Don’t Railroad It Through: Rethinking HS2

A new paper by Adrian Quine, a rail expert, should rethink the controversial HS2 project - and sets out a number of alternatives to save time, save money, and deliver an improved service for rail passengers:

  • High Speed 2 (HS2) is substantially over budget, over time and will deliver limited benefits. Based on the latest cost estimates, it will return just 78 pence of value for every £1 of taxpayers' money spent. Its motivation is political, not based on need, and it suffers from poor management and an excessively complex design.

  • HS2 is unnecessarily fast for the relatively short distances it covers, will undermine access to intermediate stations and is likely to result in increased fares for travellers.

  • Under HS2, a number of key northern cities destinations will lose direct trains to London, including Lancaster, Carlisle and Durham

  • There is a need to expand capacity in rail lines. More capacity and speed improvements can be achieved in a smarter, quicker and less costly manner than is currently proposed by HS2.

  • There are still sections of railway where 4 tracks are reduced to 3 or even 2 creating bottlenecks and severely limiting further growth. The mainlines do not directly serve cities such as Birmingham, Manchester or Leeds, requiring the use of slower regional connecting lines that halve speeds for the final 20-40 miles.

  • There are a number of substantially less costly alternatives to current HS2 plans that could increase capacity. These include:

    • (1) upgrading existing routes with new signalling, doubling the number of tracks, reopening mothballed lines, and timetable redesigns;

    • (2) building new sections of conventional high speed, including between the mainlines and Manchester, Leeds and Birmingham, and upgrading northern sections of the mainlines;

    • (3) maximising current infrastructure by targeting bottlenecks on conventional lines, including building flyovers at key junctions, upgrading the Chiltern route to Birmingham or reopening the southern section of the Great Central railway, raising line speeds to at least 125mph;

    • (4) upgrading stations in London, Birmingham and Manchester; and

    • (5) improving passenger experience.

  • In order to deliver the rail infrastructure of the future, the Government could also look to private sector to fund projects that are specifically tailored to passenger needs and save the taxpayer billions in the process.

The Neoliberal Manifesto: A freer and more prosperous Britain

A new volume edited by Matthew Lesh, Head of Research at the ASI, Jack Powell, Founder of 1828, and Matt Gillow, Founder of 1828 and Research Associate at the ASI, outlines how to build a freer and more prosperous Britain:

Neoliberals are champions of freedom.

We believe that the role of government is to protect and facilitate your liberty to flourish – as long as you do not interfere with others doing the same.

Politics as we know it is realigning. Ideologies that were long thought to be dead are re-emerging. There is a growing dislike of our politicians and institutions.

With uncertainty comes opportunity, particularly for those willing to spell out a persuasive and positive vision. This manifesto tackles today’s policy challenges.

Each chapter outlines the issues along with the neoliberal goals and solutions. These ideas will deliver a freer and more prosperous Britain.

Free to Consent: The case for legalising body modification, BDSM, and transhumanism

A new paper by Ben Ramanauskas, an independent researcher, makes the case for reforming the law to allow people to consent to activities such as body modification, BDSM, and transhumanism:

  • Under English law, consent is not a defence to a charge of actual bodily harm (ABH) or grievous bodily harm (GBH), except for certain socially sanctioned activities.

  • Judicial findings that body modification (i.e. the Dr Evil case) and types of BDSM (i.e. R v. Brown) are unlawful raise philosophical and legal questions about consensual activities in which neither party is aggrieved.

  • The law is applied inconsistently. People can consent to some potentially harmful activities, such as: ear piercings, contact sports and religious flagellation, but cannot consent to body modification or pleasurable sexual activities.

  • The type of activities in which consent is a valid defence has been arbitrarily determined by the judiciary, reflecting their biases and prejudices, rather than an objective determination of consent and harm.

  • Although undoubtedly well intentioned, and designed to protect individuals or society from harm, past verdicts that prevent people from consenting to certain activities represent a serious infringement on personal liberty. Individuals should be free to consent to sadomasochistic encounters and body modification. 

  • The people who are most likely to suffer from laws that do not allow individuals to consent are sexual minorities and members of subcultures - whose activities fall outside of cultural norms and therefore attract an instinctive disgust reaction.

  • The development of transhumanism - technology to evolve beyond our current physical and mental limitations - could also be limited by existing laws that prevent body modification. 

  • If the Government wishes to enable greater personal freedom, protect minority expressions, and enable emerging technologies, the Offences Against the Person Act should be reformed so that consent becomes a valid defence to charges of ABH and GBH. The onus would be on the defendant to prove that the alleged victim had consented to the acts.

  • Practitioners of body modification should be allowed to apply for a licence from their local authority in the same way as tattooists and body piercers.

