Rent Control: The Continuing Shambles of Labour

Goodness gracious, how much more of this Labour Party soap box oration are we going to have to endure before the election next year? First Labour MP David Lammy in The New Statesman did it, and yesterday the socialist demagogue Ed Miliband did it too - I'm talking about promising people that a future Labour government will cap rent increases with secondary generation rent controls (SGRCs). Don't be fooled by the anodyne expressionism - this is basically the wolves of the disastrous 1970s Labour party in the sheep's clothing of Miliband's New-Old-Labour.

Of course, it's not quite like the 1970s - Miliband's New-Old-Labour have put on their sheep costumes and have signposted rents towards market value, whilst making any subsequent increases difficult - but it's all based on the same irritating misapprehension that politicians do a better job allocating resources in the free market than the people making those voluntary exchanges themselves.

In a time when people from UKIP ('you kippers' as I like to call them) rightly get castigated for making comments about 'bongo bongo land' and Lenny Henry 'emigrating to a black country', it seems that the Labour Party keeps getting away with minimal reproach for what are similarly counterfactual and contemptible views (albeit of a different kind). If 'you kippers' deserve our repudiation for their shameful views, then Labour politicians deserve our repudiation for what is becoming an irritating succession of outmoded, popularity-mongering claptrap.

Here’s what wrong with the proposal. Rent controls artificially lower the price of renting an apartment to below the market rate. That’s a terribly bad idea. The consequences of this economic short-sightedness is a housing shortage. Heck, even some of the non-human primates (chimps, gorillas) know that the less you charge for something the more demand you create and the shorter the supply. When the government makes rent artificially cheaper it means landlords want to rent out fewer units than they otherwise would.

Alas, the long term vision of having more affordable housing for people will also be compromised with artificial rent controls. Suppose you’re a property developer looking to spend millions of pounds building a huge apartment complex in a major city – and let’s say you’re thinking of either London or Auckland. Suppose London has a rent control policy and Auckland doesn’t, and all other factors are equal – you’d head straight off to Auckland to avoid developing apartments in a place that makes you charge below the market rate to rent them out. This also knocks-on to affect economic growth too, as businessmen will be reluctant to locate to a country that artificially induces goods and services to be below the market level.

Here’s another way rent controls create shortages – they disincentivise already available rooms from being rented out. Suppose you live in Lambeth or Pimlico and you have a room to rent. If the State-induced rent control places the room at 60% of the value you place on it, you may well decide to leave the room unoccupied and use it for storage or an office instead. Every time a decision like that is made the government effectively eliminates hundreds of units from the rental market.

Furthermore, rent controls lower living standards too. If landlords have to artificially lower their profits they will be tempted to lower their own standards in order to cut costs and make up for their losses. They will be disincentivised to maintain properties in the way that they would if they were being paid what their rooms are worth. The consequent effect is that re-wiring isn’t done as frequently; general repairs are scarcer; utilities don’t get replaced when they begin to show faults, and the neighbourhoods (from gardens to graffiti) are cared for less. You may think that cutting corners to engender shoddier living standards won’t be tolerated by clients, but that won’t be a problem for landlords. With artificially low prices they will be able to fill their shoddy rooms twenty times over.

I have quite a few general maxims in life. Here’s one of them:

Lazy thinking gets us only as far as the conspicuous benefits of a proposal. Creative intelligence, however, takes into account not just the conspicuous benefits of a proposal, but also the inconspicuous costs - from which a full analysis of costs and benefits, conspicuous and inconspicuous, brings forth proper clarity of argument.

JK



What we see far too much of is politicians stating only the conspicuous benefits of a proposal, and acting as though they’ve got the argument sewn up. It just won’t pass muster. Everyone agrees there is a housing shortage. In response to this housing shortage, politicians either need to have the courage of their convictions and build more social housing, or they need to be honest and say they can’t justify the cost. This rabble-rousing price-fixing popularity contest from Ed Miliband just won’t do – it’s lazy thinking of the worst kind, and it’s little more than genuflection towards the few people left in the UK from whom his party has the slightest chance of winning (as opposed to obtaining) any votes.

* For more on this, see my Blog post Rent Prices & Social Care; Too Much Restriction?

Zero Hour Debacle

With the Coalition government doing quite well, Ed Miliband is really struggling to make any political ground in opposition (his party probably will get the most seats next year, but that's not to do with anything good he's brought to the table).

His latest tactic is to try to pillory zero hour contracts in an effort to make him sound like he's on the side of struggling people. His proposal isn't to ban them, it is to legislate to ensure that:

"Workers can demand a fixed-hours contract when they've worked regular hours over six months for the same employer. And they will they receive a fixed-hours contract automatically when they've worked regular hours for more than a year - unless they chose to opt out"

This is both inconsistent and myopic. It's inconsistent because if Miliband thinks zero hour contracts are bad for everyone then he should want them to discontinued. If he thinks they're good for some people, he is impelled to leave people's working arrangements to those involved in the arrangements, and not impose any extraneous (and arbitrary) regulations of the above kind. And it's myopic because the imposition of 6 month and yearly thresholds won't help the people working under those conditions that he's trying to protect, it will simply encourage employers to lay off employees just before the deadline to circumvent any contractual obligations.

As daft as Miliband has been here, the big annoyance though, as usual, is when politicians meddle when they are not wanted. When the Institute for Economic Affairs surveyed people working under zero contract hours they found over 50% of people found them beneficial, with 30% not liking them, and the rest not minding much.

