## Sunday, January 31, 2010

### Venture charities

According to the Guardian, charity shops have found a clever way of getting Gift Aid out of donated items: if they run a scheme where they sell your items as your agent, then you can agree to donate the proceeds and Gift Aid adds 28% or 25% or whatever it is at the moment (src). The rules are a bit tricky, though, and the article says that legally, sale proceeds may only be donated after the sale has been achieved. This gives rise to a real, if slight, danger of people using charity shops as a quick way to get a sale from which they benefit. Oxfam, in order to mitigate this danger, charges a commission rate: a derisory 1%.

This gives me an idea. Why don't charity shops ditch the worry and act entrepreneurially? A charity shop could sell donations, as usual, but it could also offer a commission-based approach where they'll sell second-hand goods and apply a commercial commission rate. It sounds odd, but think about it.

It's clearly legal, as Oxfam are already doing this. Since people have to donate items and give up all the proceeds, you don't attract as many items for sale as you might. By offering to split the proceeds, the charity shop can attract more items for sale. This is a benefit to the donor, who doesn't have to give up the entire value of the items unless they want to. It is a benefit to the charity, which has an increased income base and improved customer offering. It is a benefit to the customer, who has a wider range of products to choose from.

Obviously the person who commented on the article saying, "any individual who exploits the current 'agency' arrangement for personal gain deserves to burn in hell for eternity," would disagree, but apart from that rather simplistic view of how charity shops can raise funds more effectively, am I missing something?

### Understanding science and policy

In the current debate on climate change, especially with the news about some errors which have been discovered in the Stern and IPCC reports (1, 2, 3, 4), I think it is important that we bear in mind a couple of facts about science and its relationship to policy-making.

Firstly, the history of the measurement of the charge of the electron is an interesting little story which teaches us how science sometimes proceeds: it is rather different from the idealised process we think of and get taught at school. Here's Richard Feynman's account, as quoted in Wikipedia:

We have learned a lot from experience about how to handle some of the ways we fool ourselves. One example: Millikan measured the charge on an electron by an experiment with falling oil drops, and got an answer which we now know not to be quite right. It's a little bit off because he had the incorrect value for the viscosity of air. It's interesting to look at the history of measurements of the charge of an electron, after Millikan. If you plot them as a function of time, you find that one is a little bit bigger than Millikan's, and the next one's a little bit bigger than that, and the next one's a little bit bigger than that, until finally they settle down to a number which is higher.

Why didn't they discover the new number was higher right away? It's a thing that scientists are ashamed of - this history - because it's apparent that people did things like this: When they got a number that was too high above Millikan's, they thought something must be wrong - and they would look for and find a reason why something might be wrong. When they got a number close to Millikan's value they didn't look so hard. And so they eliminated the numbers that were too far off, and did other things like that. We've learned those tricks nowadays, and now we don't have that kind of a disease. (wiki)

You can see what happened: someone did an experiment and got nearly the right answer but off to one side. Every subsequent experiment then produced a result which lay between the preceding one and the real value, and so we approximated the truth from one side.

This is in contrast to how you'd expect science to proceed: you would think that our experiments would be scattered around the true value, getting closer as experiments become increasingly accurate. The reason that science doesn't always go forward in this way arises from the fact that scientists don't know the 'true' value, and they are therefore unwilling directly to contradict their colleagues' results which are, prior to their own work, the best available estimate.

Here with the prediction of the effects of climate change, we see now that opinion is slowly moving away from some of the extremities of the reports. This doesn't prove that climate change is not happening, it doesn't prove that human activity is not affecting the climate, and it doesn't prove that the changes will be (net) negative for us. It suggests — and only suggests — that these reports have over-stated their case and are going through the slow, painful process of scientific revision. We don't know how this process will conclude, but I would be willing to bet it will shake out somewhere like, 'It is happening, but nowhere near as badly as we had said.'

Secondly, as this process moves us towards a clearer understanding of the effect of human activity on the climate's processes and thus, in a feedback loop, on human activity, we need to know what we may do about it. This is a policy question. Let me take a different 'disaster' example to illustrate the point.

Imagine that we worked out that an asteroid was likely to hit the Earth. We would want to know when, where and what the damage was likely to be: all questions which need scientific input, and all with regions of statistical uncertainty. However, what they don't tell us what we ought to about it.

A large asteroid would cause so much damage it would be worthwhile trying to deflect or destroy it, and we would have to devote time and resources in doing that. A sufficiently small asteroid, far enough into the future, in a relatively uninhabited region, could be destroyed or deflected, but it might not be worthwhile: it could be that evacuation at an appropriate time is the most cost-effective policy. Those are economic and political considerations, not purely scientific ones.

In other words, the science gives us a range of possibilities, with statistical uncertainty, for what will happen regarding a rogue asteroid, but it doesn't tell us what to do about it. Ditto climate change: the science tells us, with its uncertainty, what it thinks will happen. What it can't tell us is what to do about it.

## Saturday, January 30, 2010

### Michael, your wish is granted

"What I'm asking for is a new economic order," [Michael Moore] says. "I don't know how to construct that. I'm not an economist. All I ask is that it have two organising principles. Number one, that the economy is run democratically. In other words, the people have a say in how its run, not just the 1%. And number two, that it has an ethical and moral core to it. That nothing is done without considering the ethical nature, no business decision is made without first asking the question, is this for the common good?" (src)
I think I have some answers for him.

For Moore's first point, we need some kind of arrangement whereby people can use tokens to vote for things they want. So every time they get a loaf of bread or a cinema ticket or whatever, they hand over a certain quantity of these tokens. I don't suppose it's easy for some central committee to work out how many tokens each good or service should command, but perhaps the supplier can give a number? I guess if they pitch it too high, people might decide it's not worth it and go elsewhere, so there's an incentive to pitch the number right to get the most votes they can.