  • These steps would ensure that vulnerable people are still protected and that consent cannot be used inappropriately as a defence, while also upholding the rights of individuals.

Doing our duty

A new paper by the Adam Smith Institute says Hong Kong nationals should be given British citizenship rights.

  • The United Kingdom has a duty under the Sino-British Joint Declaration to uphold the rights of Hong Kong citizens until 2047 as a joint signatory and ex-colonial power.

  • While the United Kingdom cannot act within the territory of Hong Kong it can still act to maintain and enhance the rights of Hong Kongers within the territory of the United Kingdom.

  • The United Kingdom should offer British National (Overseas) status to all Hong Kongers born before and after the 1997 handover, along with an extension of full residency rights to British National (Overseas) persons equivalent to the status of full British citizens.

  • This would follow precedent in the face of extreme violence to ex-British citizens as seen in Uganda in the 1960s and 1970s.

  • Hong Kong residents, with high levels of education, skills and wages would be a net contributor to the UK economy.

  • The Chinese Government would face an increased incentive to act leniantly to Hong Kong in order to not lose face should a large number of citizens choose to abandon rule from Beijing.

No Stress IV: The flaws in the Bank of England’s 2018 stress tests

A new paper by Kevin Dowd, Professor of Professor of Finance and Economics at Durham University and Senior Fellow at the ASI, explains the inadequacy of the Bank of England’s stress tests and argues that the UK’s banking system is still an accident waiting to happen:

  • The Bank of England has now undertaken five annual concurrent stress tests of the financial health of the UK banking system. Like their successors, the 2018 stress tests continue the Bank’s fine tradition of trying to persuade us that the UK banking system is strong when the evidence suggests otherwise. Their results are wholly lacking in credibility.

  • The stress tests are compromised by:

    • Conflicted objectives,

    • An inadequate number of stress scenarios,

    • Low pass standards,

    • Reliance on unreliable metrics, and

    • Questionable modelling.

  • Their key stressed capital ratios, projected impairment charges, and house price losses are too low to be believable.

  • The results from the stress tests are contradicted by the evidence from banks’ latest balance sheets and market prices, which show that banks are weak now, before any stress, rather than strong after a future stress that is supposedly more severe than the GFC.

  • The continuing weakness of UK banks after a long economic recovery is testimony to the failure of the Bank of England to perform its core function and rebuild the strength of the banking system after the trauma of the crisis.

The Green Light: How legalising and regulating cannabis will reduce crime, protect children and improve safety

A new paper by Daniel Pryor, a Research Economist and the Head of Programmes at the ASI, and Liz McCulloch, Director of Policy at the drug reform advocacy group Volteface, makes the case for legalising cannabis:

  • Britain is falling behind the rest of the world on recreational cannabis legalisation. Canada, ten US states and Uruguay have already legalised the drug for recreational use. Other US states and countries are close to legalisation.

  • Legalisation is supported by MPs and Police & Crime Commissioners from across parties, and a majority of the UK public. 

  • The UK’s current approach to cannabis is generating misery, fuelling gang violence and increasing knife crime. It is now easier for children to get cannabis than alcohol, and most often dangerous skunk that dominates the illegal market. One-third of Brits have used the drug at some point in their life. Drug law enforcement depends on where you live and your ethnicity, undermining the rule of law.

  • The evidence for legalisation is overwhelming. It would protect children, eliminate the criminal—and often violent—market, encourage safer cannabis consumption, and educate people about the effects of cannabis, leading to more informed choices. By contrast, decriminalisation would fail to tackle many of the harms associated with the prohibition of cannabis.

The ASI has developed a Six Point Plan for Cannabis Legalisation: 

  1. Private enterprise: The free market should be responsible for cannabis production and retail to ensure providers are responsive to consumer-wants and to avoid shortages driving a persistent black market. Recreational cannabis could be sold in dedicated licensed stores, behind the counter by trained staff in pharmacies like Boots and mobile apps to compete with drug dealers.

  2. Advertising and branding: Some forms of advertising and branded packaging should be allowed—as in many US states—in order to signal quality, consistency, and safety, giving legal products another advantage over the black market.

  3. Consumption: Edibles and vaping cannabis products should also be allowed to help people move away from tobacco joints.

  4. Taxation: The taxation of cannabis must be low enough to ensure the final product is as cheap as illicit cannabis, or risk continuation of the black market like in California. High potency cannabis (skunk) should be taxed more than lower potency varieties, encouraging consumers to switch to safer products. 

  5. Education: Users should be presented with the latest evidence on the health effects of cannabis at point-of-sale - like in Canada.

  6. Criminal justice: Those currently or previously involved in the illegal cannabis industry should have pathways to transfer in to the regulated, legal market. The Government should also expunge previous cannabis convictions, where appropriate, in order to limit the damage that criminal records cause to the life chances of low-risk offenders.