But even if we don't read too much into surveys (and sometimes it’s not good to), the usual rule of thumb still supplies - governments should not interfere in the allocation of resources in voluntary transactions because they cannot do it better than those actually involved of their own volition. Thousands of people work under zero hours contracts - most of whom are people who've preferred them to the alternatives. A lot of people I know find them ideal for their circumstances - they suit all kinds of people; students, semi-retired people, and the many who want to earn cash but not be tied down.  It's a shame that some politicians in this country are getting so nannified that they are nearly blind to the qualities of a flexible, free market, and hopelessly unmindful of people's liberty to manage their own affairs.

* Picture courtesy of The Sunday Times

Old Wine Into Old Wineskins - How Ed Continues To Make No Sense

 

Ed Miliband popped up in The Independent the other day, telling us how in his election manifesto he is going to try to tackle the 'cost of living crisis' (his favourite term at the moment) by concentrating on creating jobs in this country rather than being over-reliant on consumption of goods imported in from outside.

The ignorance here is staggering. I won’t write too much about this delusional idea of a government creating jobs, because I think regular readers of this Blog will have picked up by now that the very idea of politicians being better determiners of allocation of labour, resources and capital than the actual people whose money it is behind those decisions is laughable. The notion that politicians will spend other people's money in the hope of securing votes better than owners of that money will spend it looking for profit is absurd - and anything to the contrary uttered by politicians ought to be exposed as drivel every time it is declared.

But while that's absurd in itself – it is arguably less absurd than Ed Miliband's other mistake in the newspaper, where he claims that he will help us become less reliant on consumption. His mistake here is in failing to realise that the purpose of all market activity is consumption - either consumption of goods or consumption of services. To see why, imagine you find a magic lamp that, when rubbed, will give you any good or service you want - food, films, dental treatment, a car, good health, legal advice, pain relief, a holiday abroad, therapy, you name it, you get it by rubbing the lamp. Upon finding this lamp you would have no more need to produce anything or have anything produced for you. Further, if you gave everyone in the UK one of these lamps then no one in the UK would have any reason to produce anything, resulting in industrial stasis. In the real world we don't have magic lamps, so we produce and consume through our own time and effort. The idea of having an economy that makes us less reliant on consumption is as foolish as having a marriage that makes us less reliant on love or a classical piano concert that makes us less reliant on music.

Another misapprehension from Ed Miliband is that he would prefer to see us manufacturing things here and selling them to foreigners rather than buying manufactured goods from foreigners. He's not alone; David Cameron often speaks this way too. I can only think that such idiocy must be a ruse to win a few voters in marginal constituencies. From such absurdity, it’s becoming more evident that both party leaders need to learn that the benefits of trade are not confined to artificial national borders, as anyone who has bought a book from another country on Amazon will know. In the same way, trade between two companies in the same country is no better or worse than cross-national trade. To see why, imagine that the Republic of Ireland, Northern Ireland, Scotland and Wales all became part of England. Technically that would reduce cross-national trade by a significant figure, but would all the traders in this new England really feel that they were any worse off because imports and exports had decreased in favour of inner-national trade? The answer is clearly no. 

I remember when I was about 10 or 11 meeting man from the north who bemoaned that Thatcher had took his job by closing down the coal mine in which he worked because coal could be bought cheaper from abroad. I said to him that surely this is a good thing, because cheaper coal is better than expensive coal for the one buying it, irrespective of the country from which he happens to come. The man scoffed, said he hoped one day I'd understand, and left the conversation. St Paul said "When I was a child, I spoke as a child, I understood as a child, I thought as a child; but when I became a man, I put away childish things". When that conversation about coal was going on I was the child and he the adult, but he was the only one failing to realise that trade should have no national preferences (see my Blog post here for further elaboration). His self-preservation meant that he preferred more expensive British coal to less expensive foreign coal. Short of discriminating against another trader based on nationality, his position lacked any sense.

This man was not alone - mercantilists used to make this silly mistake all the time - they wanted home trade because they thought that selling to foreigners means we are producing more than we consume, and that as we had the money from sold goods and foreigners had our sold goods that we were better off. Ed Miliband was only repeating past mistakes from people that gone before him - not understanding that consumption is the watchword, and that money itself is not wealth. It beggars belief that this man will probably be Prime Minister next year.

 

 

Misunderstanding The Basics

Here's a rather misleading headline doing the rounds today:

While the issues are serious, that’s exactly the kind of irresponsible and counterfactual way that you’d expect a Daily Mirror columnist to frame the question.

Here are my brief answers to the misjudged insinuations:

1) We have more millionaires than ever before in the UK because the market rewards success and innovation.

2) We've handed out 1 million food parcels because people are caring and want to help, and have found the means by which they can now assist those with less to eat than themselves.

It's odd how the reactionary media see Foodbanks as a sign that things are getting worse. Things might be getting worse in a lot of places, but there's every chance they might be getting better. Either way, an increase in Foodbanks is not necessarily a sign that things are getting worse - it's probably a sign that more people are now being helped than was previously the case. Here's an analogy. In the first year of their inceptive period the Samaritans received thousands of calls. That didn't mean suddenly everyone was getting depressed that year, it meant suddenly more people had someone on the end of a phone to offer support. That's probably the case with Foodbanks - it doesn't mean more people are now hungry, it more than likely means more hungry people are getting practical help, and that communities are doing more to provide that help.

Of course, it may still be the case that these Foodbanks are bad portents, and indictments of very bad times for many, but however that's addressed, it certainly is nothing to do with the fact that there are now more millionaires in the UK than ever before. This is a strange fallacy of the left - they have this foolish idea that it's because successful people are successful that unsuccessful people are unsuccessful. Anyone with more than a basic GSCE grade in economics would know that's absurd. Let me illustrate how it really works with two analogous statements:

A) Hunger occurs not because food is bad but because some cannot participate in eating food.

B) Inequality occurs not because trade is bad but because some cannot participate in trade.

