Tariffs: Why The Benefits Are Overstated & The Costs Understated

In a week in which tariff-friendly Donald Trump is the shortest price he's been to become US President, in no small part due to his seducing the electorate with promises of import taxes that will help 'make America great again', there are one or two reality checks that need offering.

Perhaps the most important thing you can learn about tariffs is that when (y)our government imposes them on foreigners to make us better off it instead makes us worse off, and also the people trying to trade with us.

Knowing this makes you understand that when politicians want to impose tariffs on outsiders to artificially protect fledgling, ageing or inefficient domestic industries from foreign competition they have their own best interest at heart (votes) and not our own (free trade).

The golden rule about all economic inefficiencies - be they minimum wage laws, rent controls, tariffs, or any regulation of that kind, is that politicians get away with selling the bad policy as popular because the benefits are quite easy for everyone in the country to see, while the costs (that far outweigh the benefits) are more difficult to see because those costs are spread more widely and thinly throughout the nation as a whole.

To illustrate this, suppose there is an ageing firm in the UK called Steve's Steel that employs 3,000 people in Yorkshire. Understanding how the gains and losses of tariffs are distributed is key to understanding the problem with tariffs.

The obvious benefits of lumping a tax on foreign competitors are felt by all the workers at Steve's Steel. The cost of saving those jobs, however, is distributed more thinly through the economy, which means as far as voters go, they see a tangible benefit to 3,000 of their fellow country folk and perceive no real cost to themselves.

Moreover, since the workers and families have every incentive to lobby the government to save their jobs, and the rest of the population have little or no incentive to lobby the government to not subsidise Steve's Steel, there is more of an incentive for the government to listen to those connected to Steve's Steel.

But, alas, while you can see the losses connected to Steve's Steel quite easily, what you don't see are the losses that occur around the rest of the country by subsidising Steve's Steel - the numerous other workers that lose their jobs for every one job saved at Steve's Steel - you never get to see all those who lost their jobs because the tariffs were enacted.

Equally you never see all the reduced consumer income that Brits have due to these tariffs, via the increased prices they pay, nor the lost job opportunities by not having that money to spend elsewhere. You also never see that a British import tariff against, say, Chinese imports would mean the price of the yuan measured in pounds falls, making British goods more expensive to the Chinese, which reduces demand for things priced in yuan and reduces demand for yuan, making UK consumers worse off..

The upshot is, as I've said before on these pages, if you stifle foreign competition directly, you stifle domestic industries too, because somewhere down the line in the complex nexus of global trade, your fellow country folk are the competition.

This Is An Interesting Paper On Picking The Winner With A 95% Probability

Labour leadership candidate Owen Smith is so unbelievably inept, unworldly, arrogant and socially maladroit that the Independent is starting to wonder whether he's actually a Corbynite sleeper agent.

After all, when a politician is quite so gauche and incompetent, you begin to entertain the idea that even conspiracy theories about him could be credible, particularly when even in a party with more third rate politicians in senior positions than ever before in my lifetime, there are evidently less-ridiculous leadership candidates than Owen Smith.

Still, the Owen Smith story will surely be very short-lived - he has almost zero chance of winning the Labour leadership contest, and even less chance of ever seeing his party win an election with him at the helm, so it looks like Britain is going to see a May vs. Corbyn battle in the next General Election (probably 2020).

On that topical note, today I stumbled upon a very interesting paper, in which the author Andreas Murr from the University of Oxford predicts that according to a Bayesian analysis there is a 95 per cent probability that having the larger winning margin in party leadership elections increases the chances of winning the General Election, and that the party leader with the larger winning margin will almost certainly become the next Prime Minister.

Murr was one of the few people last May to predict what most people didn't expect - that David Cameron, not Ed Miliband, will be Prime Minister for the next term. Of course, given that the PM in opposition Theresa May doesn't have a winning margin due to the fact that the withdrawal of Andrea Leadsom in the leadership race left her as the sole candidate, there is difficulty in comparing how the respective 'winning margins' would play out.

However, given that leaders are so important to the party's chances of winning an election, and that the principal goals of a party are to ensure in-group solidarity and cohesion (as much as possible) and to be popular enough to form a government, I suppose the goal of all parties is to have a leader that best represents a kind of weighted average of the nation, rather than a leader that best represents a kind of weighted average of the party.

To that end, then, Theresa May with her crypto-socialism and small 'c' Conservative identity combination is a country mile ahead of Jeremy Corbyn in terms of probability of her party winning the next election, because she much more closely resembles a weighed average of the nation than Corbyn. That probably explains a fair bit about why Theresa May currently has a whopping 42-point lead in favourability ratings over Jeremy Corbyn.

What Is The Value Of A Blog Post?

What's the true value of a blog post? The difficulty in ascertaining value is that, unlike say a mobile phone, a pair of trousers or a fridge magnet, the rights of ownership are blurrier, and so are the beneficiaries.

If I sell you a mobile phone, a pair of trousers or a fridge magnet, then the value of these goods is confined to you as the owner. You can give someone else the benefit of them only by giving them up yourself.

Blogs are not like this because blogs contain information and ideas. If I share a blog post you can retain the information but share it with as many people as you like without losing the benefits you distil from it. This means that good blogs that contain lots of benefits for their readers are very likely given away below their true value. 

They are, in a sense, benevolent acts where the benevolence confers upon the author the value of interaction. This also has to be played out, though, against the numerous blogs, articles, newsfeeds, videos and memes competing for your attention and time when you're online. 

While the intrinsic value of the content of good blogs may be high, the online world means that there are many other interesting things out there vying for your attention, which means there are increased ways that other people can enrich your life, and increasing ways you have to out-enrich them to add value to your readers' lives, and increase your readership. 

It's More About 'How' It's Done Than 'Who' Does It

Supermarkets provide a good illustration of why it's not who controls the company that matters it is the company's effectiveness in the free market that matters most. Supermarkets like Sainsbury's, Tesco and Morrisons are public limited companies traded on the stock exchange, whereas with Waitrose the workers have mutual ownership, and the Co Op is a consumer cooperative consisting of more than 8 million members having mutual ownership.