And how do you get tokens? You might say that we should get an equal allocation, but that doesn't work really. After all, when the baker gets tokens for his bread, he will go and use them to vote for a farmer's carrots or a tailor's suit. In other words, these tokens just keep circulating around the economy, and we cast our votes with them every time they change hands. It would be impractical to try and come up with some way of allocating them equally. Anyway, bakers have to work to bake the bread that we eat and they only get tokens if they provide decent bread. So why don't we say that everyone ought only to get tokens if they offer something in exchange, even if it's only their labour?

For his point 2a, I dunno, maybe we ought to have some kind of rules or something which tell people what's acceptable behaviour. I mean, agreeing on ethical principles is hard but I'm sure most people have an ethical code of some description they try to follow. I think we could manage to agree some basic ground rules for our new system: don't steal other people's products or their tokens, don't cheat or lie, that kind of thing. We could call them 'laws', perhaps, and have some kind of way of agreeing on the rules together and dealing with people who break them. It's a good idea to make sure that the rules are administered fairly as well, so that the rich can't buy a favourable judgment and so that the weak aren't picked on by the strong. Some ideal of the laws being in charge, rather than the whims of people, perhaps.

(That raises a point: we may not want whim to rule, but even so we will need people to administer these laws and to keep them up-to-date and so on. That means some people won't be able to exchange their labour for tokens: but how will they live? They're working anyway, so perhaps we should make one of the rules to be that we pay this administration a certain proportion of the tokens we have received every year. Then these administrators will have enough to live on.)

And for point 2b, the 'common good' (whatever it is he means by that), I suppose that to be democratic we ought to let people's votes determine what that is. After all, we don't want the common good to be whatever Michael Moore says it is!

Presumably it affects most of us, so it should attract lots of voting tokens when people use it. Even if it only indirectly affects us, I expect that if it's necessary for society to keep going then it will manage to attract the votes of the people who do use it: maybe not you and I, but maybe the executives who use this are aware that it is necessary and will cast their votes accordingly. After all, executives have a say too, don't they? So I'm guessing that if this 'common good' can get lots of tokens then it can afford to offer jobs to people, and to buy what it needs, in order to keep itself going.

I've no doubt there are some problems with this, but as a first attempt I think it fares well: we've got democracy, the common good, basic ground rules and we've still got the old-style activities which we all know and love. I bet there's even room for radical left-wing film-makers somewhere. This 'designing a new economy' thing is hard, though. Still, I'm glad we've got Michael Moore to tell us what we should all be doing. After all, we wouldn't want to get that nasty old capitalism back again, would we?

### Quiz

What is this picture from? Post your guesses in the comments. A link to the answer is also supplied below. You'll be impressed.

### A common error

Here's a quick one, involving a journalist who evidently was taken on for her lack of mathematical nous. Today's Times has a 'story' reporting a 'fact' which we've known for an awfully long time: if you compare house prices to equity total return, equities come out on top (link). The figures in today's stories take 1959 as the base point, and then shares (including dividends) have grown 1180% after inflation while property has only grown 273%.

As I say, this effect is well-known so it is scarcely a news story. It is also untrue. It is unfair to compare property capital values against capital and income combined for equities. If you strip out dividends, the article reports, you find only 86% for equities: property wins. Since rents are loosely linked to wage inflation while dividends are loosely linked to price inflation, and since we would expect the yield on each investment to remain of a similar order of magnitude over time, property ought to come out ahead on the combined measure too.

The second error is that the article ignores gearing. People borrow to fund house purchases and property investments, but they don't borrow to fund equity investment. Consequently, net returns are enhanced, hence the name 'gearing'.

Thirdly, you can't spend your house value. Well, you can nowadays with mortgage equity withdrawal, but it's a very bad idea: if you live too long, you lose your home. If you own your home outright, then there is less danger in running your pension pot down. It's still not advisable, but there is a real difference between risking an uncomfortable retirement and a homeless one.

Fourthly, the 'fact' that the article relates would suggest that a windfall ought to be invested in the stock market, but we know that's not how people behave nor how they are advised to behave. If you have a mortgage, paying it down can be one of the best investment decisions you can make.

People find finances hard enough to understand already, without churnalists' lack of critical thinking and mathematical understanding.

### Control or efficiency

The BBC has an interesting article about the healthcare reform debate in the States, asking 'Why do people often vote against their own interests?' However, the argument is more nuanced than the headline would suggest. I suspect that a zealous, left-leaning editor has implicitly assumed that Obama's healthcare reforms are in the interests of many who oppose them, but as David Runciman, the article's author explains, it is not so clear as that:
If people vote against their own interests, it is not because they do not understand what is in their interest or have not yet had it properly explained to them. They do it because they resent having their interests decided for them by politicians who think they know best. (src)
Let me be clear: none of this is to say that US healthcare is in tip-top condition. Policies which are tied to an employer are an insanity. Some of my readers will know of an individual who has lost their job as a result of cancer: for want of a job the insurance is lost, for want of insurance the treatment is lost. No, US healthcare has some very real problems which need addressing. And yet people are worried about the changes. Why?

It would be too easy to ascribe this to an innate conservatism which prefers the known over the unknown. True, there will always be an element of 'better the devil you know' in political opposition to change, but not everyone who opposes Obama's plan is opposed to all change. Many of them simply claim that it is the wrong change.

I think Runciman has it spot on here. It's about perceptions and values. We perceive a loss of control to be a great loss, and a potential gain in efficiency to be a small gain: in the trade-off, we will tend to prefer controlling things ourselves. At least if we make a mistake, it only affects us and we can try to rectify it ourselves. If a politician takes control, then we lose some of our individuality, we may not in fact get the promised gain, and we are placed at the mercy of not only the decisions of one politician but of every politician after him. That should be enough to give anyone pause before committing their welfare to the Man in Whitehall.