People struggling in a free market are struggling because they haven't yet been able to capitalise in a way that benefits them. They perhaps haven't fully developed their skills yet, or they haven't yet found their vocational niche in a supply and demand market that rewards industry and innovation. Perhaps many never will – and that’s a worry, and it ought to be a signal that they need all the help and support that can be offered to them. But admitting that does not entail falling into fantasy. The current plight of those people, and the wages of low earners, are not dictated by the wages of high earners, they are dictated by the market value of the skills and labour. If the Chief Executive of a company had a government-mandated extra £50,000 a year knocked off his salary it wouldn't mean that the same firm's staff on £18,000 a year would suddenly find a wage increase. That is not how the employment market works, and nor should we want it to.

Live TV Trials, Judges & Probability

In the midst of the Oscar Pistorius trial there has been some debate about whether live TV trials are a good thing or not. I suspect it’s as broad as it is long, but ironically the probability of whether live TV trials are a good thing or not is similar to the probability the judge faces in the trial itself (there are no juries in South African trials).

In both situations we have a probability of 1 or 0, but asymmetry of information too - so even though there is a decision to be made, its efficacy is based on a system where, when considering 1 or 0, all bets are made up of amateur decisions made by one person with incomplete information. If the judge thinks that Oscar Pistorius is guilty with a .6 probability of being right then that's as good as a guilty verdict. If the judge thinks he's guilty with a 0.3 probability of being right then that's as good as an innocent verdict.

In other words, all probabilities less than .5 are tantamount to one verdict, and all probabilities greater than .5 as are tantamount to the opposite verdict. That is why I say the jurisprudence mechanism is 'amateurish' - not that it necessarily needs to be revised (although I do offer some suggestions for revision in these Blog posts here and here) - but that it operates under a loose probability system that you'd never see in a science lab, or in manufacturing, or engineering, or cartography, or NASA, or places of a similar nature. For that reason, the case *for* live TV trials and the case *against* them may not have much in them in terms of their persuasiveness. 

* Photo courtesy of digital spy

Why Tuition Fees May Be Too *Low* Not Too High

Aaagh…. Labour MP Harriet Harman on BBC1's Question Time two nights ago said her party wants more people to go to university, and she'd like tuition fees lowered so that it encouraged more people to go on to further education. She never bothered to consider whether too many people might go to university at a reduced rate, and that the lower fees might increase demand to an unhealthy or unmanageable level. As for the fact that however much you increase demand you will not increase the universities' capacity for more students than they can take....nope, there wasn't even a mention of that. This has been brewing for a few weeks now, after the Northampton University vice-chancellor Nick Petford warned that tuition fees for British students could reach as much as £20,000. The key to this issue is to ensure that neither supply nor demand are being artificially stimulated. This is something that a great many politicians seem to be missing.

At their most expensive, tuition fees are currently at the top level of £9000 - which basically amounts to a loan from the government which is paid back when the graduate earns more than £21,000 per year. Instead of worrying too much about rising tuition fees, what should be considered is that putting up tuition fees might actually be a good thing for the country overall. There's no doubt that higher education brings about huge financial benefits to the county*, but there's also no doubt that having too many graduates devalues graduation in the labour market, and that in a state of diminishing returns the financial benefits would no longer bring about such efficiency.

 

When Liberal Democrat leaders like Charles Kennedy, Ming Campbell and Nick Clegg argued for tuition fees to be scrapped they showed themselves to be incompetent at economics. When in the coalition government Nick Clegg and Vince Cable reneged on their promise not to raise tuition fees they incurred lots of criticism, which is ironic because it was a rare example of them a) picking the right policy, and b) having the wherewithal to change their mind when they saw (with a little help from their bedfellows) that the preposterous proposals they had promised were risible.

If scrapping tuition fees is ludicrous, then what is the right price to charge a student? The answer is simple: students should be charged exactly what it costs to obtain a degree - no more and no less - and fees (prices) should match demand, whereby the right number of people are getting degrees. How do we know what the right number is? This is down to utilitarian efficiency, which is measured in terms of what we might call practical economic utility. What is meant by 'efficient' here is that an efficient transaction occurs when the overall increase in utility is greater than the overall decrease in utility. There is a lot of complex analysis we could attach to that, but not in any way that matters much here. Suffice to say, the key to this is price signals.

 

When fees are too low, people will study even though the cost of going to university is greater than the benefits of a university education. When fees are too high, people will be put off studying, which means there'll be too few university graduates. A few of the low-fee protagonists have argued that a decline in applicants would be evidence that the fees are too high. It would not be, as I'll explain in a moment; it would be evidence of less educational waste, with those no longer doing degrees being the people for whom the cost of going to university is greater than the benefits of a university education.

 

Of course, the standard argument in favour of subsidised higher education is that higher education confers benefits on others as well as on the main beneficiary, so it must be good for society if it is subsidised. I think this view is wrong. Deodorant, mouthwash, shampoo and washed clothes each confers benefits on others as well as on the main beneficiary, but no one is arguing for deodorant, mouthwash, shampoo and washing powder to be subsidised. Here's the key reason why - to take washed clothes as one example - when you wash your clothes you enjoy the benefits of clean and fresh clothes, but so do others too - your not smelling, your looking smarter, and your being a generally more pleasant person to be around are benefits that do not need subsidising, because you'd willingly buy washing powder yourself to ensure such things happen. The same is true of avoiding bad breath and greasy hair - the government doesn't need to subsidise mouthwash (or toothpaste) and shampoo because it knows you'll willingly pay for them yourself in order to feel fresh and at the same time be socially acceptable

 

This is what higher education is like - the benefits and rewards that are obtained (increased employment opportunities, higher earnings, being more highly educated, higher social status, academic prestige, greater knowledge, better conversations, and greater opportunities) certainly extend beyond the person doing the degree, but they are benefits and rewards that people feel are worth having without the need for a subsidy. That's why a heavy education subsidy only encourages inefficient numbers of students, and why a system that charges people the cost of their degree won't discourage people with real promise and potential from entering higher education.