Ready for Takeoff: Building competition in the aviation industry

A new paper by Matthew Lesh, the ASI’s Head of Research, makes the case for building competition in the aviation sector:

  • Airline deregulation and airport privatisation has substantially increased aviation industry competition, improving passenger choice, encouraging innovation, and reducing flying costs. It has opened the opportunity of regular travel to millions, boosting economic growth.

  • Competition forces firms to innovate, reduce costs, and provide greater consumer benefits. It ensures resources are put to best use. Monopolies lead to stagnation, laziness, overcharging, and market manipulation. 

  • There are a number of policies that could promote further aviation sector competition:

  • 1. Initiate an independent process to assess the potential benefits of the competing Development Consent Order (DCO) applications for the Heathrow Airport expansion, with a view to the potential benefits provided by terminal competition at the design, construction, and operational stages.

    • Despite separate ownership, following the Competition Commission (CC)’s forced BAA plc breakup in 2009, individual airports maintain substantial market power. Heathrow Airport has been accused of ‘gold plating’ infrastructure, contributing to the highest per passenger costs in the world. 

    • There are now competing applications for Heathrow Airport’s expansion, for the first time since the introduction of the DCOs in 2008. There is no tender-like process to analyse DCO applications

    • International evidence, as well as pronouncements from the CC, favour terminal competition. JFK International Airport in New York City currently has five competing terminals, each owned by separate entities, providing lower costs without coordination difficulties.  

  • 2. Introduce slot auctions for the allocation of additional landing and take-off capacity at Heathrow and Gatwick airports, and consider auctioning some, if not all, grandfathered slots, following Britain’s exit from the EU.

    • The existing system of landing and takeoff slot allocation allows existing airlines to hoard rights, resulting in inefficiency and creating a barrier to new entrants and smaller airline expansion. Over half of the slots at Heathrow Airport are currently allocated to IAG, the owner of British Airways, limiting competition. 

    • Slot auctions would ensure that slots go to airlines willing to pay the most, leading to each slot being used most efficiently. This would provide opportunities for new and mid-sized carriers to expand, increasing market competition, encouraging innovation, and avoiding arbitrary decision-making and political interference. 

    • If slot auctions are used to allocate expanded capacity at Heathrow Airport, there could be 16 million more passengers per year than under the existing allocation rules. This change could raise over £7.5 billion for the Heathrow expansion.

  • 3. Auction low-altitude airspace for new forms of transport such as air taxis and autonomous freight drones.

    • Air taxis will soon be able to transport passengers from Heathrow Airport to the City of London in 8 minutes and from London to Brighton or Oxford in 23 minutes. Hundreds of hourly take-offs and landings could congest the skies, requiring allocation of scarce air corridors.

    • Bureaucratic allocation of access to congested airspace would be unresponsive to changing technology, entrench early movers, and lead to inefficient allocation.

    • The auctioning of rights to operate an aerial travel corridor, at a specific altitude over for a period of time, would deliver efficient use of the space, and raise substantial revenue.

Safeguarding Progress: The risks of internet regulation

A new paper by Matthew Lesh, the ASI’s Head of Research, and Sam Dumitriu and Philip Salter of the The Entrepreneurs Network, makes the case for a free, open internet:

  • Technology is improving our lives, connecting people, creating communities and contributing to Britain’s economy to the tune of £170bn a year.

  • The policy environment is becoming increasingly hostile to technology, undermining the free exploration of ideas and innovation that is essential to economic progress.

  • If policymakers want to encourage entrepreneurship they should embrace a culture of ‘permissionless innovation’.

    • Permissionless innovation means allowing entrepreneurs to experiment with new business models and technologies, and only intervening when there are clear, demonstrable harms to the public. 

    • Growing calls to regulate the internet risk undermining progress and threaten the future of the internet and the digital economy.

  • Platform liability exemptions are essential to the fabric of the internet, and promote free speech and enterprise.

    • The exemption of platforms, such as Google and Facebook, from liability for the activity of their users was essential for the development of the internet, and digital innovation, and has delivered massive benefits for consumers.

    • Laws forcing platforms to be liable for user content to restrict hate speech have prompted social media companies to engage in excessively risk-averse moderation, threatening freedom of expression. Further measures such as the EU’s new Copyright Directive threaten the capacity of ‘creators’ to remix copyrighted content and share memes, while the Online Harms White Paper is a serious threat to free expression.

  • Internet red tape undermines small business, competition, and entrepreneurial activity

    • There is intense competition within the technology sector, including between large online platforms and from startups and small businesses. Platforms help stimulate entrepreneurial activity by providing Corporate Venture Capital and opportunities for exit.