This is why giving people charge over their own choices is so important: we perceive the reality of control to be more important than an abstract ideal of, say, the perfect hospital, school, or supermarket. Policies which will command the support of a consumer-electorate will necessarily move in the direction of individual and local control. In doing this, I would say that in fact we are more likely to see efficiency and satisfaction gains than in getting politicians to decide what is best for us.

Different countries have different starting points, of course. So in the States, that means, among other things, breaking the tax-subsidy for employer-based insurance schemes; in the UK, it means opening up school provision to as wide an array of providers as possible and letting parents move their children as they see fit, and analogously with hospitals. In all cases, it means politicians realising that we don't want them to act 'in our interests'. We want them to ensure that we have the tools to do it for ourselves: the politics of choice is the politics of the DIY spirit.

## Thursday, January 28, 2010

### I don't understand some people

One of the philosophical arguments in favour of the existence of some kind of divine being is the Moral Argument: that there are moral laws shows that there is a lawgiver, which we call god. The New Atheists don't like this, and frequently retort that we don't need divinely-ordained moral laws to tell us what is right and wrong since we can base our ethics on what is around us. But wait a minute: these New Atheists. Aren't most of them the kind of people who take the view that without a strong government to tell us what to do and what not to do, society will descend into individualistic, hedonistic anarchy of a sort not even Ayn Rand could have dreamt? In short, that moral behaviour requires some kind of lawgiving justice? I don't understand some people.

The House of Lords re-asserted, on Monday, the freedom of organisations-with-an-ethos (religious, but also non-religious) to have employment policies which are in line with that ethos. You know the flashpoint: it oughtn't be illegal for churches, or mosques, which believe homosexual practices are sinful to reject, immediately, applications from practising homosexuals. Of course, it spreads wider than that: synagogues shouldn't have to give equal consideration to known anti-Semites, Liberty shouldn't have to give equal consideration to Robert Mugabe or Donald Rumsfeld, that kind of thing.

The people who tend to push for these kind of rules tend to be people who are not religious or members of Liberty, or in fact people who believe in very much at all. (That goes double for Ekklesia, by the way.) So why do they think that their opinion on how a church (etc.) ought to behave is better-informed, and thus deserving of being put into law, than the opinions of the church's (etc.) members? I don't understand some people.

## Wednesday, January 27, 2010

### What kind of jobs are these?

A slew of Tories asked about the hare-brained Home Information Packs at the relevant departmental question time yesterday. Jonathan Isaby picked up on one of the most fatuous parts of the minister's defence of them:
I can tell [the Hon. Member] that thousands of jobs and hundreds of small businesses depend on the HIP process and 13,000 people have invested thousands of pounds in training as energy assessors. The Opposition need to explain why they want to put all those jobs and businesses at risk.

[Later:] The question that the hon. Gentleman and other Conservative Front Benchers must answer is why they want to sling out of work the thousands of people who have invested time and money in training to implement the process, and to cut the jobs of their constituents who depend on it. (src)

A part of Labour's defence of Hips is that they create jobs. As Tim Worstall pointed out at the ASI a while back, the additional work created by government schemes is a cost, not a benefit (src). Paying people to do that work is a cost, not a benefit. After all, the money could have been used for something else, a phenomenon we rightly call opportunity cost.

The people could have been doing something else, another opportunity cost. Their jobs only exist because the government is interfering in the housing market, and as such it is not entirely clear that they are doing something which the rest of us would value enough to pay for it ourselves. Hips make us poorer twice over: once by forcing people in house purchases to spend money they would not have done, and once by removing a valuable worker from the labour market to do something which people would not choose to have done.

So why are these thought of a private sector jobs? They are the creations of the public sector every bit as much as teachers and nurses in state-owned hospitals, and they too divert resources. Hips, though, divert limited private-sector resources into places they would not otherwise have gone, and it is highly questionable whether the cost-benefit of Hips is remotely near the cost-benefit of schools or hospitals.

I will allow one positive difference. These workers are in a marketplace offering their services, which at least should provide a certain level of efficiency in the service. Although we cannot move towards a system where the costs of other public services like education and health are borne by the consumer, for obvious reasons, I can say that we should move schools and hospitals towards the Hips model with the services provided by competing organisations and paid for by the public purse.

## Tuesday, January 26, 2010

### Feeling Queasy?

The Bank of England's Asset Purchase Facility, known as quantitative easing, was extended not so long ago from £175bn to £200bn. They have now nearly spent that fund out (src). The way the scheme works is that the Bank simply declares itself to have some money, and then it goes out and buys government debt — gilts — on the open market. The theory is that the money then works its way through the system from the money markets. In effect, it has been turning existing government debt into money.

On of the chief problems I have with QE has been that it does not simply monetise existing debt. The government is still borrowing money from the markets by issuing more gilts, and if I'm remembering correctly, the Bank's facility was extended at about the same time as the government's borrowing projection was increased from roughly £175bn to roughly £200bn. It is no great stretch to believe that the Bank has in fact been acting in a slightly roundabout manner to monetise the government's new debt.

Since that time, the Debt Management Office, which deals with the government's borrowing requirements, has raised its forecast for this year's net gilt issue from £200bn to £208bn (src). Since the net gilt issue is exactly equal, by a simple piece of accounting, to the government deficit (and since the DMO are more expert than the ONS when it comes to the deficit), that means that the deficit has been expected to hit £208bn this year, up from the governments initial projection of £175bn.

Given this morning's lacklustre economic figures, it seems entirely possible to think that the deficit projection could rise to £225bn: will the Bank extend its facility by a further £25bn? It doesn't seem entirely unlikely: FT Alphaville is reporting that a JP Morgan economist thinks it could happen, although his reasoning is simply 'weak economy = more stimulus' (src).

