Thursday, 28 September 2017

Don't Be Fooled By Mrs May: No Party Is Really On Our Side At The Moment

After the Labour Party has spent this week explaining how they plan to ruin our economy if they get in power, soft-socialist Theresa May has come out today in support of free market capitalism. Quite why she did this is beyond me, because everyone knows she's no friend of the free market, and no one is going to be fooled by any claims to the contrary. Actions, as always, speak louder than words - and her actions regarding our economy show that she is very much part of the socialist wing of the Conservative Party.

But alas, she is not alone - there are no defenders of free markets in mainstream politics at the moment - even the conservatism of Thatcher (and even that wasn't wholly market-friendly) was replaced by the Blairite Cameron government before Theresa May took charge. Voters who understand economics, and are therefore small state, low taxation, pro-market voters, have nobody to vote for in mainstream politics.

Aside from the many ways that politicians are harming our economy, what's also happening is that two other things are making it harder for the average Brit to thrive - one is foreign competition (foreigners being able to do things cheaper than us) and two is that competition success is creating a power law whereby more wealth is concentrated into the hands of the world's best innovators.

However, if you remember that the biggest measure of our prosperity is consumption - that is, what we get to consume - then both those things are actually good for us. Foreign competition is good for us because it helps us consume a more diverse range of things less expensively (a double winner) and competition success is good for us because it means big-scale providers are supplying us with things that we value hugely (Apple, Microsoft, Google, Facebook, Amazon, YouTube, Sainsbury's, etc) and doing so by outcompeting less efficient rivals.

Take Google, Amazon and Facebook - the odds are that when you turn on your computer, if you want to search for some information you'll use Google, if you want to buy a book you'll use Amazon, and if you want to do some online socialising you'll use Facebook.

Now the thing is, the market dominance of Google, Amazon and Facebook is not because there is no competition out there, it's because those three are currently the best at what they do. In 25 years it may be that hardly anyone uses any of those sites - they probably won't if they've been replaced by better alternatives. Or quite possibly, those sites will become even better and they will have increased their market dominance even more. The consumer will decide.

As well as being great at what they do, another reason why big companies have a lion's share of the market is that they are also very good at using competition to their advantage. In a highly competitive industry, there is selection pressure on innovation, and penalties for inefficiencies and complacency, so firms are always looking to improve the quality of the good or service and for a price that's more attractive to customers and potential customers.

When big firms get better, they make better profits, which means power law inequalities widen as more money goes to shareholders and those at the top. However, there's absolutely nothing wrong with that, as I explain here - it's simply reward for merit-based ingenuity.

A common misconception is that if workers are getting slightly less of the economic pie then the way to correct it is for politicians to redress the imbalance by penalising the rich with heavy taxation in order to redistribute the wealth more evenly. But this overlooks two key things - one, that the pie is not fixed, and two, that increasing innovation at the top is what is helping to create jobs for the workers.

Therefore, the best way for politicians to address the concerns of the electorate regarding job creation and having enough money to live on each week is to help make the economic pie grow; and the best way they can help the pie grow is by slashing public spending, lowering taxes and lightening regulations that harm growth. That way you help enable competition to flourish, and as we've seen, it is that flourishing that will help the UK become a haven for economic growth that can benefit from foreign competition, from big business innovation and from a bigger sized economic pie.

Two deep contradictions at the heart of the left
The left really need to get their heads around what they believe about the harms of taxation. Here's a test: next time you're with a lefty, try to pin them down on whether or not they acknowledge that tax affects economic behaviour negatively. If they say yes, then you can watch them try to wriggle out of why they themselves don't argue for lower taxes. If they say no, then you can ask them to think about why tax competition is such a prominent thing for attracting businesses through lower taxes, and why politicians try to be a little bit competitive in looking to be parties that lower taxes whenever possible. They can't have it both ways, which kind of tells you all you need to know about the fact that their motives are not really about what's good for the society and the economy.

The other thing that strikes me as odd is that everyone in Labour's shadow cabinet evidently wants to stay in the single market, because even they realise that trading with Europe tariff-free benefits both agents involved in the exchange. But if they can understand that, why don't they apply the rationale to its next logical level - that if open, low-regulation trade enhances mutually beneficial transaction between nations, it is going to do the same between trading agents within nations (like, for example, Uber and its customers, tenants and landlords, etc)? Alas, I think we all know the answer to that, don't we?