A quickie divorce, step two: trade in goods

In the last blog I argued that HMG first needs to flush out the attitude of the EU before committing time and political capital to negotiations. I suggested the EU’s sponsorship of the UK’s independent representation at the TiSA talks in Geneva as a touchstone of the EU’s intentions. If negotiations do take place, the UK’s position on services should be the status quo ante, governed by binding arbitration, failing which reciprocity.

I now turn to trade in goods, where a zero-tariff regime makes increasing sense. It has never been easy to get other countries to reciprocate a zero-tariff policy. But as events are turning out, zero tariffs are emerging as the most elegant solution all round. They should be combined with an invitation to the EU to reciprocate, addressing the concerns of integrated supply chains and manufacturing exporters in general. If this invitation drives a wedge between Brussels and its constituent exporting nations, that will work to the UK’s advantage.

Zero tariffs reduce costs for manufacturers and consumers. Politically, they also:

relieve both sides of the unrealistic burden of line-item negotiations;

take the high ground in the international community; and

show support for (eg) financial services or car manufacturers, who would probably lobby the EU to reciprocate.

Should the EU decline to reciprocate, a zero-tariff regime represents its own fall-back position. International manufacturers in the UK will be able to source from anywhere in the world, free of duties. They will then have to balance the undoubted gravity effects of the proximate European market with the UK’s other attractions, including any newly emerging relief in the tax regime.

Critics of this policy may fairly point out that it has only been taken up by the two city-state entrepôts of Hong Kong and Singapore, suggesting that it has little application to major economies. But this conclusion does not follow. The overall level of EU tariffs is 5.3%, some 180 basis points above world levels of 3.5%. Both are well below any reasonable test of materiality. It is also not at all clear which UK sectors need the protection of tariffs.

We sometimes hear that a zero-tariff regime would deprive the UK of bargaining cards in free trade negotiations. The facts are against this. Singapore has a network of free trade agreements (encompassing almost twice the GDP of those achieved by the EU), including agreements with the ASEAN group, EFTA, China, India, Japan, Korea and the US. Hong Kong has free trade agreements with ASEAN, China and EFTA.

We are also told that zero tariffs would deprive the UK of penalties for dumping. This is hard to understand as nothing in such a regime would cause the UK to relinquish its rights in such matters.

In the final blog, we will turn to the financial settlement.

 

Who cares about pandas when we can have dinosaurs?

There are many things to be wary of in the modern world. Terrorism, Jeremy Corbyn, spiders. But as of recently, people have forgotten their phobias to make way for the signaling of a brand new fear. That of mass extinction. Facebook walls across the world have been plastered with tear jerking videos of cute Pandas and cuddly Chimpanzees, accompanied by captions heralding the mass exodus soon to come if humans don’t stop their destructive ways. This is all in the wake of a report released by the WWF which brazenly proclaimed that “The world is on track to lose two-thirds of wild animals by 2020”.

What is to be done to save our fellow residents of planet earth? Should we stop intensive farming, stop logging, return to the caves from whence we came and pick up the wooden cudgels and bronze tools that we abandoned long ago?

Of course not. The answer to such an issue is perhaps not obvious. We should carry on as before. Developing, trading and innovating. Because there has never been a better time to be alive on planet earth. Free markets and competition have enabled innovation that not only makes the 21st century a great time to be a human, but also to be an animal.

When the German Chemist Fritz Haber produced ammonia (fertilizer) from hydrogen and atmospheric Nitrogen, like many great innovators, he benefitted man and beast alike. This, combined with genetically modified high yield crops and sophisticated irrigation systems, has meant that less land was needed for farming, leading to less destruction of animal habitats.

When societies become developed, they not only stop having so many resource hungry children, but they begin caring about the preservation of animal species as well, and so make a concerted effort to help. And as study after study has shown, there is an extremely strong link between the economic freedom and development of a country. Further, 20th century inventions and innovations like synthetic leather and fur help all. When societies build houses from bricks instead of forests, they are doing not only man a service, but animals also. Progress for mankind is often progress for wildlife. The Dodo would never have died out had it existed today.

