in skill and talent and not from rent seeking then that's the best allocation of talent we're going to get.

The financial ignorance of the British left


We shouldn't let these things surprise us but, if we're honest, we have to say that every time it does it surprises us. Such a thing being that we find ourselves in disagreement with someone over some point or policy: that's fine, there's many different ways of looking at the world and we wouldn't claim a monopoly on all of the good ones. But as we examine the disagreement we find that it's not one about morals, or end goals, or a conception of the world that we don't share. It's based upon the sheer deluded ignorance of the person disagreeing with us. As you might imagine this happens when discussing matters economic and financial with the British left. Such a case is here, from Compass:

Key British assets which bring in millions of pounds worth of profit and provide incalculable social benefits are to be sold soon if the chancellor gets his way. Buried within the recent Spending Review are plans to sell off billions of pounds worth of public assets: the Land Registry, National Air Traffic Services (NATS), the Green Investment Bank, bailed out banks RBS and Lloyds, and the student loan book amongst others.

OK, we agree, there can be differences of opinion on such things. You could, for example, be a union leader who thinks that your members will get an easier deal in the public rather than private sectors. And given that that's what you're there for, to get the best deal for your members, we wouldn't blame you for making some sort of argument. Disagree with you, obviously, but not blame you. But that's not the argument that is being made, instead we get this delusion:

The other assets up for grabs are making a profit in public hands and would continue to return money to the public purse for years to come. NATS returned £82 million back to the public last year. Through Britain’s 49% stake in the service, we sell services to airports and airlines in 30 countries, generating £157 million in pre-tax profit in 2014. The Land Registry currently has a 98% customer satisfaction rating, and returned £100 million to the Treasury in 2013. Ordnance Survey made £32 million profit in the past year, and its data underpins £100 billion of the economy.

If these assets are sold, it doesn’t take an economist to realise that future governments will face a significant loss of revenue, thereby making it harder to invest, protect its citizens, plan ahead, and keep to a sustainable economic path.

Perhaps an economist should have been consulted before that statement was made (perhaps a financier too: who would buy Land Registry in order to stop producing the data that underpins £100 billion of the economy?). For of course the government is considering the sale of these assets, not their gifting to someone. And the persons they are sold to will, to introduce a new word, "buy" them from the government. That is, they will hand over a capital sum now in order to be able to enjoy those incomes into the future. And government will gain a capital sum now instead of the income streams off into the future.

And the price at which this bargain is struck will be at or around the net present value of those future income streams. Just because that's how assets are valued in this world of ours.

What worries is not that people differ with us on the advisability of this idea, it's that the people complaining have no clue what the idea is in the first place.

The contention is that we convert a future income stream into a capital asset now, that value being that of the net present value of the future income. Or is that too complicated for the British left to understand?

Good, glad that's settled then, UK levels of inequality don't matter


Even as an entirely utilitarian classical liberal it's possible to, in theory, be worried about economic inequality. If a society is so unequal that we don't have, nor cannot have, equality of opportunity then this isn't a society that's living up to the liberal ideals. We might therefore want to do something about said inequality. For example, imagine a society in which large swathes of the population are inadequately fed in childhood, leading to stunting and possibly a diminution of their IQ, meaning that they're most unlikely to pass by their richer and better fed contemporaries. This is of course what has been true across vast swathes of the world throughout time and is still true in the poorer places. We would therefore argue that something must be done in order to improve matters: which is what we do do, it's imperative that those poor areas be able to experience economic growth sa a result of some judicious dollops of capitalism and free markets.

But imagine that this was still true in a rich society: like, say, the UK of today. In fact, that's what part of the argument from our current left actually is: that the poor of our society are not able to deploy their God given gifts as a result of the poverty in which they grow up.

But is this allegation true?

Research suggests that genes and environment both play a critical role in shaping a person's intelligence. A longstanding hypothesis in the field of behavioral genetics holds that our potential intelligence, as set by our genes, is more fully expressed in environments that are supportive and nurturing, but is suppressed in conditions of poverty and disadvantages. While some studies have provided evidence supporting this hypothesis, others have not.

A reasonable statement of the question at issue. The answer?

The researchers found that the relationship between genes, socioeconomic status, and intelligence depended on which country the participants were from.

"The hypothesis that the genetic influence on intelligence depends on socioeconomic status was not supported in studies outside of the US," says Tucker-Drob. "In the Netherlands, there was even evidence suggestive of the opposite effect."

Importantly, the meta-analysis did not show any evidence that other factors -- such as age of testing, whether the tests measured achievement and knowledge or intelligence, whether the tests were of a single ability or a composite cognitive measures -- influenced the results.

That is, UK levels of inequality don't matter. We've got that basic floor to the welfare system that allows full human flourishing of those given gifts and that's all we need to do.

Given that equality of opportunity is the aim and that's what we've achieved in terms of basic living standards (although obviously, not necessarily so in terms of access to decent education and so on) then on that issue we're done. We just don't need to collapse economic inequality any more than we already do.

Our Children need Safeguarding from Regulators


The scandals of Rotherham, Oxford, Hackney etc. have finally alerted government to the need for something more than reviews and reports. Ofsted, after turning a blind eye for years, have been told to get tough. On 14th December the Prime Minister announced that Sunderland children’s services will become a voluntary trust and new service leaders will be appointed to step in and tackle failings in Norfolk and Sandwell children’s services. Of course local authorities could, and should, do better. They see themselves held back not so much by budget cuts, as workloads and the calibre of their staff. The elephant in the room is that both of those problems arise from the bureaucratic, complex and cumbersome system imposed by Whitehall itself. Form-filling comes before child welfare. Child workers are judged on how they spend their time not on the outcomes they achieve. Lord Laming pointed that out in his report to government back in 2003 yet the Department for Education continues to point the finger rather than reform the system and the regulators.

If the system were streamlined, higher calibre staff could be recruited, morale would improve and outcomes enhanced. For example, Amanda Kelly, of iMPOWER, has shown that Ofsted is more part of the problem than part of the solution (

The government chose Norfolk Children’s Services to be a whipping boy on the basis of the Ofsted October report. It makes interesting reading: many improvements are cited as well as faults. The casual reader would not be able to conclude whether the progress is, or is not, good enough. Ofsted, however, labels almost everything as “inadequate” without any evidence of that. No performance measures are reported still less comparisons with prior years, other local authorities or standards that should be met. There are no measures of achievements, i.e. outcomes, because Ofsted, as usual, is preoccupied with leadership and how child workers spend their time – not that there are any measures of that either.

The head of Essex Children’s Services has been appointed to clean out, within three month’s, Norfolk’s alleged Augean stable. Clearly Essex is deemed “best practice”. Put the latest Norfolk and Essex Ofsted reports side by side and something interesting emerges. There are no performance measures in the Essex report either. Some areas of improvement are noted along with some faults. The only substantive difference is that the word “inadequate” in the Norfolk report is replaced by “good” in the Essex one. No measurement of what is achieved versus what should be achieved.

With regulators like this, is it any wonder that our children are being failed?