 

For those reasons - unusual as it is - the government has its policy just about spot on with tuition fees. It loans to those who need it, and it only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings, which means smart people from poorer backgrounds need not be put off from further education. To have no tuition fees would be to spread the cost of people's higher education amongst the rest of the taxpayers - and quite why anyone thinks they should foot the bill is beyond me.

 

Another good thing about the government's policy is that it also avoids too much of a market mechanism in higher education, which, if too money-centred can be a bad thing. Consider why. Suppose Oxford and Cambridge had hiked up admission fees to attract the elite. Such a policy goes against the thing they should value most - academic credentials. If you are an employer looking to employ an Oxford graduate, who would you prefer; one who got in on scholastic merit, or one who got in because of a privileged financial background? The value of attending Oxford depends largely on the university's reputation, which is built primarily on prior academic excellence of former students. By having applicant quality as the measure of admission, the average student quality can be increased, which then further increases the prestige, which then increases the allure for high-quality future applicants.

 

A system that neatly balances the admission quantity between talented young people that can pay (and do), and talented people that can't pay and are helped along the way, is a system that is just about right. It is inevitably true that being from a privileged high achieving background does confer advantages on young people that young people from working class backgrounds do not enjoy. This upsets lots of people - but it should not. Privilege mostly comes (either directly or indirectly) from high achievement. Therefore if you want to argue that that is a bad thing, you are arguing that a world in which achievement engenders advantage is a bad thing, which amounts to devaluing merit-based advantages - and to do that is to make a mockery of applying skills and working hard in general.

 

* The economic benefits of university students are thought to be worth about 59 billion to the economy – see the report here: http://www.universitiesuk.ac.uk/highereducation/Documents/2009/EconomicImpact4Full.pdf

 

** Photos courtesy of the bbc and telegraph.co.uk

 

 

Europe: In or Out?

I just got around to watching the Nigel Farage vs. Nick Clegg debate on Europe. It was a bit like watching a herbivore and a carnivore arguing over an over-done pork rind; one has no interest in having it, and the other knows that he'll never have the political teeth to bite into it.

To convey the key point I think Nigel Farage got right in the debate, I shall refer you to an earlier blog entry of mine, in which I considered the nature of alcohol, its effects on society, and whether it would be legal if it were invented next week….

"Pretend there's never been any such thing as alcohol.  Tomorrow someone combines ethanol with other compounds and proposes to trial on the market this new product call 'alcoholic drinks'.  The Government monitors its effect on society, filming those effects on the first night of public consumption.  Numerous drunken people go out on the town, losing their inhibitions, peeing in doorways, hurling abuse at passes by, having fights, trying to coax staggering drunk girls into bed, and throwing up all over the streets.  Next day a committee looks back at the effects of this new product called 'alcoholic drinks'.  It would never get past the trial stage - they'd stamp it 'illegal' right from the off.  So ‘effects vs. legality’ doesn’t always pertain to prudent practices or sound foresight."

Imagine if we'd never had alcohol and were asking about its potential legality today as a new thing under consideration - I'll bet there would be a lot of people who, upon seeing the negative externalities on society, would call for it not to be introduced into the market. Asking the question with the signs reversed enables us to consider more than just past legacies and social habits - we can consider the merits and demerits of a proposal in prospect.

The way we framed the question of alcohol's desirability, in prospect, is exactly what we should do with the EU. Nigel Farage asked the question in exactly the right way - not simply considering the EU from the point of having it and coming out, but as though we didn't have it and were considering going in. That best helps people formulate a proper consideration of the merits and demerits, and not be susceptible to the endowment fallacy that comes with considering things we already have.

It is clear that there are costs and benefits to being in Europe - the question is whether there is a net benefit to being in. This is complicated by the fact that it is very hard to know about the true inter-connectivity between the costs and the benefits, and whether the UK needs to be 'in' to reap those benefits.

Take, for example, the European Arrest Warrant - here there is connectivity between European nations that enables criminals to be brought to justice by being returned to their place of trial. Not having that would be a loss to European countries, but then one wonders why such a connectivity has to be contingent upon being 'in' a stultified, bureaucratic, undemocratic Union of the kind we have. Given that it is mutually beneficial to all participants, surely we would have a similar European Arrest Warrant coalescence whether we are independent from Europe or not. After all, Britain has a similar arrest warrant coalescence with the United States, and they are not in any kind of Super State Union with us.   

That issue and many others like them are very much central to the debate - the putative benefits of being 'in' should be able to be enjoyed without the construction of this Super State Union run by charmless un-elected bureaucrats who, judging by many of the regulations, fail badly at efficient economics.

This seems to be a common theme - what proponents cite as benefits are, to me, benefits that could still be reaped as part of a European coalescence that didn't involve such a bureaucratic core. For example, one of the great things about the EU is that any member can work or travel anywhere else in Europe. With sensible immigration policies that remains a wonderful thing, just as it is great that Brits can leave the UK for Europe anytime they like (within reason). I see no reason why such a mutually beneficial set-up could not remain, irrespective of EU trade dogmas. The reason being, when it comes to liberty, freedom, trade, allocation of resources, and market potential, there is little a State central planner can do that a libertarian can't do on his or her own.

Thus, it seems clear to me that the big issue with the EU is the issue to do with trade. On that front there is no question that a lot of the EU top down management of the numerous regulations is bad for free trade, and hence, bad for economies. Here's an example; the EU's dreadful tariffs on non-EU agriculture dampens the price signals of agriculture and creates trade barriers that hurt much poorer non-EU countries like those in Africa. The result is not only an unnecessary disadvantage for those who desperately need more trade opportunities, it is a wasteful misallocation of agricultural adaptation as it effectively subsidies EU farming against those whose goods are more cost-efficient. It is disgraceful that that happens, just as it is dreadful that EU regulations prohibit so much business with the likes of India, China and Brazil.