What this shows is that it doesn't much matter who runs supermarkets, what matters is how they are run in terms of creating market value. What's creating market value for shoppers is that all these supermarkets are driven on by competition - which is why we get multi-buy deals on food, shopper saving incentives, and the ability to have our groceries delivered to our door if we wish.

The NHS follows a similar heuristic - as long as it is being run most efficiently, and remains free at the point of delivery, it doesn't matter whether it is public services running it or private services. That's because, like supermarkets, market qualities are about efficiency not ownership. For those who want the NHS to be free from the more efficient private services due to an almost religious attachment to its state-ownership, here is a question they need to answer. If they believe state-ownership is the most efficient way to create value why do they not want food nationalised too so that supermarkets are under public ownership?

They'll usually argue that health is different and that you can't subject something as important as health to the markets. But it shouldn't escape their notice that food is pretty important too. Without it we'll die. Why is public ownership better in the case of health but worse in the case of food? No one seems to be able to say, which is the classic sign of it being merely an emotional bias divorced from evidence and reason.

The arguments against the market are too often short-sighted or illogical. The Pope made a similar mistake in a recent encyclical - arguing that water is such a precious resource that it shouldn't be privatised. His logic is backwards: resources that are scarce, precious and valuable need to be guided by market forces of supply and demand, because it is the free market that most efficiently allocates scarce, precious and valuable resources, not governments or private interest groups. Around the world you'll find water shortages are horribly exacerbated by wealthy interest groups benefiting from water subsidies.

Like water, health is scarce, precious and valuable. It's scarce because there is huge demand and limited supply. It's precious because good health is one of the most vital things about being alive. And it is valuable because our health is what enables us to work, function and progress in society. Like all things scarce, precious and valuable, society doesn't need our health services being misallocated or uncompetitively costed or frivolously managed under the guarantee of taxpayers' money.

The introduction of more private run services isn't going to impinge on the NHS's free at the point of delivery ethos, so there is no reason to bemoan private health services at all. With an aging population there is ever-increasing pressure on the health service to greatly increase its efficiency and reduce public spending - and that's only going to happen with market forces replacing state involvement.

So please don't panic - market forces won't affect our ability to have health care readily available, nor will there be any danger of anyone being turned away due to inability to pay (unlike the USA). But mark my words, if the British public don't begin to dismantle the alter before the golden calf of our NHS religion, we are going to be in serious trouble.

Social Mobility: Separating The Myths From The Facts

A follower of this Blog, who himself blogs as Sub Specie Aeternitatis, emailed a couple of queries about social mobility as per my last post. I wasn't going to make a whole new blog post out of them, but after watching a documentary on south London gangs yesterday evening (with extremely rare and candid footage on account that it was filmed privately by gang members), and observing so many interesting parallels with other kinds of rat races higher up the social strata, I decided I would.

So, this week, new Prime Minister Theresa May made it clear enough that she wants to be the most radical of PMs in tacking the apparent social mobility problem in the UK. Social mobility, like natural selection in biological evolution, is a strong genetic factor in human progression. People at a young age look to climb the social ladder, increasing their skills and earnings along the way - which means that people with better abilities are generally in higher positions.

What also advances this trend is that whenever possible women tend to partner socially upwards, as social gradations are correlated with fewer deleterious genetic variations. In other words, it's assortative mating for better genes. Obviously this translates in the social world as dates at the movies, meals in restaurants, kissing, copulation, marriage, and kids you want to go on to do better than their parents, but in evolutionary terms it's an assortative mating process with fine margins, carried out over thousands of years. It's a biological percentage game, but a subtle and long one.

There is also a natural limit on manageable social groups. You've probably heard of the Dunbar number - it's Robin Dunbar's putative cognitive limit to the number of people with whom folk can maintain stable social relationships. The Dunbar number maxes out at about 150, after which maintenance of that social circle becomes prohibitive*.

This also fits in with anthropological observation of many different hunter-gatherer societies, particularly in environments where food (particularly protein) is hard to obtain, such as arid savannah or in raid forests. The other route that over-large groups take is when one group starts dominating another, and then another, and builds up a fully-tribal structure. This happened in North America, of course, before we colonised it.

The anthropological consensus is that tribal structures begin to develop when agriculture starts to enter the scene, even if only partially. But when a very much richer agriculture develops then the tribal structure becomes more like an empire with a distinctly small leadership (though supported with a praetorian guard to keep order if civil strife gets out of hand).

The Aztecs, Incas, Egyptians and no doubt our Wessex Empire are good examples -- when there were huge numbers of peasants who could be drafted to build huge architectural monuments in between seeding and harvest times. To some extent we can regard the modern nation-state as closely resembling mini-empires. They rapidly took shape in the modern form about 300 years ago with the rise of the artillery regiment.

To use them properly they have to be moved rapidly over decent road and rail systems so this tended to force their territories into much smaller sizes than the old-fashioned empires. Also nation-states are small enough to do what empires were previously unable to do - impose a common language, and close the gap bwtween citizen and state.  

I'm afraid, though, moving to the prsent day, what we see at the moment is that some of the people determined to change social mobility for the better are, while good intentioned, rather ill-informed about precisely what has been happening in the global context, and why times have changed.

A UK background story

Once upon a time, thanks to up and coming advancements like stream powered cotton mills, coal mining, increased agricultural machinery and major increases in the production of metals, textiles, and many other manufactured goods, there were once thousands of fresh job opportunities emerging for people in the UK - creating a new middle class and transferring lots of wealth from the richer faction of society down to those now in industry.

As this continued, 19th century social mobility rose fairly consistently through the majority of the UK population, as opportunity to work begat further opportunities to work, on a durable rinse and repeat cycle. While it was far from all rosy, these were the incipient foundations for what is now a very prosperous modern Britain. Similar developments are occurring throughout the world in countries that are currently as poor as Britain was a century or so ago.

By about the 1870s, most of the relatively poor folk in the large manufacturing cities of the north and the midlands were paying fees (yes, that's right, paying fees) for the education of their children, by and large in what was called the monotorial system (brighter pupils assisting teachers in passing down knowledge to less able pupils), which were as expensive as most of the parents could afford.