But don’t take my word for it. The President of the Adam Smith Institute Madsen Pirie has said in his paper “Britain and the World in 2050” that by 2050 there will be lab grown meats and new, more nutritious vegetables. Perhaps more dottily, he predicted the ability of humans to be able to resurrect extinct species, including the dinosaurs. And let’s be honest with one another, who cares about the Panda when we can have dinosaurs? Given his persistently impeccable track record in predicting the future, this is certainly not a prophecy to be scoffed at.

The problem with the prediction of the WWF is that in forecasting the loss of two thirds of wild animals, it assumes that human development will stay stagnant between now and 2020. But History tells otherwise. With free markets and free people to trade and make progress, animals and humans alike can thrive in a more advanced world.

Obituary for Tony Hollick: a very British libertarian activist

It is with sadness that I report the death of the British libertarian thinker and enthusiast Anthony Hugh Hollick who died on Friday 29th October 2016. Aged 74, he had been born on 30 July 1942 in the London district of Paddington. Raised for a time in south London, he went on to win a scholarship to the prestigious public school Dulwich College and from there went on to study at Geelong Grammar School in Australia.

Always an autodidact he was in essence self-educated and never attended university. Over the years he worked with a range of libertarian organisations including the National Association from Freedom (The Freedom Association), the Laissez-Faire Bookshop and the Freedom Organisation for the Right to Enjoy Smoking Tobacco (FOREST).

One of four brothers, Tony never married. Curious, engaging, yet at times irascible, he not only immersed himself in the world of ideas but he also found endless fascination with the human capacity to combine progress and dignity with all manner of idiocies and diversions.

Brilliant with children and fiercely loyal to his friends, he not only kept in touch with his beloved nephews but was also good at inspiring in the young generally. Always respectful of children as young adults he combined intellectual rigour and compassion with wit and humour. Particularly close friends such Chris, Gerald, Kira and Gerald Hartup Junior will miss him hugely.

While he had long-lived in the Bristol area, he was always good at nourishing friendships irrespective of distance and time. Besides his legendary love of philosophy, his ‘special party trick’ for the young was his knack to ‘take his teeth out’.

Throughout his life, Tony’s enthusiasms and passions remained many and varied. His interests ranged from re-cycling decommissioned US submarines and the future of the United Nations, to powered roller skates and a market for replica guns!

Always a fan of the Adam Smith Institute he once stood up at an early ASI meeting to proclaim:

“Some people spend their lives in this world with all of its imperfections and follies. Some contemplate and imagine and more perfect future world. Uniquely, the Adam Smith Institute builds the rainbow bridge that can lift us up from all that this world is, to all that it might become”.

Always an ideas person, he leaves behind him his next of kin Petrina, his special friends Robin and Carol, and many others who will miss him. Tony Hollick, RIP.

Pity the Minister didn't recognise this when he was in office

For the rest of us are well aware of this already:

The British arts establishment is suffering from relentlessly left-wing “groupthink”, the former Culture Minister has said, as he argues it should stop simply begging for more public money and start pursuing more radical ideas.

It has always rather amused us that the inhabitants of this world are so relentlessly left wing. They're in possibly the most viciously capitalist business in the world. Produce some cod nonsense that makes a profit and you'll be very well paid to continue to do so. Produce great art that loses money and you'll be back in Rep before the awards season comes around. 

There is, after all, no other business where a beautiful young woman won't be given a job because she's now 28 or so. But when casting romantic leads isn't that rather the complaint we do get? What other line of business has a right to refuse us beta males a piece of the action? 

No, don't worry, we're not saying they should have to change. Rather, that this clash of the general view of those in the business and the actual practices of the business is amusing. As with the fact that it's even more of a tournament than investment banking. The very few who prosper gain plutocratic fortunes, the majority who try earn less than minimum wage.

Really, nothing so viciously capitalist as the arts. This though is entirely true:

He argued it was now essential for the arts lobby to challenge the overriding view that “all must stay the same”, and stop insisting that no library or museum should ever be shut down no matter how poor or under-used its service.