Now there is some fear that some corporations would be less likely to trade with the UK if they were divorced from the EU. To some extent that might be true. Usually free market supply and demand takes precedence over relative irrelevancies such as the European-status of the country, but I can conceive of exceptions. Suppose 15 countries left the EU - what you'd have is an additional 15 national trade regulations ratified by those independent States, whereby cross border trading is delayed, impeded and more costly than it needs to be. To that end, countries that filed for this divorce would in some cases disadvantage themselves.

But that only goes to show why libertarians like me have been complaining about nannified regulation impeding trade - this wouldn't be a problem if the monolithic regulatory protocols were relaxed - most of them are entirely unnecessary, and cross-national surcharges most definitely are.

David Cameron will probably look back and realise that one of his biggest mistakes in this term was not re-claiming the territory lost to the best parts of UKIP - most notably the libertarian values of free-enterprise and global trade, small State regulation, and standing up to the charmless, un-democratic bureaucrats in the European Union, many of whose laws are stultifying, economically inefficient and nannified.

All that considered, then, it would seem to me that the best outcome is a strong united Europe, with multiple nations able to be mutual beneficiaries in good cross-European protocols (freedom of work and travel, sensible judicial policies, etc) but without the stuffy, undemocratic, regulation-mongering charmless bureaucrats who sit in Brussels, Strasburg and Luxemburg earning lots of money for doing very little that benefits global trade.

Free markets are not likely to be impaired by a UK divorce because, as I say, they are driven by supply and demand. The immediate threats, though, are problematic - for example, the likes of Germany and France wouldn't be keen on us cherry picking our favourite bits of Europe, and they may even subject us to 'outsider' tariffs. But if such regulations can impede trade this way it only goes to show how rotten at the core it really is, and not as fit for purpose as it was when it was the common market. Of course, the plus side is British trade outside the EU would grow, but the one thing left to worry us would be that divorcing ourselves from other major EU countries would make it hard for us to positively influence Europe from the inside.

Just about every passage I've written here is screaming back at me that the problem with the EU is trade barriers…trade barriers….trade barriers. If they can be sorted, things probably will be better - whether we are in or out.

Once we see Europe for what it is the picture can start to become clearer - nations are artificially created States whose borders are demarcated by political protocols, not free market protocols. Excepting currency, which is only a unit of value, the differences between the UK, France, Germany, Spain, Finland, and so on are based on division of political units, giving each nation a political and cultural identity. Economies are not demarcated in the same way - as money flows all over the world in small and large quantities. The economy of London is more different from the economy of Leeds than it is the economies of Madrid or Paris. The economies of Berlin, Hamburg and Munich are closer to each other than they are most of the rest of Germany. There are fewer economic transactions between Germany's Berlin and Germany's Ingolstadt than there are Germany's Berlin and England's London or France's Paris. In every way that's relevant here, the artificial units of nationality are quite separate from economic connectivity through trade. If I went on Amazon and bought Les Enfants Du Paradis on DVD, it would make no difference to me whether I bought it from a cheaper seller in Marseilles or a cheaper seller in Manchester - the transaction transcends national borders.

So…Europe…in or out? Instinctively I say 'out' - but what's very evident to me is that until there is a referendum all the benefits of being 'in' (and there are plenty) are benefits that ought to be, and can be, enjoyed without the unnecessary anti-free market restrictions that stop EU countries freely trading with non-EU countries. Encouraging rich Tom to trade with slightly less rich Dick because regulations inhibit trade with poor Harry is not in the long run helping Tom, Dick or Harry. In all likelihood, though, if we want to make positive differences in reforming this protectionist monolith, we'll have a better chance doing so from the inside rather than as an ex-EU divorcee - so 'in' seems to be the better option.

* Photo courtesy of bbc.co.uk

The Muslim Brotherhood Is Not 'Brotherhood Of Mankind'

In Rosemary Hollis's article* in The Guardian yesterday we saw a quintessential example of all those people in the UK who, when speaking about militant Islam, have the backbone of a paramecium. Hollis says:

"David Cameron's Muslim Brotherhood inquiry could well backfire. If the investigation leads to a ban it may appease the Saudis, but it would also alienate the millions who never espoused violence. Cameron will come to regret his call for an investigation of the Muslim Brotherhood. The move is opportunistic and set to backfire on him. The impetus reportedly came from British intelligence, not from the Foreign Office, where there is greater awareness of the dangers of alienating the rank and file of an Islamist movement hitherto identified as relatively moderate and nonviolent. The prime minister has created a trap for himself. If his investigation finds grounds to proscribe the Muslim Brotherhood it will alienate millions who never espoused violence in the first place."

So let me get this right, the authorities shouldn't investigate the dangerous, deranged fanatics of this man-made falsehood because it might upset the milder, more socially innocuous proponents of this man-made falsehood?

Not only is this the worst kind of craven journalism around, it inadvertently attempts to rob the moderates of the very integrity they wish to retain by joining us in repudiating fanatical nutters like those of the Muslim Brotherhood. One cannot help but think of Iago's famous line in Othello (ironically spoken by a man whose reputation deserved to be on the line):

“Good name in man and woman, dear my lord,

Is the immediate jewel of their souls:
Who steals my purse steals trash; ’tis something, nothing;
’twas mine, ’tis his, and has been slave to thousands;
But he that filches from me my good name
Robs me of that which not enriches him,
And makes me poor indeed.”