Remember, if the Bank extends by another £25bn, you heard it here first. (And if doesn't, well, I'm not making a formal prediction. Ahem.)

### For you, Britain, the recession is over

Well, the UK has (probably) left recession at long last (BBC). The ONS' preliminary estimate is that the economy grew by 0.1% last quarter, and since the ONS tends to revise upwards (Youll 2008) that means that on the balance of probabilities we have left recession: the figures may be revised downwards, but historically it is unlikely, and especially with figures as important as these. That makes the UK the last to finish the race back to growth.

Gordon Brown said we have been leading the world out of recession, and he must have meant that we have been doing so after the fashion of (variously Robespierre, another Revolutionary, or Disraeli) who said, 'I am their leader. I must follow them.' In times past, it has been customary for former Prime Ministers to receive a seat in the Lords: presumably Gordon's seat will be the Duchy of Plaza-Toro: 'He led his regiment from behind; he found it less exciting.'

## Saturday, January 23, 2010

### The paranoid anti-capitalist

One of the standard arguments in favour of government regulation in consumer products is that the cost of total deregulation would be more dead people, extra broken limbs and so on. While I grant that some regulation is necessary, I do question whether it is so simple, and whether ever-increasing regulation and ever-higher safety standards are the best way to give consumers protection.

While I was packing my shopping this morning, the lady on the checkout was telling the couple behind me to find a packet of fish which looked a little fresher: 'I don't want to sell you that one' were her words. It's bad for business to give your customers food poisoning.

In the past month, I have also seen, without particularly looking for them, two voluntary product recalls by manufacturers. We also heard in November about the (eventual) action by Maclaren over their potentially hazardous pushchair (src). All of these events rely less on government regulation of consumer products and more on the fact that it's a bad idea to kill, maim or hospitalise your customers. It's bad for a company's reputation, it's bad for them when the inevitable cases come to court, and it's bad for their bottom line. As they say, if you want to hit someone where it really hurts, hit his wallet.

Is it really reasonable to think that businesses are out to annihilate their customer base? That sounds to me more like paranoia, and less like the voice of reason or rationality. This isn't to say that minimum safety standards are top-to-bottom an utterly silly idea and that we should scrap the lot, but rather we ought to think more carefully about what standards we want. Where self-interest will lead companies to act responsibly, we really don't need to over-regulate.

### How to defeat terrorists

Laugh at them when they screw up. The chap who thought it was a good idea to try and blow up Glasgow airport, and 'got set aboot' in consequence. The guy who managed to explode his inside leg but little else. (Certainly, it is a better weapon against terrorism than the interminable clamp-down on freedom. The most sensible political comment I heard all week was from Dara O'Briain on Mock the Week — you know it's a bad week when the satirists are the sanest commentators — who said, 'If we're having to get strip-searched by computers to fly, then I don't know about you, but I think the terrorists have already won.')

So on the basis that the way to defeat terrorists is to laugh at them, Chris Morris of Brass Eye fame has made his first satirical feature film, about a cell of rather incompetent would-be suicide bombers: Dad's Army meets Osama bin Laden. Here's a clip.

(Via Alex Massie.)

## Friday, January 22, 2010

### Kindling the book bonfire, part II

Amazon has made it easier for small publishers and individual authors to opt out of DRM, allowing owners of their books to transfer them to non-Kindle readers. I don't profess to know what this means in particular, but I think that this shows that in order for e-readers to compete with paper books they will need to offer better functionality for the price than they do now. (link)

The music and video industries have made most of the mistakes already: I am hopeful that the publishing industry will learn from those mistakes rapidly. After all, the publishers who do so most quickly stand to make the most profit, which is motive enough to get their act together.

(Via Marginal Revolution.)

### Bonds: coming to a market near you?

I've been meaning to flag this up, in case anyone's looking for new opportunities for long-term savings and investment. The LSE announced in November (link) that it was going to be setting up a retail market for selected gilts and corporate bonds in February. If you want to know how bonds work, you could start with this article at the Motley Fool (link).

Presently, the order size is enormous: although a handful stretch down to £1,000 nominal, they are more typically £50,000 nominal, which means that if you want to have a few different bonds to spread the risk, you probably need a cool half a million to play. Nice for those who have the money, but this capitalism lark's better when everyone can play.

Previously, the only way a small investor could get her hands on corporate bonds or gilts was to buy into a bond fund. More recently, the invention of ETFs has offered small investors cheap bond index trackers. Both of these gain the investor exposure to the bond market, but because they trade bonds either actively (in the case of funds) or passively (in the case of the index), they don't behave like bonds themselves, they behave like portfolios of bonds. Moreover, the market capitalisation indexing strategy, which has never made much sense to me, seems particularly unsound when it comes to bonds. People buy bonds for the income, but capitalisation-weighted indices tend to depress income.

The other way to get some interest-like return in the markets is to buy Pibs, which are the way building societies have raised some of their capital. These are frequently available in units which extend down to £1,000 nominal, and are therefore more feasible for small investors. They aren't quite bonds, though, since the building society can normally, in principle, pass a payment. No building society has yet done this, however, and the only real hiccough has been the West Bromwich, which arranged some kind of re-structuring of its debt. As with every investment, one has to look before one leaps.

Hopefully, then, come February the LSE will be able to offer retail investors the chance to buy specific bonds and gilts. That is going to rely on the bond issuers being willing to break their minimum unit size down to a more manageable amount like £1,000 nominal, on brokers getting involved and offering the new service, and on small investors taking the opportunity. So if you've got money to put into the markets, keep your eyes peeled: you may find a couple of new markets opening up quite shortly.