The unthinking left is now the most conservative grouping in modern society. Conservatism being, as we know, standing athwart the path of history and shouting "Stop!" Which really is the default position of that unthinking left these days. No changes must be made to a 70 year old management system in the NHS, no library must close despite e-books and the internet, we should have more jobs bashing bits of tin rather than realise that's all done by machine these days.

Nowt so conservative as that British left.

A quickie divorce, step one: trade in services

At 1.00am on the morning of Friday 21 October, Theresa May took the five minutes allotted to her at the end of dinner at the Brussels summit to point out that the UK remains in the EU until the Article 50 notice runs out. She had previously expressed her wish that the UK should continue as a good friend and responsible partner to our continental neighbours. This piece sets out how the PM may indeed act as the good friend to the EU she wishes to be, by saving the EU from prolonged Brexit negotiations so that it is free to address its many other problems.

This is best accomplished with the measures on which I touched recently in “A summary departure”. Despite the inelegance of the phrase “quickie divorce”, it is a good catch-all for policies to minimise uncertainty, respond to volatility in financial markets and cut the risk of deferred recruitment or investment by industry. It achieves these aims by providing an early and definitive framework for commerce, finance and industry; and paving the way for prompt discussions with other trading partners.

In services, the timetable of international negotiations presents the UK with an immediate opportunity to gauge the EU’s intentions. The Trade in Services Agreement (TiSA), is currently being negotiated in Geneva between 23 members of the World Trade Organisation, accounting for seventy percent of world trade in services. As a precondition for any negotiations with the EU, the UK should give it thirty days to sponsor the UK’s independent status at these talks.

This matters to the UK but should be no loss to other Member States. The EU’s response to this request will serve as a touchstone of its inclination to act positively. If not, the UK should walk away at the end of the notice period, invoking powers taken under the Great Repeal Act in order to exercise its rights under the Vienna Convention on Treaties and abandon Article 50 talks for lack of a serious intent to engage by the other side.

If the EU responds positively, the UK should then pursue the difficult course towards free trade in services.

Barriers to trade in the field are regulatory. The EU’s approach has been “harmonisation”, universally seen as heavy-handed, indeed one of the most unpopular aspects of its acquis. Even so, it has yielded some fruit in transport and financial services.

Otherwise, many European services remain shielded from international competition, in particular those provided directly by governments or otherwise heavily regulated. These include broadcasting, education, energy, environmental, healthcare, postal and transportation services.

By contrast, the UK has led the way in deregulating (among others) energy, environmental, postal and rail services. This has opened them up to continental entrants without similar opportunities for UK firms across the Channel.

Whatever the bluster, the EU is unlikely to be militant about financial services after Brexit. They would fear the possibility of the UK taking tit for tat action against Continental financial firms operating in the UK – or at least revisiting the unreciprocated access to UK markets enjoyed by Dutch, French and German transport, energy and local services providers.

Our negotiators should make clear their alternative to the adjudicatory role of the ECJ on trade disputes. This solution caters for domestic sentiment, conforms to best practice and creates no new bureaucracy. It would be binding arbitration in London under the laws of England, universally seen as the gold standard for resolving international disputes.

As this offer is silent on freedom of movement, it is likely to be seen as the “cherry-picking” against which so many EU voices have been raised. The UK will need to take pains to ensure that its fall-back position, reciprocity, is fully understood by the EU member-states and commercial organisations most likely to be affected.

In addition, the UK will be in a position to exercise untrammelled sovereignty to lift tax burdens, as briefly addressed in the following blogs.

In the following blogs we turn to trade in goods and the financial settlement. 

Batteries will not save solar... yet

Solar power is highly variable, and highly intermittent. It's intermittent and variable even if you pair it with wind power: it's true that the sun shine tends to shine most brightly when the wind is fairly calm—and vice versa—but the negative correlation is far from perfect.

This means that, if we want to rely more and more heavily on solar (and wind) to provide our electricity we need either to find some way of storing the energy when the sun is shining, get used to the lights going off occasionally, or boot up and run down conventional plants when renewables stop providing.

We don't want blackouts. We don't want to turn conventional plants off and on. So the obvious solution is storage. But people don't quite realise the scale of storage we'd need. Two recent articles illustrate this nicely. Euan Mearns, at Energy Matters, gives an idea of just how much storage we'd need if solar provided even a Hinkley Point C size chunk of UK generation.