In imputing to moderate Muslims a reactionary outburst of indignation and dissonance in response to David Cameron's investigation, Rosemary Hollis irresponsibly tries to filch from them the good name they would want to attain by disassociating themselves from the bad elements of the faith. The true moderates, pertaining to be good citizens and able to integrate and assimilate into UK culture, would presumably welcome the investigations as much as the rest of us. To suggest otherwise would be as ill-judged as suggesting that the majority of Catholics don’t want Catholic paedophiles brought to justice because they happen to be of the same Christian denomination.

What about investigations into terrorism in the UK?

When a gardener wants to get rid of weeds, he or she must ensure they are dug up at the root with no traces left in the soil, lest they grow back. Leaving aside terrorism for a second, this is the policy the police use for tackling certain crimes. When an act is criminalised the authorities usually want to go after the suppliers rather than the consumers - that is, they want to get to the root of the problem, dig it up, and remove all traces of it. Think guns and drugs and stolen cars - it is generally the providers in whom the police are most interested, not the consumers or users. Their logic seems to them to make sense - if we get to the root of the problem (say, locking up drug dealers) we reduce the chances of further growth (number of users).

Perhaps that is a good strategy, but perhaps not. Maybe going after the suppliers is actually less effective than going after the consumers. By locking up consumers they leave fewer customers for suppliers, which decreases demand - and unless those sellers find new clients there will be a superfluity of goods with a scarcity of buyers. Bear in mind too that if suppliers look for new customers they increase the chances of getting caught dealing because new customers are unknown, and could be informers, mindful citizens, or undercover police officers.

So with those sorts of crime it's possible that the 'get to the root' ethos may have a negative effect on prevention, because incarcerating providers creates scarcity, which creates rising prices, which may entice more providers to try to enter the market.  If the authorities focused more heavily on buyers as well as providers they'd probably have more success.

When it comes to terrorism in the form of Islamic extremism, though, I think the opposite might be true - here the authorities probably need to focus more heavily on the roots. Unlike drugs or guns, Islam fundamentalism is sold in the form of propaganda and brainwashing, where influential figures are able to penetrate the minds of impressionable young men and convince them to become 'freedom fighters' for the Islamic cause. Lock these people up and keep them away from society and you'll probably find fewer people there to replace them, because demand for suppliers of extremism isn't niche-filling in the same way that demand for suppliers of drugs is niche-filling.

Even failed terrorism is costly

Finally, another reason to toughen up on Islamic fundamentalism is that terrorism brings about huge costs on society even when its attempts are unsuccessful (actually most attempted crimes are costly even when unsuccessful, but terrorism more so). Imagine the sheer number of stop, searches, regulations, airport controls, security checks and so forth that occur because of terrorist threats. Let's just do a very quick conservative estimate based on a few major airports in busy cities to make the point. Over 60 million passengers visit Heathrow every year, so let's say with other UK airports that totals 150 million (a generously low estimate). If heightened counter-terrorism security costs every passenger 3 minutes per trip then that makes a total of 450 million minutes of lost time every year, which equals 31,2500 days, or 856 years of human time lost every year. With UK life expectancy being averaged at 81 years, that's the equivalent of losing 105 lives every decade purely on terrorism-precaution.

So I hope Rosemary Hollis and those like her will forgive us if we don't pay much regard to fears of upsetting the people who might not be upset enough by counter-terrorism and anti-extremism. As far as I'm concerned, Islamic extremism is a dirty lake into which we can throw as many large boulders of opposition as we can muster.

* See the full article from Rosemary Hollis here

 

** Photo courtesy of barenakedislam.com

Crimea River

As expected, with the tension in Crimea and the rather impotent threat of economic sanctions, some people on the left have used the opportunity to take issue with Russian ownership of UK business, complaining that profits made in the UK are sent overseas and are not being filtered into the British economy.

This is a foolish and absurd comment to make - it completely misunderstands the value of business and how financial exchanges are made. When a foreign investor looks to buy a UK business they pay less than the price at which they value it, and the seller sells for more than the price at which they value it. The buyer is buying a business that has been valued by the seller on the basis of future profits factored into the price. If Coventry Clive sells his tennis club to Moscow Mary he is exchanging his expected future profits for the buyer's price in the here and now. Moscow Mary on the other hand is buying the tennis club at a purchase price in the here and now in exchange for future profits henceforward to come.

So, far from any worry about her profits leaving the UK, when Moscow Mary buys the tennis club her forecasted profits are all contained in the purchase price which has just come into the UK. When her future profits leave the UK and go to Moscow they are future profits that have been paid for in the purchase price.

It is true that sometimes future profits will exceed the purchase price, but it is equally true that other times the purchase price ends up exceeding future profits. In fact, one might expect the latter to happen more than the former. If the buyer's offer was less than or equal to the seller's expected future profits then in many cases no sale would take place. Hence, in most cases the seller must value the expected future profits as being less than the buyer's offer - and every time this happens there is a net gain for the UK.

Finally, to criticise foreign ownership is often to be blind to other benefits. Take a Russian billionaire who buys a football club as a good case in point. The net gain for the UK is significant (and that's aside from the other ancillary benefits his wealth brings). In spending lots of money on players' wages he uses money that wouldn't have come into the UK economy to buy players whose tax from high earnings does come into the UK economy.

Don't listen to misguided politicians who complain about foreigners' profits going overseas - they are missing most of the picture.

What about the situation in Crimea?

Regarding the circumstances in Crimea, while I understand the fears about where Putin will go next, the actual situation in Crimea seems to me to be centred on a desired destiny that Westerners usually support - most notably self-determination and democracy. 