The religious charity schools for the poor were also proliferating, as were the more expensive private schools for the emerging middle-classes and the aristocracy (though some of them bore the appearance of grammar schools and began opening their doors to talented children of the poor).

Although the rate of positive social mobility continued to rise, what began to slow it down was the government-mandated institution of state schools in the 1880s - but it's important to point out what should be more obvious to some historians and political commentators - that slowing down of positive social mobility is not the same as a decline. If average height across the population increases by 1.5cm every 20 years from 1880 to 1920, by 2.5cm from 1921 to 1941, and then by 2cm from 1942 to 1962, only a fool would suggest that average height had declined from 1921 to 1962.

The rise and success of grammar schools for the talented workers’ children helped things further still, and by the 1950s, the grammar schools were turning out highly educated pupils on a par with private schools.

An important decline?

A team of sociologists, led by Prof Erzsebet Bukodi, has fairly rigorously shown (and sociological surveys these days have to be more rigorous than yesteryear) that at least in one sense it is possible to argue that the social higher numbers of the population has been declining since the forties. It works like this.

Generally speaking, stabilisation of peak social mobility (declining social mobility on one side, slightly increasing, or stabilising social mobility on the other) will occur when the higher paid strata (about 30% of the population according to Bukodi) can supply from within itself enough of the new middle-class (the new professions and businesses deeply dependent on high-quality scientific training) sufficient expertise to keep the better-off (who are producing most of the value-added goods and services) able to keep their heads above water in this highly competitive age. This is epitomised by the success of London while the rest of the country is growing more slowly.

What's been happening is that most of the country’s workers have not been able to raise their skill levels both relatively (to approximately the top 30% of the country) and even in many cases, absolutely (some of this is still relative to skills in other advanced countries which are able to be traded internationally).

So yes, in one sense, it can be argued that the social mobility of most of the country at most social levels is declining both relatively (to the top 30% of the population) and absolutely (to the past). A social-economic-educational gap is opening up and fewer people than ever before are able to bridge it and join the highest social levels.

But all that said, the stats about earnings and career prospects are only a part of the equation - we must not forget that general prosperity and well-being are about more than just earnings and career prospects – we need to factor all sorts of things like improvements in technology, services, scientific capabilities, access to knowledge and so forth. We must also not forget that the whole landscape has shifted upwards, so being poor relative to better of people these days is still much more prosperous than being less poor relative to better off people in the past.

That is to say, if we define social mobility as whether you can easily move up and down income levels, occupational structures and/or levels of education or other social structures, how this compares to others’ chances, and how much your chances are determined by the equivalent position of your parents, it may be argued that social mobility is declining.

But it is questionable how important this actually is. People of the UK today have a better standard of living, access to more knowledge, better medicine, more leisure time, more films, music, books, better technology, etc than any generation that preceded them. Whichever way you cut the cloth that has to be the most important factor in the social sciences.

Getting the gap part right

Another matter that needs addressing with regard to social mobility is this one. Even if we completely overlook the fact (oft-repeated on here) that a more globalised economy is going to see many of our own domestic jobs and industries losing out to greater efficiency aboard (not to mention changing technologies), a common claim too often made is that poorer people are worse off due to the existence of richer people.

People say this because they assume it holds that if richer people are better off due to the existence of poorer people (which is definitely true), then poorer people must be worse off due to the existence of richer people (which definitely isn't true).

Of course, if you're only interested in relative status then the statement becomes less untrue because relative to a rich person's increase in wealth a poor person can become poorer. But absolute well-being of Tom is the only really important factor, not Tom's wealth in relation to Dick's. As Bertrand Russell once put it, beggars don’t envy millionaires, they envy other beggars who are doing a little better. The well off simply have no reason to view the poor as rivals; they don’t compete for the same jobs, the same private health care, or the same houses in the same school districts.

Take dental care as an illustration. If Harry gets dental care to the quality rating of 15/20 and gets overtaken by richer people who can afford 17/20 dental care, Harry is not made worse off. To complain that Harry is no longer getting the best dental care with the implication that he is now worse off, when what has actually changed is not the dental care he can get but the care others can get, is to treat a relative change as if it were an absolute change.

To tease this out, imagine two hypothetical societies - the first consists of the current UK population, and the second consists of the current UK population plus another 75,000 millionaires. I'm guessing most on the left would prefer the first scenario - after all, an additional 75,000 millionaires drastically increases the inequality in our society.

Ah but you see, unless those 75,000 millionaires got their money by forcing people to part with it against their will, the existence of the 75,000 extra millionaires has made society better off, not worse off.

To see why, for analogical purposes, apply the dentistry model to education. Going to a better school makes you more likely to be accepted into a higher paying job. But the distribution of available jobs in the labour market is not a fixed pie, it reflects, among other things, the distribution of productive abilities available.

Presuming the 75,000 extra millionaires spend some of their money in the education sector, the result will increase the number of educated people, which may for some affect their relative position, but it won't make scholastic standards any worse off in absolute terms - just the opposite. Playing a longer percentage game, the best schools will go on to be better, which will improve the quality of the next best schools, and so on.

There is also the important principle of comparative advantage to factor in: that is, the societal gain by the existence of more and more people that are different to us. This holds true because we gain more by mutually voluntary exchanges with people who are different from us than with people who are similar to us.

Alan Sugar would find it difficult to persuade Claude Littner to wash his car at a mutually agreed price, but he would have no trouble finding willing car washers if he stopped by on any of the numerous roadside forecourts we see dotted about. Alan Sugar is better off by the existence of the car washers and they by his existence, because their different wants and needs make possible exchanges to both of their mutual advantage. Take that to a more general level and you should be able to see why this is the case nationwide.

A relative education matter

Consider for a moment the difference between State-funded health and State-funded education. Our health is primarily measured in absolute terms, not relative terms. I don't feel better about having a migraine knowing that Dick has a brain tumour; my having a fractured jaw bone isn't ameliorated by Tom having a broken spine, and so forth. Education on the other hand has absolute value, but it's predominantly relative in its measurements. That is to say, what matters most is how your academic achievements compare to other people's academic achievements.