And Matt Ridley, in the Times (and reproduced on his blog) gives us an idea of how much this might cost:

Yes, but we would not use car batteries; we would use bigger units, and more efficient and newer lithium-ion batteries. All right, let’s buy Tesla Powerwalls instead. We would need 160 million of them to cover a day’s consumption, or 3.3 billion to cover a week when we’ve electrified heat and transport too. They retail for $3,000, so that’s about £8 trillion. For a system that would only rarely be needed in full. Maybe we could get a discount.

Pay heed: solar will eventually be our key power source, especially given all the huge technological improvements we're seeing ever year. It's getting cheaper and cheaper. But until we can do battery storage cheaply, it's practically useless.

No, prefabs aren't the answer

Another attempt at a solution to Britain's housing crisis. One that once again manages to entirely miss the cause of the crisis. And as such one that won't solve it. This time around it's prefabs:

Britain is to get a new wave of prefabs as ministers plan to offer help to build 100,000 ready-made homes to try to solve the housing crisis, the Telegraph has learnt.

In a major strategy shift, the Government has decided to meet its ambitious housing targets by embracing the first new generation of pre-packed homes since the great reconstruction drive that followed the Second World War. 

Many of the modern prefabs, now known as “modular homes”, will be aimed at younger Britons to help them on to the housing ladder. 

There's absolutely nothing wrong with prefabs and why shouldn't we embrace modern housebuilding methods?

But this isn't the solution to the problem we face. British housing costs, as it has done for generations, around and about what it costs to build a house. Lowering that cost through more efficient housebuilding is to be welcomed, of course. But that's not the problem we face.

The problem we do face is that the cost of a piece of land, with the associated chitty to allow a house to be put on that land, is extortionate. And the reason for that is that we've an immensely restrictive planning system that horribly limits which piece of land you can put a house on.

Land itself is cheap, houses cost pretty much what houses always have done and the price of the chitty has gone through the roof (sorry). The solution is therefore to reduce the price of the permission by issuing more permissions.

Or, as we tend to say around here, the solution to the housing problem is to blow up the Town and Country Planning Act and successors.

Cheaper building costs through prefabs? Sure, why not? But how much are those 100,000 plots to put them on going to cost? And isn't that the actual problem we face anyway?

Yes, Mariana Mazzucato is still missing the point. Why do you ask?

Mariana Mazzucato is still making her pitch for government to gain more of the revenues from innovation. Not hugely and massively surprising of course, she was funded by the EU and developed the plan by which the EU is going to take a chunk of the revenue from the innovation they fund. But it's still true that she's missing the point.

Breakthrough technologies, such as the internet and biotech, did not emerge from governments worried about “commercialization”; they emerged from the spillovers of investments that were focused on long-run public missions. Missions of the past, such as getting a man to the moon, translated into multiple homework problems that needed different actors to work together in dynamic partnerships, spurring innovation. Today’s societal challenges, from aging to climate change, can provide a similar focus and animating force. They can stimulate innovation and give direction for new private investment and entrepreneurial activity as profit-making opportunities come into sight. Mission-oriented thinking could also be used to develop technology roadmaps for the 17 sustainable development goals.

We are talking there of public goods of course. The reason that the private sector doesn't do this basic work is because the results are non-excludable and non-rivalrous. Therefore it's almost impossible for a private actor to appropriate the revenues from the work done to offset the expenses. This is the entire argument for there being any form of public expenditure in this area.

Tax payers should cough up because otherwise these things won't get done. Yes, sure, we are a little wary of stating that this argument is true but let us just, arguendo, assume that it is.

The solution therefore is as follows, according to Mazzucato:

Fourth, risks and rewards. The wrong narrative about who the risk takers are has led to a distribution of rewards that does not reflect the true distribution of risk. If taxpayers are taking the biggest risks during the uncertain early stages of the innovation process, they should share in the rewards. The question is how best to do this. There are many options, including agreements on the reinvestment of profits (exactly the kind of deal that led to the creation of Bell Labs); capping prices of publicly funded products (e.g., drugs); retaining a golden share of the intellectual property rights; retention of equity or royalties when feasible; and income-contingent loans. There is no one solution, but consideration of different ways through which rewards from innovation can be better shared is central to a strategy that targets not only smart growth but also inclusive growth.