UPDATE: I just heard from my broker, Interactive Investor, that they are not planning to participate in the new electronic system. Since their product is the re-branded Halifax Share Dealing platform, I assume that that implies that anyone with the Halifax or its other re-brands (such as the Motley Fool) will not be able to participate. You may still be able to telephone orders through.

## Thursday, January 21, 2010

### At last!

Labour produced a 'Make your own Cameron poster' thing, but it was a bit of a poor attempt, really. Mercifully, someone in the wilds of the Internet has made a better one, including complete customisability of all the text:

(Via Liberal Vision.)

### Western impatience

Too soon to tell.
— Reputedly, Chinese premier Zhou Enlai in 1960 on the impact of the French Revolution
This morning, Today was asking whether China really will open up its governance and democratise, or whether it will remain closed and authoritarian. Apparently,
1. Economists say that economic freedoms will lead to political and social freedoms.
2. China has been more economically liberal and seen its economy grow rapidly as a result.
3. This means that China ought to be a beacon of free and fair democracy.
4. This plainly hasn't happened, so the economists are wrong.
I don't buy it. The economists are, I think, onto something: businessmen will want the rule of law and the rising middle classes will demand good governance. Economic freedom has, generally, been a democratising force and a force towards a more liberal society.

Journalists, on the other hand, have this strange idea that things have to happen immediately. Instant action is their watchword, even when it comes to things which politicians cannot really control. So because there is an empirical and theoretical link between freer economies and freer politics, journalists think that the two have to come simultaneously. They forget their history. How long did it take us to industrialise and grow to the wealth we have now in the West? Not merely a hundred years, but hundreds. The growth of democracy has been at least as long a process.

China will, most likely, become more democratic and more open, but it will not do so to the timetable, or on the programme, of a Western journalist. Indeed, I think that the likelihood of having an 'authoritarian capitalist' superpower is not very great: China will find that if it does not respect the rule of law, if it does not respect human rights, if it does not open up its governance to be held more to account by the people, then it will so weaken itself that it does not in fact become the superpower that many of us think it will.

## Wednesday, January 20, 2010

### Who is the true human?

There's been an interesting discussion going on at the Boar's Head Tavern (link) about Avatar, and particularly one of the lines, towards the end, which concerns the actions of the main character, Sully, who arrives with humans who have come to a planet in a faraway star system, and are engaged in what amounts to genocide in order to obtain the planet's resources. He turns his back on them, and indeed takes up arms to fight for the native inhabitants. The line comes from the belligerent, gun-toting, survivalist colonel who heads the soldiery department, and he asks Sully, 'How does it feel to betray your race?'

I watched the film last night, and afterwards asked a friend whether she thought that Sully really had betrayed humanity. (Her answer amounted to 'Obviously,' so that was me told!) Reflecting, I realised that really the question it raises is: Aren't the real traitors to humanity the ones who are engaged in genocide?

Ah, you may say, but we're the experts at genocide: plainly they haven't betrayed their humanity. I wonder. In a sense, are we not all traitors to our humanity already? We all know the feeling of an 'ought', a moral purpose, which is far higher than the 'is' of our actual behaviour. In siding with the aliens, Sully is being truer to the 'ought', while the miners and soldiers are being truer to the 'is'. From the perspective of the 'is', behaving in line with the noble 'ought' may look like treachery, but hasn't the real treachery already taken place?

### Three things you shouldn't mix

Christians, guns, and government. The US Army and the British MoD have both been buying gunsights from a US-based manufacturer called Trijicon. Presumably they make good sights at a reasonable price, and more power to them for doing so. Someone needs to keep our boys well-equipped, and the Chancellor Prime Minister isn't interested in the job, if Geoff Hoon's evidence to Chilcot is anything to go by (src).

A problem, however, has arisen. The company was founded by what the BBC terms a 'devout Christian', and it has had a policy of putting biblical references on its products (src). The two references mentioned are to do with light, although one might have thought Ps. 144:4 (ESV) more fitting. One suspects that a soldier in US Army uniform would not get the best of treatments at the hands of insurgents in Iraq or Afghanistan anyway, but putting biblical references on military hardware has to be one of the most monumentally stupid things one could do in that context. What better way to convince Muslim opinion that the West really has been engaged in a holy crusade than to send our soldiers into battle with Bible verses on their guns? Honestly.

What, also, of the respect to be shown to servicemen and women who are not Christians? Sure, we Christians would love to see more Christian soldiers just like we'd love to see more Christian insurance salesmen, and indeed more Christian people full stop. But we don't seek to win a hearing for the Christian message by bunging Bible verses down people's throats whenever possible: that is not a good witness.

And what of the doctrine of vocation in all this? A Trijicon spokesman gave a statement to the BBC, which in part said, 'As part of our faith and our belief in service to our country, Trijicon has put scripture references on our products for more than two decades.' Yet we can live as Christians serving our neighbours by going about our daily business, behaving honestly and living quietly, without needing to stamp a Bible verse on everything we make or do. There come times when we are able to talk to friends and colleagues, and at that point we would hope people will listen to what God has said in his word; but until that point, we can simply get on with being the best — whatever it is we do — that we can.

Trijicon should carry on making good gunsights and selling them to responsible users (and the US military). Its founder can even see his chosen career as God's vocation for them. But can we please draw the line at sticking verses on gunsights?

### One of those round-up things

Say what?

The BBC is reporting a Nuffield Foundation report which assessed efficiency of the NHS in the four components of the Union (link). The front page headline is a bit of a gas: "English NHS 'the most efficient'". I suppose a police report comparing Dr. Crippen, Harold Shipman and Charles Manson could be reported as "Crippen 'the most harmless'", but really that's nothing to be proud of.