I can't see that mobilising troops, holding a referendum at gun point and claiming a democratic vote is something for which Putin would want to be thought responsible by his European associates. Thus, it seems to me that if he wanted to argue the case for democracy and self-determination for the Crimeans all he had to do was to push for a referendum under the rule of the Ukraine, observe that most Crimeans want to be Russian, and then push for that outcome. Given Ukraine's frosty reception from major EU countries, I can't think that he wouldn't have had a case, even perhaps being able to appeal through the conduit of international law. There are a few possible reasons why Putin didn't take that particular course of action:

1) He didn't think of it.

2) He did think of it but thought the Ukraine would be unwilling to offer the Crimeans a fair referendum without his intervention. 

3) He was feeling intense pressure from Russian people to stand up for fellow Russians in Crimea, so he took the more reactionary route.

4) He is starting of a series of aggressive military mobilisations under which he plans to annexe other small nations.

For me, 1 is highly unlikely; 2 and 3 are quite likely but if true then perhaps not really deserving of the Western reaction, and 4 is the biggie on which the European and American response hinges.

Let's discount 1. For me, 2 and 3 do not seem to me to be reasonable pretexts on which either Europe's elite or America can have too many complaints, particularly if you consider their military escapades in the past few decades supposedly for the cause of self-determination and democracy. Which leaves us with 4. Now I'm no fan of the Putin regime - but I can't help thinking that if Europe and America's present response has been because they fear it is number 4 then it seems to me to be an extreme response.

Whichever is the case, the Western understanding of local Crimea issues is bound to be both exaggerated and inadequate. People immersed in the immediacy of the troubles are going to have a broader and clearer perspective of their own troubles than those on the outside. Think of the difference between our perception of the Iraq conflict and those caught up in the Iraq quagmire. Imagine the difference between the UK perspective of the Syrian crisis and those actually afflicted by the tragedy. Or, if you want an example with the signs reversed, recall when the IRA were bombing on UK soil and remember the difference in reaction between the American government compared with the British government (and its citizens).

Just as the reality of the situation is felt much more intensely at home in those three examples above, it is bound to be the case that the Crimeans' push for self-determination regarding their own destiny and identity is much more meaningful to them than it is to us.

Who Is The Chancellor Trying To Kid?

As I've explained before on this Blog, the notion of linking a CEO's pay to a company's market value is not a very reliable measure of the CEO's performance. Suppose a CEO receives a £2 bonus for every £200 increase in the market value of the company. That would be a more watertight system if the CEO was responsible for every pound of that £200. But that's not the case; a CEO of an oil company, an energy company, a steel company, or a timber company is not responsible for the fluctuations in the global demand for those raw materials, nor the global supply, nor the price of other raw materials linked to the production of the products. Consequently, a CEO who claimed he was responsible for his Timber company's 300% increase in market value would be being very flexible with the truth.

Anyone who understands economics would know this. I think George Osborne understands at least the basics of economics - which means he also probably understands that many of his claims of success in the recent Budget are also as specious as those of our aforementioned Timber company's CEO.

When George Osborne talks about his successes in relation to economic growth and lower unemployment (his two favourites) he is simply listing facts that are largely beyond his control and taking credit for them. Increased economic growth and increased employment are going on while George Osborne is chancellor, but they are going on in spite of his being chancellor not because of it. To take credit for this is to commit a fallacy called the cum hoc ergo propter hoc fallacy, which is a with event x therefore y causative fallacy.

I'm sure George Osborne knows how little Chancellors actually control the economy - so in taking credit for events that are beyond his causal power he must hope that enough people won't notice and will give him largely underserved credit. Also, let's not forget - taking credit for success stories gives them the ability to blame the opposition for unsuccessful outcomes in their past legacies.

In recent decades, the three principal causes for the UK's economic growth have been:

1) The flexibility of our market economy and the embracing of free market trade.

That was largely thanks to Margaret Thatcher's government and their pro-privatisation and deregulation reforms, as well as dealing with stultifying unions choking the British economy and inefficient British businesses that were being artificially propped up.

2) The prudent use of interest rates to manage demand at a domestic level.

That was due in no small part to our no longer being subservient to the Exchange Rate Mechanism.

3) The increased demand (and prices) for the knowledge-based services we provided throughout the world in a transition away from such large-scale manufacturing.

This was due to globalisation and the ability to capitalise on specialisation. Incidentally, when UK folk lament the loss of manufactured goods in this country, they often overlook the fact that we are still huge manufacturers - it's just that our production is not so much about goods anymore, it is much more service-oriented.

Once the Thatcher reforms were in place, and once we escaped the thrall of the ERM (both Conservative initiatives), future Chancellors like George Osborne were set up with a large box of cigars.

With that in mind we return back to George Osborne's Budget. The economy is getting better, but economies do - they fluctuate, largely independent of Osborne's initiatives. Here's an analogy. At the moment I feel really ill - I have a sore throat, I'm full of cold and I am continually coughing. Suppose I tell George Osborne that I'm going to take a couple of weeks off work and have lots of rest. Osborne says "No, that won't make you better - have some of my magic baked beans, they will make you feel better". I take them every day, but I still decide the rest will do me good. In a week or so I begin to feel better, and on seeing the improvement George Osborne tells me that it was my taking the magic beans that made me better, not the rest. Just as anyone who understands sore throats, colds and coughs knows that the rest would have made me better anyway without the beans - anyone who understands economies understands that global demand and global supply at both short-term and long-term levels are the decider of economies, not Chancellors. Chancellors do not exactly do 'nothing', but they also should understand that the national well-being is largely beyond their scope.

The same is true of employment - governments don't do 'nothing' - but they don't have much of a long-term effect on employment. It is easy to temporarily lower the unemployment level (apprenticeships and renaming statuses are two good ways), but if demand exceeds supply in the labour market, the successes will fluctuate and usually be short-lived.