But we've just said that the reason for public sector involvement is because we cannot appropriate the rewards. Thus stating that the public sector should appropriate some share of the rewards that cannot be appropriated isn't going to work, is it? 

Mazzucato's argument doesn't even work on its own terms, let alone any other.

 

It turns out that it's not ice cream and burgers making us all fat

We have the public health crowd telling us all that it's "bad" food which is making us all obese lardbuckets. This is, of course, when they're not telling us that it's sugary drinks that are. As we've pointed out a number of times there is a problem with this. We're not eating more than our forefathers did, quite the contrary. So it cannot be the calories in which are causing the problem.

But, perhaps, there's a little sneak room for the argument that it's the types of calorie in which are causing the problem, not the volume? It would appear not:

Methods: Using 2007–2008 Centers for Disease Control's National Health and Nutrition Examination Survey, the consumption incidence of targeted foods on two non-continuous days was examined across discrete ranges of BMI. Data were analysed in 2011. Results: After excluding the clinically underweight and morbidly obese, consumption incidence of fast food, soft drinks or candy was not positively correlated with measures of BMI. This was true for sweet snacks (r = 0.005, p  l.t.e. 0.001) and salty snacks (r = 0.001, p = 0.040). No significant variation was found between BMI subcategories in weekly consumption frequency of fast food meals.

Conclusions: For 95% of this study's sample, the association between the intake frequency of fast food, soft drinks and candy and BMI was negative. This result suggests that a strategy that focuses solely on these problem foods may be ineffective in reducing weight. Reducing the total calories of food eaten at home and the frequency of snacking may be more successful dieting advice for the majority of individuals.  

The full paper is here.

We would rather disagree with that last line though. If we're ingesting fewer calories, and it's also not the type of calories we're ingesting which is the problem, then the problem is not in our ingestion of calories. It's in our expenditure of calories.

Which brings us back to our long running default position here. We're mammals, the major calorie expenditure for mammals is in the regulation of body temperature. The obesity explosion closely tracks the introduction of affordable and reliable central heating across societies. At least until someone manages to disprove that thesis that will remain our explanation of what's been happening.

That JCB laddie might have something here

Anyone who has the wit to create a dance troupe of JCBs has something going for them, an inquisitive mind at least. So it is with Lord Bamford's views on Brexit.

Here at the ASI of course we contain multitudes so views on Brexit itself differ. Our ultimate aim is always the same, an increase in liberty and freedom, but whether clean, hard, soft or no-Brexit leads us to that nirvana is something to discuss. However, it is at least possible that this is true:

The cost of European Union regulations for companies means that Britain is better off leaving the single market, one of the country’s most senior business leaders has said.

Lord Bamford, the chairman of JCB and a Conservative peer, said that trade tariffs imposed after Brexit would be a “price worth paying” and that UK businesses will take it “in their stride”.

Whether it becomes true is dependent upon what we actually do post that Brexit which has already been decided upon.

By analogy we could look at the Nordic economies. They are famously high tax and high redistribution. A lesser known fact is that they are rather more red in capitalist tooth and claw, free market zealotry, than either the US or UK. The usual lists of economic freedom have them at the top and Scott Sumner has persuasively argued that if look past the tax rates then Denmark is the freest economy on the planet.

One way to explain this is that if you are going to have that topweight of heavy redistribution then you need to have the vibrantly free economy underneath in order to be able to afford it and also have any hope of economic growth.

Back to Brexit - yes, EU membership gives us Single Market access and membership. It also gives us  a heavy ballast of regulation. If we're outside the market, facing tariff barriers, then we need to ditch that weight of regulation to compensate. Whether we do or not is up to us of course. But it is at least possible that Bamford is correct here. 

We might even find, and certainly some of us here insist we will, that the regulation has always cost us more than the market access gains us so we will be better off out.