The anti-development EU

The EU is attacked by us free traders for having absolutely awful, iniquitous trade rules, such as the tariff escalator which basically increases the percentage tariff as the attempted import goes from agricultural product to processed consumer product. (Read a bit from Liberal Vision on this here.) I had an epiphany, realising that they are exactly the rules which the Western colonial powers used to keep their colonies in check, so when so-called 'progressives' stick up for the EU's dreadful record on trade they are sticking up for the blight of imperialist, colonialist economics. EU protectionism also entrenches, on a global scale, the interests of the wealthy, global-bourgeois classes against the poorest working classes. Where's the progress in that?

In the course of researching this bite, I discovered that a Marxist had got there before me, attacking the EU for 'colonialism by any other means' (src). It's always a worry when you find yourself making a point with a Marxist, but mercifully the man's wrong on pretty much everything else.

The best description I read of people bemoaning the loss of Cadbury and, particularly, those demanding that Something Must Be Done (really? by m'Lord Meddlesome?), is 'Team Canute'. You can't stop the tide of history, guys. British businesses go out there and buy up large foreign companies as well; it's all part of the global marketplace we're in. If it's a choice between seeing Cadbury sold, or a return to the 1970s and the joy that was British Leyland, I think the choice is obvious.

There is a sense of historic loss as Cadbury is sold, of course, and I fully understand that Cadbury workers will be facing a less certain future: but the way I see it, most of us weren't bothered enough to buy shares and vote against the deal. The company belongs to Cadbury's shareholders and (modulo concerns about pension fund behaviour) it is theirs to sell. Who gave the rest of us the right to make them do something different?

Late addition: it also occurs to me that the only way to keep Cadbury chocolate made in the UK is to slap a high tariff on chocolate bars. Which, um, is precisely what I just blasted the EU for doing. So if you really do care about the developing world's capacity for industrialisation, then you have to be open to the possibility that Cadbury would end up getting out-competed by producers in cocoa-growing regions, or else moving its production lines to those regions. Either way, being pro-development in the third world means being open to the possibility of jobs disappearing here and appearing there. The choice is yours: I've made my own.

## Monday, January 18, 2010

### The best tax policy on the market

The Lib Dems propose to raise the threshold at which workers start to pay tax from the current £6,500 or so to around £12,000, which is roughly in line with the minimum wage for a full-time worker. By the way, it is very clever politics: it implicitly accuses Labour of a double standard. Having decided that people need a certain amount of money to live on, Labour decides they can make do with less and taxes them.

Danny Finkelstein, however, is unimpressed:

This misunderstands who would actually gain from the measure. The vast bulk of the money goes to those earning more than £10,000. It is a very expensive tax cut, very poorly targeted on the working poor. (src)
However, he misses the point. Danny studied economics, so one might hope he can appreciate the importance of numerate thinking on tax policy. Of course it is a tax cut for everyone, but it has the greatest proportionate effect on poorer workers: specifically, if one calculates the change in net income due to the tax change and divides it by the gross income, one finds that workers just at the cusp of the new threshold feel the greatest benefit. Workers just into the tax system on the old thresholds feel very little benefit, but then, they had barely any tax to pay anyway, so tweaking the tax system is never going to help them.

So sure, the millionaire gets a benefit, but that is limited to a certain maximum, which must be at most a couple of thousand pounds. And maximum benefits are very socialist, right? To a millionaire, that extra money makes little difference, but to a worker on £13,000, it makes a lot of difference.

Let us suppose, though, that Danny's point is taken by the Lib Dems. Can this problem be fixed? If we add another variable to our system, like the basic rate, then we can start to do clever things. For example, increasing the basic rate means we are able to claw back some of the tax reduction workers above the new threshold receive: then workers around the threshold get a double whammy, because they have the highest tax reduction and the highest felt effect.

In fact, it should be possible (ignoring for a moment the existence of higher income tax bands) to specify a salary at which the net effect of taxation changes is zero, by increasing the basic rate appropriately. With a lower threshold of £12,000, if we decided to make the effect on the median salary zero (so that half the workforce felt a benefit and half, a loss), then we would increase the basic rate to about 29p in the pound. The change to the higher rate then 'freezes in' the effect on the worker, unless the higher rate is increased by the same amount. If, instead, we decided that no-one should lose out but higher-rate taxpayers should not have any benefit, then the basic rate should be raised to the more reasonable-sounding 24p in the pound.

I do not know the budgetary effects of all this, but it is in principle possible to produce a policy which raises the threshold and the basic rate in such a way that a certain income level is unaffected and the budget is kept neutral, at least for a certain range of gross salaries. (Yes, it surprised me, too.) [EDIT: Later playing with a spreadsheet suggests that my initial instinct to be surprised was correct, as this probably isn't true; or at least if it is, it's only true for a range so limited as to be practically useless.] The only cost is that the party proposing this would be certain to earn headlines screaming about 'Liberal Democrat tax bombshell', even if the whole package were tailored to make the majority of people better off.

A couple of notes for mathematicians: I'm working from a mental model of tax policy which supposes that the equations linking the 'tax policy' space of (change in threshold, change in basic rate) and the 'effect' space of (worker neutrality point, static budgetary effect) are linear. My quick tests suggest that works fine, although the static assumption is obviously a problem. I don't know what distribution is best to assume for incomes, but it should be possible to provide a very rough estimate if a suitable distribution can be found. Poisson, maybe?