An Oxford or Cambridge graduate benefits not just in absolute terms related to his or her own well-being, but as a measure against other Oxbridge graduates, but frequently more importantly, against non-Oxbridge people. For that reason, excessive spending on education is an arms race that imposes negative externalities on society in the direction of those who performed less well. We are always being told that more needs to be spent on education. But if you consider why people say this, they really mean spend more to improve people's relative position compared with others.

There's no denying that education investment is important because if all schools get better that means that students are learning more—becoming better doctors, lawyers, businessmen, parents, farmers, consumers of art and literature, or whatever they are going to use the education for. The result is a more productive economy with more stuff for people to consume and consumers better able to take advantage of what is available to them.

Increased wealth has been important too. Everybody gets richer, which means the quality of schools has increased everywhere. The relative position of everyone is retained and the absolute position of everyone improves, as richer people will still, on average, have better schools, and the less good schools improving on the legacies of the past.

That is why education spending may be too high. If I go to Cambridge university and you go to Leicester, that may result in a better social status for me, which affects my earning potential, carer prospects, etc. Increased spending on academic achievement,  insofar as it confers status, imposes a negative spillover on others, which means people are likely to overspend on education. The analysis of prudent spending would need to be about whether the benefits of an educated populace outweigh the costs of such high spending and its concomitant status-mongering. Alas, also, in a society that places a high premium on status, more people are less inclined to look out for those below them on the socioeconomic ladder

Interestingly, neither education nor health care are fixed resources. There are no barriers to continual increase in education and continual increase in health care, because both evolve with the landscape. Status on the other hand is fixed because it relies on people, of which there is a fixed amount, because other mates are a fixed resource. If my health increases by 5% and everyone else's increases by 30% I am still better off than I was before. But if my status increase by 5% and everyone else's increases by 30% my overall position probably will have fallen.

But there are also negative externalities from low incomes and positive externalities from high incomes. Consider a school that consists of a variety of pupils of varying scholastic abilities. A standard competitive model that factors in status would predict that grades would scale in proportion - so if smart Tom produces significantly better grades than Dick, then Tom will be worth more to the school's status and to a prospective employer.

But caring about both absolute and relative performances, Dick's presence contributes an additional input to the school's other students, because his presence raises the relative status of the brighter pupils. By the same token, Tom's presence contributes a negative input, since his presence lowers the status of other pupils. The market outcome thus brings about something that closely resembles income redistribution.

This can be seen even more clearly if you consider the same situation occurring in a factory. If you replace grades with wages and pupils with factory workers you'd see that increased happiness in the workplace would ultimately show up in the company's bottom line, since the cost on the firm diminishes with a better performing workforce. If everyone in the factory earned the same wage then low productivity workers are being paid more than in proportion to their physical output, and the high productivity worker, less.

The main point about the relative nature of education here is this. Suppose everybody in the world had their scholastic ability reduced by 10%. Nothing would change in relative terms - the brightest group would still be brighter than the 2nd brightest group by the same amount, and they brighter than the 3rd group, and so forth. If everybody in just the UK had their scholastic ability reduced by 10%, there'd be no difference in relative terms within the UK, but there'd be a comparative disadvantage with the rest of the world who didn't incur the 10% reduction. .

Now extend those principles to earnings. If relative position was the only game in town then you would be better off earning £100,000 a year in 1916 than in 2016. But in absolute terms you're far better earning that kind of money today - not just because there are so many more things to spend it on, but because if you had to, for example, cook a Sunday roast, cut the grass, travel 100 miles on holiday or seek medical treatment, you're much better off having access to today's facilities than those of 100 years ago, even if the £100,000 per year earnings in 1916 would make much more difference to your relative position in society.

Or to put it another way, if you had £100,000 a year you could live like a king in 1480, but a king of 1480 would be better off being an average earner in the UK in 2016 than a king in 1480. It's certainly true, and can be argued, that there are some cases in which living in 1916 on £100,000 confers advantages you wouldn't have now. For example, if you wanted a South Bank London apartment with a nice view over the water, £100,000 would have bought you one in 1916 whereas it wouldn't today.

But that would be a weak argument for preferring to live in the London of 100 years ago because there would be far more opportunity costs living in the past than in the present. In other words, the advantages of living in today’s wealthier nation easily outweigh the disadvantages of having lower relative income compared with 1916.

The take home wisdom, then, of this admittedly longer than usual blog post can pretty much be summarised as follows:

1) Social position is not an absolute matter, it is a relative matter, and is contingent on not just the downs of societies over generations, but the ups too.

2) A big thing that affects the ability of some relatively well off people in the UK to move up the social strata is that some relatively less well off people around the world are doing better than before in terms of economic well-being.

3) Social mobility is rendered more trivial than is often exclaimed by the fact that people's lives of today are immeasurably better than at times when social mobility was higher.

4) There are absurdities to statistics if you are too narrow in your perspective. As the above report mentions, in 1979 13% of the UK population was living below the relative poverty threshold (the relative poverty measurement is really only a measure of inequality). By 2005, the real disposable incomes of those in the lowest quintile had risen by more than 50%, and yet 18% of the population was now recorded as living in poverty. In other words, despite the incomes of Britain’s poorest people rising by 50%, the official poverty figures rose by about 50% at the same time.

5) Whenever rich people getting richer is thought by pundits to be a problem, type a little comment at the bottom of their article, reminding them that in most cases a person’s income and wealth simply measure the extent to which they have provided value to society, and the extent to which others have benefited from trade with that person's company.

If you made it this far, well done, you did well - that was a lot to get through!

* Slight side note, as I've blogged about once or twice before, socio-personal socialism remains at its strongest in those Dunbar groups, and becomes diluted as we add more and more people to the mix. as more and more people increases the range of goods and services available, and customers willing to partake in the mutually beneficial exchanges. In that sense, trade is a bit like doing good things for strangers. To succeed in the market economy requires innovation and ingenuity, as well as good character and reputation.

Just as in biology copulation mixes up combinations of genes so that heritable survival traits occur more frequently for natural selection to act on the genotype, similarly the market economy produces survivability in business and commerce, where less-good suppliers are out-competed by better ones. A social mobility-conscious socialism that tried to level things out by extending beyond the socio-personal into the market economy would be bound to retard innovation and progress, just as trying to organise biological organisms from on high would inevitably be less successful than the mechanism of natural selection.