    • Controls such as excessive data regulations, by creating barriers to entry and excessive costs, are particularly harmful to startups and small-to-medium sized enterprises (SMEs) that have lesser financial capacity for compliance.

The report also explains that if the Government wants to achieve an open, competitive and entrepreneurial online space they would do well to follow these Five Principles for Permissionless Innovation:

  1. Identify and remove barriers to entry and innovation;

  2. Protect freedom of speech and entrepreneurship by retaining immunities for intermediaries from liability;

  3. Rely on existing legal solutions, the common law, and competitive pressures to solve problems. 

  4. Push for industry self-regulation and best practices.

  5. Adopt targeted, limited legal measures for truly hard problems based on evidence.

The Magic Money Tree: The case against Modern Monetary Theory

A new paper by Professor Antony P. Mueller, a German professor of economics who currently teaches in Brazil, unpacks the logic behind Modern Monetary Theory:

  • Modern Monetary Theory (MMT) contends that government can spend without restraint and large deficits and debt don’t matter when the economy is not at full capacity. It asserts that the state, as the issuer of the nation’s currency, cannot go bankrupt because it can just keep creating and printing money; taxation exists not to obtain revenue but to oblige people to use a nation’s currency and control inflation; and that all public expenditure can be financed by debt or creating money.

  • MMT, whose theoretical foundations can be linked to the Marxist economic theories of Michal Kalecki, have come to prominence in recent months because of advocacy by the far-left of the Democratic Party in the United States and some left-wing commentators and campaigners in the United Kingdom.

  • MMT advocacy, particularly in the political sphere, is often driven by Utopian thinking by those who want massive unaffordable public spending programmes.

  • MMT is rejected by most economists. A recent survey by the University of Chicago found that no economic expert thinks that countries that borrow in their own currency need not worry about deficits because they can print money to finance debt. Similarly, none thought that it is possible to fund as much real government spending as you want by creating money.

  • There are a number of serious flaws in MMT:

    • MMT asserts, with limited evidence, that there is substantial unused economic capacity that government spending can activate. However, in practice, when government excessively expands the monetary supply (prints money) the impact is inflationary, if not hyperinflationary - as was the case in the Weimar Republic, Zimbabwe, and today in Venezuela.

    • MMT depends on governments knowing much more than they possibly could and acting more rationally than politics allows. It depends on government knowing precisely the natural rate of unemployment, and therefore when to spend, to stimulate activity, and when to tax, to drain the excessive inflationary impact of creating money. This ignores ignorance.

    • MMT is premised on substantial public employment policies to create economic activity for the unemployed. This policy underestimates the bureaucratic costs and the coordination problems that come with public employment policies. Only autocratic governments would have the means to enforce such policies.

What a Capital Idea! How to make Britain’s banks more competitive, innovative, and safer

A new ASI volume, What a Capital Idea! How to make Britain’s banks more competitive, innovative, and safer, argues that UK banks that issue high levels of capital should be freed of other cumbersome prudential regulation, such as the mandatory deposit insurance scheme.

John Cochrane, Senior Fellow at Hoover Institution at Stanford University, in his chapter, says:

  • For as long as there have been banks, there have been recurring banking and financial crises, intermittently spreading economic distress. Rather than solve the problem, the last round of regulation just compounds the tried and failed remedies of previous rounds.

  • A financial crisis is, at its heart, a bank run. A bank run causes systematic damage when a bank lacks the underlying assets to fund their liabilities, that is, they lack capital. Banks get their money largely from sources that are prone to runs.

  • The government creates a moral hazard by guaranteeing deposits, this means people do not ensure banks are healthy before depositing money. Banks undertake risky behaviour, which then causes a cycle of crisis requiring large bailouts.

  • Banks should be more like other businesses, which get their money by selling stocks and long-term bonds, rather than risky liabilities like deposits and very short-term wholesale borrowing. 

  • Banks should be required to issue immense amounts of capital (and long-term debt), so much that their remaining run-prone liabilities are never in question. 

  • The United States’ CHOICE Act offers banks a choice to either continue with the existing system that requires low levels of capital, or if a bank operates with a higher level of capital it can be exempt from swaths of regulation. 

Kevin Dowd, Professor of Finance and Economics at Durham University, in his chapter, says:

  • The history of UK banking prudential regulation is one of repeated failures.

  • Prudential regulation fails because it is captured by the banks it seeks to regulate and because it presupposes ‘forward-looking’ abilities on the part of regulators that do not exist.

  • The current UK system of prudential regulation of banking is bound to fail for the same reasons as its predecessors have failed.

  • The best system is one of high minimum capital standards and strictly unlimited personal liability on the part of senior bankers, and such a system should not be subject to prudential regulation .