### When bureaucrats screw up

Why did the public sector manage to over-stock on swine flu jabs and under-stock on salt and grit? Lisa Jardine comments that the private sector manages these decisions better because it is motivated by profit:
Supermarket chains in a highly competitive market know that getting the goods consumers want into the right location at the right time is still the way to maximize profit, which is perhaps why the logistics expertise we ask of government is more problematic. (src)
She argues that we might have been better off for salt and grit supplies if the law required householders to clear public pavements outside their properties, since then we could rely on B&Q and Tesco to get the ordering right, rather than leaving it to local government. (I don't like the compulsion aspect, but I see her point. There are legal issues which would need to be resolved, but presumably it is easier to defend against a civil action if one had done what was statutorily obligatory.) Likewise, she says, swine flu jabs were better distributed in the States since it is left to individual consumers to buy their jabs at the pharmacy. In the UK, though,
when a public body tackles any complex logistical problem, we are all too ready to label it as doomed in advance, long before the organisation in question has finished implementing its computer-simulated, statistically-informed plan of action for the current emergency.
It sounds like she thinks this is an illogical response, but if everything she has said thus far is true, and it is, then it is entirely reasonable. In the UK we have had a long-running, sordid love affair with the bureaucrat, and Jardine's argument has been that logistics based on a single data point (a single payer or a single supplier) is not going to be as efficient as logistics based on sixty million individuals making their own decisions. As she herself says: 'logistics is more powerful at accurately predicting needs when its strategies are based upon large numbers of individual consumer transactions,' since you get a much better data set with which to work, and it is thus far easier to make solid statistical predictions.

Moreover, because of the competitive nature of business, a bad decision does not affect as many people as a bad decision by central government. When a bureaucrat screws up and orders too much swine flu vaccine and not enough grit, everyone pays for the former and suffers the consequences of the latter. When Tesco screws up, people go to Sainsbury instead.

The maximisation of profit is an excellent motivator for organisations to hit the 'Goldilocks spot' when it comes to logistics, trying always to order exactly the right amount of stock and charge exactly the right price. Contrary to what people might think, matching supply and demand is best done with large numbers of independent individuals, since the overall result is predictable: this is the point of the logistical enterprise as it relates to goods, but it also holds for services. With that in mind, let's talk about schools and hospitals…

## Saturday, January 16, 2010

### Inflation and dividends

Fortune talks to four investment experts about where they think sensible money should go in the next decade for long-term investment purposes (link). In my view, Bill Gross makes the best recommendation. Interestingly, he fails to talk his own book; Gross is a bond fund man, but advises against bonds and for income stocks:
Focus on dividend income in terms of stocks, as opposed to growth and investment-grade income from bonds. You can generate a portfolio that yields 4% to 5% and that is in some fashion protected against inflation. (src)
In fact, I would say that this isn't simply where sensible money should go in the next decade, it is where the sensible money has always gone: into businesses which are not simply profitable but cash-generative, and which consistently return a good portion of the cash they generate to their investors.

The rough index-linking is a point people sometimes miss, I think. Dividends are a discretionary payment, but sustainably increased profits do generally result in an increased dividend payment. From what I have heard of the Barclays Capital Equity Gilt Study, it seems that this theoretical result can be found empirically in the history books: a BarCap advertising note, which I assume uses the BarCap research, claims that capital has posted about 0.5% annual growth, and dividends an even more modest 0.1% growth (src). Certainly, yields have not experienced a shift of anything like an order of magnitude, which is consistent with both capital and income roughly tracking inflation.

Index-linked bonds are one way of generating inflation proofing, but they are expensive for the income they generate. If the time period is sufficiently long that something a bit more volatile and a bit less guaranteed could be used instead, then a tracker of one of the large UK indices might be worth some thought.

(Via FT Alphaville.)

## Friday, January 15, 2010

### An iron lady and a jelly moderator

This has been doing the rounds on a few of the blogs I frequent (1, 2), and it's an interesting little piece. Cranmer, the Tory-Anglican blogger, has posted a transcript of Margaret Thatcher's speech to the 1988 General Assembly of the Church of Scotland (link). What is interesting is that, as someone at Scott Clark's blog noted, she starts with theology. I'm not wholly convinced of her theology, by the way, and I imagine that her political conclusions may also cause some controversy. Leave that to one side, and focus on the method: she starts with theological reflection and moves towards ethics and thus politics. 'This is how things are; how then shall we live?' Of course, she is moving from an 'is' to an 'ought', and it is a perilous road to travel. Nevertheless, she is delivering a speech which I think even her most fierce detractor could acknowledge is thoughtful and also distinctively Christian. She is clear in her speech about the separate roles of the church and the state, but without turning that into a radical disjuncture between faith and politics.

One might question, in that context, the wisdom of a serving Prime Minister addressing the General Assembly, but contrast that with the words of the Moderator of the Church of Scotland. He presented her, in an obviously political move, with a Kirk report 'on the Christian approach to wealth, income and redistribution'. As I said, I wouldn't go along with everything in Thatcher's speech, but of the two, the Moderator's words cause more despair. Firstly, because they illustrate the way in which state churches have the life sucked out of them: they begin to think their role is to influence government, instead of preaching the gospel. Secondly, because they show a poor Moderator, who thinks it his place to make a political reprimand to an invited Assembly speaker and directly to interfere in matters of state. Thirdly, because they show a church in decline, which has managed to whip up 'the Christian position' on a matter of serious political contention, but is unable to agree on fundamental Christian doctrine.

As a final aside, it is with sadness that I conclude that the Baptist Union is no better. In April '09, the BUGB signed up to a position paper on the economic situation which proposed currency transaction taxes, an end to tax havens, various climate-oriented policies and other measures. The BUGB has issued formal positions on climate change more generally, on 'the threat of far-right politics' (where were they when the 'far left' was a threat?), and the nuclear deterrent. But on the gospel, the Baptist Union has elevated incoherence to the level of high principle. Baptists, they appear to say, have the liberty to believe whatever they like, so long as they agree with the BUGB's politics. An odd basis for a church, and even for a denomination.