The benefit of the market economy is that trading with strangers transcends the limitations of the Dunbar-esque socio-personal economy, bringing about huge mutual benefits not just for both buyer and seller but also everyone in society too. To try to arrange such an economy in an attempt to mirror the socio-personal economy, as socialists try to do, is a bit like being in a field full of 30 million bees trying to make them all fly clockwise. It's crazy!!

The Blind Lifeguard Problem

In a week in which almost everyone in Westminster and in the media is getting almost everything wrong about the topic of social mobility, let me bring up a pertinent phenomenon I thought up called The Blind Lifeguard Problem to illustrate a big misconception humans have about problems and solutions. There is no market demand for blind lifeguards because a key role in being a lifeguard is being able to see what is going on in the water.

Very obvious, I know - but given the foregoing it would be absurd for anyone to claim that the absence of blind lifeguards in the marketplace proves there is unfair discrimination going on. In short, anyone who perceived the lack of blind lifeguards to be a problem would be perceiving something that isn't a problem at all.

The Blind Lifeguard Problem plays out often in everyday life, particularly in politics and economics - it is what we might aptly call the no-problem fallacy. That is, sometimes there are genuine problems, and sometimes there are only perceived problems that are more to do with the limited analysis going in to the perception. And then, even if it's agreed there is a problem, that doesn't mean there is necessarily a solution.

If problems can be solved, or a bad situation ameliorated, fine - sometimes (but not always) we should act on that. But some problems are simply things we don't like about the world that actually don't have a solution, or certainly not one we should attempt to bring about. It's an important lesson that many need to learn, namely:

1) Not every perceived problem is actually a problem

2) Even if is a problem, it's not necessarily one we should be solving

That is to say, quite often there are perfectly good reasons why there are very few female garage mechanics, and more men in CEO roles than women, and TV drama shows with very few Muslims and homosexuals, and universities with fewer graduates from state than private school graduates.

Government regulations aside, society is the result of billions of individual choices made in transactions where both parties look to be made better off from the exchange. If many of those choices culminate in society having fewer of one identifiable group than the other, or more of one age group or gender than another, do not hastily assume it's a problem, much less a problem that ought to be, or even can be solved.  

Is This Going To Turn Out To Be One Of Humanity's Costliest Mistakes?

After yesterday's blog on the issue of state-subsidised green expenditure, a friend commented that he thought the end result will still be a benefit for society as a whole - if you like, the State doing something on our behalf that we wouldn’t volitionally choose, but that's beneficial for us in the long term.

There are several issues with this line of thinking - the first being that there are opportunity costs that don't get factored in to the equation (which we've covered before on this blog), and the second is that it is hard to justify much of the State-mandated expenditure that weaves and entangles itself into the fabric of society's revealed preferences.

This is particularly pertinent, given that there is going to be a diminishing marginal rate of substitution, and that if you want to play the long game (quite rightly, usually) you have to also factor in the trade off between capabilities now and future capabilities, which probably amounts to a transfer of resources from less well off to more well off people, not just in terms of money, but in terms of living standards, greener technology and the concomitant environmental improvements.

As various examples of countries becoming more prosperous show, when there is industrial progression there begins an increase in pollution and environmental degradation until after a point it levels out, and then subsequently increased ability to be more environmentally mindful plays out. This is called the environmental Kuznets curve.

To put it another way, when countries become more prosperous they pollute more, but then increased scientific and technological potential enables them to cut down on their environmental externalities. Take Bob. Bob lives in London in the early part of the 19th century, and grows up as the industrial revolution is taking shape. He sees an industry dominated by coal, oil and gas, and a capital city full of smog and dirt.

If you put Bob in a time machine and showed him modern day London he'd be astounded at how comparably clean and unpolluted it is, and the ease with which he can breathe in air and drink clean water. Once he's got over that surprise, he'd be stunned that there weren't dozens of people dying of diseases on every street corner.

As well as markets making us greener anyway (as I explain in this blog post), when you look at relatively smog-free places like London, New York, Seoul, Berlin, Madrid, Rome and Paris, and compare them to comparably worse cities in places like China and India, there is no reason not to believe that the richer countries' major cities are simply on are on a more environmentally friendly side of the Kuznets curve at present, and that the poorer major countries are not there yet (point of note: despite huge growth, overall China and India are still poor countries).

Moreover, you only need to look into the world of nanotechnology and shape-shifting and see what scientists are already on the verge of doing to realise just how lacking in forward thinking this whole Green movement actually is. The solar revolution will transform our energy usage in ways that will make gas and oil all-but redundant, and through the ability to genetically modify plants and trees in astonishing execution times, trees will be able to mature on previously infertile land in a matter of a few years.

Lab-grown meats and vegetables will revolutionise the food industry as we wean ourselves off much of our factory farming, and the machine industry will be revolutionised as we wean ourselves off fossil fuel dependency. All the domestic issues that preoccupy the greens are on their way to being things of the past thanks to science and technology.

Another kind of grandfather paradox

You know those people who bemoan our selfish consumption of natural resources now instead of preserving it for our grandchildren a couple of generations down the line. I wonder if they've ever stopped to consider what should be a very obvious flaw in their assumption - that such an argument can, of course, apply to those grandchildren as well. If they consume those natural resources won't they be selfishly failing to preserve it for their grandchildren? And if they consume it won't those grandchildren be failing to preserve it for their own grandchildren a couple of further generations down the line?

It's obvious that this question can go on ad infinitum, because when it comes to any of the world's limited resources, every bit of consumption at any point in time is consumption that someone born either in the wrong place or the wrong time cannot have. If preservation and sustainability were the only goals then this would lead to the absurd conclusion that no one should be consuming any present day resources because they would always be robbing somebody else of it.

Even if we ignore the fact that future generations will be richer and more prosperous than us (a fact we shouldn't actually ignore because it is one of the most important considerations in discussions like this) most resources of value are best consumed at a time which maximises the optimal market value of those resources. Consuming coal, paper or oil at a time when those resources are most beneficial to humans is obviously far wiser than consuming them at a time when they are no longer of much use to us.