The next time you see a politician taking credit for economic growth, be sure to scoff. And remember that exclaiming a strong causal link between the state of the economy and the performance of the government has a two-way effect - you can attempt to take unjust credit for good outcomes when you're in government, but you can also attempt to discredit previous governments by laying all the bad outcomes at their door. I'd advise that both should be undertaken with very sober judgement.  

Diversity: When It's Good & When It's Bad

An interesting turn up this week after the further developments in the big bang theory (not the sitcom), the Daily Mail's Ephraim Hardcastle made an insinuation that two women (scientists Maggie Aderin-Pocock and Hiranya Peiris) were invited to comment on the BBT report on Newsnight for the purposes of gender diversity rather than for their expertise. UCL Professor David Price responded by writing a very good letter of indignation to the egregious Daily Mail editor Paul Dacre (see link at bottom of page for full article)*. Naturally, it’s pretty obvious that Maggie Aderin-Pocock and Hiranya Peiris were brought in for their expertise and not because of their gender – but just as obvious to me is that any pressure felt by institutions to fill a particular gender quota for the sake of diversity is often a case of misunderstanding the true qualities of diversity.

When people extol the virtues of diversity they are often actually arguing against it. Suppose in a think tank there are two men - a white man and a black man, and they disagree on a particularly important issue related to the project. What's the most relevant difference: the difference in their skin colour or the difference in their viewpoint? Clearly it's the difference in their viewpoint. The resultant brainstorming would likely involve a revision of thought for one of them, or maybe a coalescence in which both were able to feed off each other and improve their views to strike a balance. Their diversity in skin colour is inconsequential to the task, just as would be the case if their main diversity was in gender.

Yet whenever we read about positive discrimination and increase in diversity we are usually reading about some attempt to get more women in Parliament or more ethnic minorities in an institution, as though gender or ethnicity are the real measure of diversity not viewpoints and ideas. Of course, you'll be inclined to argue that gender diversity and ethnic diversity brings diversity of perspective, and that's true, but naturally it's better to start with diversity of viewpoint and ideas irrespective of gender or ethnicity rather than starting your focus on gender diversity and ethnic diversity and hope it brings diversity of perspective.

The thing about diversity of viewpoints and ideas is that a balance must be struck. Too much diversity is bad because it leads to erratic thinking. For example, at a science convention I don't want the attendees to be such a diverse bunch that some subscribe to phlogiston theory, or young earth creationism, or astrology - because that involves so much diversity that it contains nonsense. But too little diversity diminishes the variance of innovation, and it stultifies the wider perspective, which is not desired either.

Moreover, it must be noted that diversity in science is not the same as diversity in the whole of the UK. Scientists have a tangibly shared goal of obtaining evidence and testing hypotheses to achieve a consistent body of theories that explain physical reality. A nation doesn't have such a tight shared goal, so it is harder to know the balance.

As a word of warning, it should be noted as well that what people say in the abstract often sounds good when it disguises what is actually meant in the particular. The other day I heard a priest from Northern Ireland state very eloquently that when there is diversity of opinion it is wrong to impose a too rigid standard on one kind of belief. Sounds good, and eloquently put, except that it turns out that he was talking about homosexuality - and the 'too rigid standard' he was worried about was the one that champions the liberty of homosexuals. I heard an Imam extol the virtues of adhering to the law of the land, only to later reveal that he won't be satisfied until the law of the land is Sharia Law. I once heard an American pastor castigate religious extremism with aplomb, until it emerged that the religious belief he found 'extreme' was one that denies a 6,000 year old earth. So be careful to read between the linguistic lines.

Lastly, what sometimes looks like diversity is actually the opposite of diversity. For example, it looks good for diversity that we have multifarious belief systems like Islam, Hinduism, Mormonism, Sikhism, and Scientology. But I think they are bad for humanity, and thus, I would love to live in a world in which such beliefs were weeded out of the population by rational enquiry and intelligent scrutiny. That is to say, they look like they increase diversity because they are different, but in fact, I think they are a lot of the same kind of falsehood, and they stifle diversity by locking people into spuriousness that can only retard diversity.

The pros and cons of diversity at a general level

Diversity has its downside of course - it can create tension, make communities inimical to community-spirit, impair social cohesion, and foster resentment because of cultural or linguistic barriers. Plus it creates perverse incentives to artificially engender diversity by legislation, which always brings with it the consequence of artificially disadvantaging others in the process. Further, in championing a diverse mix of people in the hope of eradicating prejudice it can have the opposite effect too, as spending more time with people different from you can cause you to realise how little you have in common with them and how little you like them.

But once people can transcend any feelings of raw tension and insularity they'll find diversity is a wonderful thing (although the fruition can take years). It is great for soliciting opinions, forming think tanks, forecasting, or debating topics, because a diverse array of minds is of huge benefit to the group or project. And that's to say nothing of all the socio-cultural benefits associated with diversity in friendships, integration, learning from one another, employment of skills, cuisine, fashion, art, crafts, engineering, and so on.

Finally, a lack of diversity can also be bad by virtue of the fact that reliance on one thing makes people vulnerable. The Great Irish Famine wasn’t just due to unfortunate infestations in potatoes – it was over-reliance on one single crop that severely added to the plight.  The Irish found to their cost that it is important to diversify, because diversity leads to increased qualitative change. It is largely because of diversity that you can be sure that our technology will continue to progress - we diversify our skills and our imagination by not having an over-reliance on too narrow a range, and this aids the human development in a multitude of ways.

Let's continue to champion diversity - but let's ensure it's the positive kind of diversity that's interested in ideas, viewpoints, personality and broad perspectives, not the spurious kind that has virtually no bearing on these qualities.  

* For a full look at the article mentioned in my opening gambit, see here  

** Photo courtesy of withoutexception.co.uk