And what about pollution?

Pollution is one of those things that always appears in green articles as being bad. It should be obvious that this kind of narrative is both presumptuous and silly. Take a factory that emits sulfer oxides in the air. Obviously sulfe oxide emissions affect the pollution levels, but that's not the same as saying that they are bad. Technically breathing pollutes the environment, but no one sensible suggests we should stop breathing.

If a factory is turning a profit, it is creating value in society (because consumers prefer spending on the products to keeping their money), so the right question to ask is whether the pollution the factory emits has costs that outweigh the benefits of the consumer surplus the factory affords to society in total production (not to mention the jobs it creates too) or whether the benefits of the factory outweigh the cost of the pollution.

How can we tell which it is? Well, if the negative spillover effects of the pollution are less than the cost of preventing it, the pollution produces more gains than losses. If the negative spillover effects of the pollution are more than the cost of preventing it, the pollution should be dealt with. The point is, sometimes pollution confers net gains on society - actually, my instinct is it usually does. So not only is it the case that a 'pollution is always bad and needs eradicating' narrative is presumptuous and silly, I'm afraid there are many people who don't even think to consider to ask about costs and benefits at all.

It's one level of foolishness to get the cost-benefit analysis wrong and come out on the side of discontinuing some pollution that is conferring net benefits on society. It's quite another to not even acknowledge the need for a cost-benefit analysis at all. What's worrying is that such people, the Greens and people voting for them, make up a fairly significant proportion of our young students, if the voting polls are anything to go by.

The final big issue

The most serious difficulty with the green phenomena though is that for the most part it is going to be looked upon by future generations as being an intellectual solecism of short-sightedness on our human journey, because all the energy, time, and financial resources that went in to it will go on to have been largely unnecessary alongside the much more efficient and empirically relevant scientific progression humans are making and will continue to make.

At the end of the day it is going to be something else that sees us through the climate change issues, and it's not the ever-expanding business that's largely dependent on junk economics, government levies and crony capitalist special interest groups that are going to provide the antidotes.

Lest we forget as well that the numbers are not exactly chicken feed: the climate change industry is apparently worth over $1.5 trillion. That's $4 billion a day spent on things like carbon trading, carbon consulting, carbon sequestration, biofuels and wind turbines on a problem that's going to turn out to have been hardly a problem at all.

It's an industry about the same size as the world's entire online shopping industry, but the big difference between the online shopping industry and the climate change industry is that in the case of the former the money you spend is on precisely the goods and services you want - whereas in the case of the latter you get involuntary expenses priced into your Pigouvian taxes, your energy and fuel bills, the government subsidies and the department expenditure in the shape of environment, minerals and waste teams present in every local council.

On top of that you get a multitude of recycling bins, environmentalist consultation, PR companies, and all the pseudo-philosophical outpourings from the likes of George Monbiot, Naomi Klein, Elizabeth Kolbert, Al Gore, Noam Chomsky and Al Franken who gather in their trail an army of activist acolytes burning banknotes outside HSBC and erecting their tents outside St Paul's cathedral, with thousands of others now joining them in spreading falsehoods like "capitalism is ruining the planet" and "we are all doomed if we don't stop it".

Although the climate change agenda is not without traces of good - when taken as a whole it is almost certainly going to end up being one of the costliest mistakes human beings ever became embroiled in.

None of the great human qualities and ideas - language, art, literature, morality, religion, philosophy - explain the progression-explosion from successful survival machines to thriving humans with the advancements of today. What caused the upward surge at the end of the hockey stick was the increased ability to trade, to mass populate, all of which underpinned by our ability to mass communicate - to share ideas, knowledge and innovations in trial and error fashion. It was the evolutionary equivalent of the recombination of genes that occurs in sex, where natural selection favours survivability.

It seems a nigh-on certainty to me that solar energy is the future. In recent years the price of solar power has dropped significantly, as the cost of manufacturing, the cost of installation and the electricity prices derived from it have become cheaper. The solar costs for consumers will soon be more affordable than costs derived from fossil fuels.

Not only is solar going to be the most prominent of all our energy sources - but given that the sun has enough provision to drive our Solar System for another 5 billion years, I can conceive of a time when the vast majority of our energy resources will be derived from photovoltaic cells converted into electricity. By far the country with the most prodigiously profitable solar industry is going to be China, probably followed by Japan and the United States, plus as the technology becomes more sophisticated and marketable it will spread more prominently throughout the globe

Just about any problem the world faces - climate change, war, illness, famine, terrorism, poverty, dictatorship, maybe even most crime and political malfeasance - can be eliminated or diminished by the continual trial and error of idea-sharing.

Expensive Doesn't Mean Valuable

More than 8.1 million people worldwide are now employed in the renewable energy industry, according to this report from IRENA. One way to look at it is to say, isn't it wonderful that there's been over 8 million jobs created in that sector? The economist's way to look at it is to say, isn't it hugely costly to pay for all this, therefore does it provide value?

The reason the economic analysis is right and the other analysis wrong is down to the understanding that natural resources are limited, as is human labour, and expenditure on this industry is expenditure that could be going elsewhere. Of course, if the renewable energy industry creates a net value to society then no problem. But does it?

It's unlikely that it does, because to say it does means to say that we are being made as well off as possible by applying those scarce resources in that industry. Think about that for a moment. Prices are not just about signalling the value of resources, they are a coordinated attempt to share by allocating resources most efficiently.

Those who want to use steel for engines must bid against those who want to use it for filing cabinets, ovens and keys. Those who want to use oil for petrol must bid against those who want to use it for weed killer, motorcycle helmets and drinks bottles. Even if the British government created a law to say that petrol, motorcycle helmets and drinks bottles are a basic human right for everyone in the UK, it would not change the fact that resource-allocations are bound by laws of supply and demand.

The market then is not just the billions of mutually beneficial transactions going on everyday across the world; it is the pattern of how people use limited resources that could be used for other things. Because people can make a living providing weed killer, motorcycle helmets, filing cabinets and engines, we know that suppliers have done the bidding for those resources competitively in a way that assents to consumer demand.

This doesn't happen with anything like the same extent with the renewable energy industry - much of the demand was created artificially by government mandates, lobby groups and international protocols. I'm not for one moment saying that the industry doesn't provide things people willingly buy - but it's very likely the case that the 8.1 million jobs and concomitant resources in the renewable energy industry is likely to be quite severe in opportunity costs, where there is significant loss from the potential gain that could have been attained from alternative uses of those resources.

Put it to the test

To show why this probably is the case, you only have to apply the following question to yourself: how often do you voluntarily spend your own money on something in order to make the energy humans use more efficient? The answer, for the vast majority of you, will be - not very often. Don't get me wrong, I'm sure many of you try to buy green-friendly products, and are mindful of recycling. And we all pay green taxes when we consume the world's natural resources.

But the reality is, most people wouldn't voluntarily spend too many extra resources on conjoining themselves to the pursuit of a greener environment. I'm sure many would tell you that's not the case - but economics is more interested in actions than words, and people's buying habits tell you that generally they care more about the consumer surplus attached to their fuel, paper, wood and metal products than they do about investing in renewable energy. To that end, there are bound to be plenty of deadweight losses attached to the renewable energy industry.

How Humans Astound Me Most

Everyone loves consuming food, and everybody eats. Everyone likes justice, and everybody seeks it in their lives. Like food and justice, everyone loves truth, but unlike food and justice very few people seek the truth, and this is arguably one of the strangest things about being human. 

Whenever truth conflicts with long-held tribal principles, or disagrees with something protected by the false security of consensus, or challenges what is perceived to be (but isn't necessarily) ethical, or rattles the comfort zone, humans very easily disavow their relationship with it.

It has been observed humorously that this generation is the first generation ever to have the entire world's knowledge available to us at the touch of a button, but yet the vast majority of people make very little use of this facility, instead repeatedly looking at people's cat pictures and funny videos.

Now don't get me wrong, there are many interesting and entertaining things on the internet that do not come under the category of learning the world's knowledge. But given that having such easy access to the entire world's knowledge is about the most astounding thing we've ever had, I think it is alarming that so many people do so little with it.

And to take it further, given that logic, reason, truth and facts are so enduringly exhilarating, and rather resemble a map that leads us towards a world of exciting revelation and discovery and learning, it astonishes me how much of the mundane and prosaic stuff take precedence over them.

There is one obvious reason why this is the case, though - the mundane and prosaic stuff is easy and mastering the world's knowledge is hard. It's also the case that many people have never been introduced to those first glimpses of enlightenment that lead the way to the exciting broader and wider pursuits that follow.

Discipline is difficult too of course: even with all the accessible knowledge, every time we log on we are met with countless memes, compelling news stories, and many other amusing, rewarding and intriguing obstacles craving our attention.

But when all is said and done here, I do believe that if somehow the average browser could make inroads into getting a fuller sense of the exhilaration of our generation's potential, combined perhaps with a bit of an understanding of how incredibly fortunate each of us is to be here, they too will find the gap between the human potential and what we actually do on this earth quite astounding.

The So-Called Increasing Population Problem Is Decreasing

China's relaxation of their one child policy - basically a relaxation driven by the need for more workers to narrow the worker/pensioner ratio - has led to some commentators waxing lyrical about overpopulation in general. Hans Rosling's popular BBC2 lectures have gone some way to dispel the overpopulation myth, and I wrote a big article on the subject a few years ago (see this Blog post Why The World Is Not Overpopulated) - but alas, deep concerns about overpopulation linger.

The article I wrote covers (to my satisfaction) the reasons why the overpopulation arguments are fraught, and often just plain wrong, but another thing you might like to consider is that, lack of contraception aside, human history has built its ideas of childhood on how having children benefits the parents. For example, in many cultures (old agrarian, but also many modern developing cultures) having children is based a lot on spawning workers who will look after parents in their older age. Equally, even in the UK most couples who plan to have children have them for the benefits they will bring to their lives (the fact that a new life is created with its own unique life is a great and special factor too).

The fact that the world continues to become more developed and prosperous, coupled with the fact that more and more people are living in big cities, means that many of the factors that make overpopulated areas ill-equipped to deal with it are becoming less and less of a problem. The more it's the case that parents choose to have children on the basis of a rational cost-benefit analysis, instead of needing children to help survive old age or women not having proper control over their reproductive cycle, the sooner population numbers will begin to more closely resemble science's law of parsimony.

Corbyn: What Integrity?

Jeremy Corbyn is not having a great week. Even if the claims that he walked past empty seats to sit on the floor of the Virgin train are untrue (doubtful, but possible), he has shown himself to be rather too much of a shameful opportunist by making that embarrassing short video. It was a silly pro-nationalisation plug that backfired on him.

But leaving that aside, I want to focus here on a bigger part of the Corbyn picture, because long before Train-Gate, I've been told several times that whatever faults Jeremy Corbyn has (for Americans, read Bernie Sanders) he is a man of strong, principled integrity, and that such a thing is a rare quality in politics. I would say such people are half right: yes, integrity is too rare in politics, but no, Jeremy Corbyn doesn't have it - not in my eyes. Here's why.

The socialistic ideas Corbyn has on the broad range of economic issues are not just naively idealistic, they are hopelessly inimical to logic and reason, and they have been discredited by economic expertise for as long as economics has been a formal subject.

Now for me there are only likely to be two explanations for how a man can get to the age of 66 and still believe all this guff: one is that he knows the full extent of his folly but isn't all that bothered about getting his facts right as there are lots of people in this country who think along the same lines (and perhaps more importantly, can keep him elected), and the other is that he genuinely still harbours an honest ignorance about how counterfactual and damaging his policies would be if they were ever implemented.

To be perfectly honest, I've no idea which it is (maybe a mix of both) because both positions are anathema to me. That is to say, I couldn't bear to be so cognitively dissonant that I could hold views I knew deep down to be wrong just to stay in my job or obtain popularity; and I couldn't bear to exist in a state of mind in which I hadn't thoroughly got to grips with facts and truths central to my vocation.

I suppose the extent to which either of the above is true is something only Corbyn knows. But either way, it ought to scream out at us that whichever it is, the case for Jeremy Corbyn being a man of 'principled integrity' must fall flat on its backside.

For I see no principled integrity in knowing the full extent of one's folly yet not bothering to live with values consistent with the correction of that folly, and I see very little integrity in not properly researching the economic arguments, logic and reasoning that so easily expose his ideas as being harmful to the economy, to growth and to the increased prosperity of others in poorer nations too. The fixed pie fallacy, the free lunch fallacy, the 'seen and unseen' fallacies, the failure to understand the damage of price fixing, excessive taxation - you name it, Corbyn falls for it.

So I'm afraid I cannot go along with the idea that Corbyn, and people like the London mayor Sadiq Khan, and the rest of Corbyn's economically illiterate shadow cabinet are people with principled integrity, because for whatever reason they continue to persist with damaging ideas and foolish views about reality.

It's not all that different to how a biologist might feel about a young earth creationist or an astronomer might feel about an astrologer - they may concede that such people believe they have good intentions, and are often quite likeable personality-wise, but there is very little integrity in being the kind of people forever trying to give credit to long-standing discredited views when it is so easy to pick up a few text books and see the folly for themselves.

And by the way, if you're going to try to tell me that perhaps many of them have already studied this subject and simply arrived at their current conclusions on the basis of that learning, then that doesn't let them off the hook one bit, for me - it merely confirms that they are either incapable of learning the basics, or that they have a personal agenda that overrides the facts and truths in front of them.

And this brings me to my last point. Given that the relatively simple fact that competition and free trade are the biggest drivers of widespread prosperity, there must be one heck of an agenda with the likes of Corbyn as he consistently champions policies that make those things less conducive to fruition. Despite developing a reputation to the contrary as the saintly socialist saviour with real principles and integrity, why is he doing everything he can to implement policies that make the less fortunate even worse off? Is it perhaps that people on the hard left get so much of a buzz championing the underdog that they develop a saviour complex - and perhaps even subconsciously relish keeping the poor in their state because it keeps alive their raison d'etre?

You see, it's no small irony that not only is it the ability to trade that most efficiently lifts people out of poverty and drives improved living conditions for everyone, it's that when people do become more economically prosperous it is then that they are most likely to help others. In other words, free trade doesn't just help Jack and Jill, it helps Jack and Jill help Tom, Dick and Betty too. Someone with barely enough food to survive is less well equipped to help others thrive. On the other hand, the average mother in somewhere wealthy like the UK or USA often has the economic security to help others in the community, particularly when they retire or if they work part time.

And as the nation in question gets wealthier, the narrative of the socialist saviour becomes even more outmoded, to the point that they can only keep up the lie by creating new fatuous subplots, like the rich are making the poor even poorer, that we need a fairer society that works for everyone, and that capitalism is the most justifiable target for all our opprobrium. Part of the reason that Corbynomics is so easily ridiculed in circles of economic competence is that the socialist need to scratch our societal itch is dying out more slowly than the itch itself. 

Or to put it another way, a medicine is being offered to cure a disease that's been cured by another kind of medicine. And to rub salt into the wounds, the medicine being offered by Corbyn is actually a poison that inhibits the potency of the actual cure (the closest real life example of Corbynomics in action at the moment is not in Scandinavia, as some people think, it is in Venezuela, and the results are catastophic).

If you want principled integrity, you can find it far more in people like Deirdre McCloskey, Robert P Murphy and even the IEA's Philip Booth - good honest economists, and also people of faith, who have a proficient enough understanding of the political landscape to speak of what's best for everyone, but who are also not afraid to embrace truth and facts even when they are not part of consensual opinion.

Great Idea! Wish I'd Thought Of It

Rudyard Kipling once said “What do they know of England, who only England know?”, and what he meant was, not only do you not know much of other countries if you only know England, you don't know so much of England either without knowing other countries with which to make comparisons.

Lovers sometimes say that of beloveds too - they love them not just by knowing the beloved and all the qualities she has, but by knowing how the qualities and faults of others give further exhibition to what the beloved has to offer.

I feel this is also very true in debates too; it is important to understand the position of your opponent in order to understand your own position properly too. In the days of debating on forums a few years ago, if I could sense an opponent hadn't got a cognitive purchase on his (or her) argument I would try to persuade him to write a post as though he was arguing passionately and intelligently for the other side.  

From what I recall, no one ever took me up on my advice, but I think they missed out. Because I think in terms of probability, two things hold most of the time. If someone can accurately and comprehensively explain a position with intelligent reasoning but continue to think that position is wrong, there is quite a high probability that it is wrong. And if someone can accurately and comprehensively explain a position with intelligent reasoning and agree with it, there is quite a high probability that it is right.

Now for that good idea I was talking about: I just discovered today that economist Bryan Caplan has combined notions similar to what I just said above with the Turing test, which for those that don't know, is a test whereby a machine is required to convince a neutral judge that it could pass as being indistinguishable from a human. He calls his version of this The Ideological Turing Test.

This test tries to determine whether someone with a particular view or belief adequately understands the arguments of his or her intellectual opponents. The test is that the individual is challenged to write an essay posing as his opposite number, and if neutral judges cannot tell the difference between the partisan's essay and the answers of the opposite number, the candidate is judged to correctly understand the opposing side.

Here's what I think would be an interesting social experiment; put five randomly chosen socialists/atheists/young earth creationists and one libertarian/Christian/evolutionist in a forum and let other socialists/atheists/young earth creationists ask them questions for an hour. At the end of the hour, the socialist/atheist/young earth creationist questioners have to vote on which one they think is a libertarian/Christian/evolutionist.

Then put five randomly chosen libertarians/Christians/evolutionists and one socialist/atheist/young earth creationist in a forum and let other libertarians/Christians/evolutionists ask them questions for an hour. At the end of the hour, the libertarian/Christian/evolutionist questioners have to vote on who they think is a socialist/atheist/young earth creationist. 

After repeated experiments, that could give a good indication of who understands the psychology of the other group best. The same could be tried for any polarised group you like. It won't surprise you to know that in the above scenarios I think the libertarians, Christians and evolutionists would do far better than their opponents, as well as being able to write far more comprehensive essays on their opponents' positions than would be the case the other way round.