### Corporate manglement at York

I think there must be a bit of a leftie lurking in the corridors of our Management School. This morning, I had the pleasure of invigilating a maths exam, and in the hall were also some third year students taking a management exam on corporate governance and social responsibility (in itself, a bit of a giveaway). Questions threw around terms such as stakeholder in a way which was rather distressing. (The chief social responsibility of a shareholder-owned company is to provide its shareholders with a profit. The fixation with the 'stakeholder' is closet Marxism: a way to spark the longed-for class war between capital and labour.) The final question, though, was the kicker: it asked students to discuss what influence the corporate pursuit of shareholder return had had on the financial and economic crisis of the past two years.

The first thing to say is that we cannot lay the blame solely at the feet of the banking system, although we cannot absolve them of blame entirely either. They were responding to state-structured incentives, particularly American bankers, and it was there that the difficulties started. So although bankers cannot be exonerated, neither can we simplistically conclude that 'pursuing shareholder value' is necessarily an activity with negative social value. It may be that the social value is located in the state activity, or shared between the two.

Secondly, although we must always learn lessons — and run the risk of ever fighting the last war, of course — we should recognise that boom and bust are a part of our free market economic system. During the boom years, we build up non-financial capital, and during the bust, we find which things we built up are durable. One could argue that innovation has been the cause of a great number of history's boom-bust cycles. Take the South Sea Bubble: the invention of the joint stock company was a great boon to trade and investment, but it took us a long time to discover that there are risks associated with companies, as well as benefits. The economic historian can look back and see others: the nineteenth century transport boom lost some people a lot of money, but gave us a transport network; the Gold Rush gave the US some ghost towns but other, still thriving communities; and the most recent crisis came out of innovation in the financial services industry, notably in securitisation of debt but that period of innovation also saw stockbrokers figure out how to give access to the stock market to people who before had never been able to afford it. The boom gave us a mix of real and false gains: the bust hurts, because it reveals which were which.

Having said that, we should now question whether the financial services industry has really been directed at shareholder return. Perhaps it has been aimed at short-term profits, but clearly some companies have been disastrous at achieving long-term shareholder profit. (Others, we should note, have been modestly successful over the same period.) If anything, we might say that the industry has not been sufficiently assiduous in pursuing shareholder profits. This raises the question of what its aim has been.

The workforce of the financial services industry does not, as a rule, stay in any one post for a very long time, nor indeed does it stay with any one company. It benefits from short-term profits, because it is able to command highly-remunerated packages on the back of them; long-term profit is less interesting, because by the time the profit is out, the worker has moved on. This conflict of interest, known among economists as a principal-agent problem, is exacerbated by the ownership structure of the City, to which we shall briefly turn.

Although the City may not appear to have thought much of its ultimate shareholders, who are millions of individuals scattered throughout the UK and the world, it has had its own set of shareholders in mind as it has gone about its business. It is most directly owned by pension funds. As Anatole Kaletsky wryly observed in yesterday's Times, it is ironic that the only part of the British economy to experience 'the workers owning the means of production' is the turbo-charged, 'ultra-capitalist' City of London. Thus, while the providers of capital have been tossed the occasional bone, City financiers have enjoyed large salaries and bonuses, even through the financial crisis. The suppliers of the capital, who ought to hold the whip hand, have been totally disenfranchised, and the City has pursued returns to the legal shareholder, instead of to the beneficial shareholder.

So to an extent, we may say that there has been an issue surrounding the pursuit of shareholder value. However, that issue is not that corporations have been pursuing it; rather it is that they have not been pursuing it properly. They have treated their real shareholders with contempt, and have instead been interested in short-term profits for the benefit of the workforce. Corporate governance is an important facet of the financial crisis which the West has faced over the past two years, but we should not presume that our problems stem from corporations having been run 'by the book'. In fact, their running has been far from the usual free market playbook, and this has been a contributory cause of the problems.

Somehow, even allowing for a lack of argumentation, I don't think that was anything like the answer the examiner was hoping for.

## Thursday, January 14, 2010

### Journalidiocy spreads to the Times

Today the august pages of the Times are graced with a hack incapable of doing any basic research. In her column, Melanie Reid writes, "The First Minister’s wife has been pilloried. But for breaking out of suffocating Presbyterianism she should be canonised." (src) The only problem with that analysis? The Robinsons are Elim Pentecostal (src), which is really rather different from Presbyterianism. Especially the Paisleyite variety, which is itself really rather different from Presbyterianism proper.

Yes, Melanie Reid is the latest addition to the Journalidiot Hall of Ignominy. Congratulations, Mel, and better luck reading Wikipedia (or which ever source it was I got that fact from first) next time.

### Today's Matt

The Telegraph's cartoonist is pretty unerring in his wit.

A bonus, you see, is paid on top of a salary, and the word salary derives from the Latin… Well, you can read the rest at Wikipedia (link). I can't believe Matt didn't spot that additional, cerebral joke.

## Wednesday, January 13, 2010

### Will Kindle consign books to the flames?

That is, assuming the pensioners don't get them first (link). Lisa Jardine, in this week's Point of View on Radio Four, celebrates a history of book-reading and concludes that the e-book will not do for the paper book (link). Here is what I think is the clincher:
So far I see little evidence that e-readers begin to engage with "real reading", the kind those surviving marginal annotations in much-studied books are testimony to. Reading, those annotations show, is an active and social activity. It interacts with reading matter in creatively constructive and useful ways. The output from a reading of this intense and systematic kind is larger than the book itself. It extends to other, related books, and conversations with other, similarly goal-orientated readers.

The electronic book offers me a convenient extra way to read while on the move. Given a good enough screen I am sure that I will use it, and I certainly like the idea of being able to buy and download difficult-to-locate texts at any time of the day or night. This may also be the device that will allow newspapers and magazines to survive as revenue-earning businesses. But I do not expect to stop using physical books.

Books have what I think I have heard Warren Buffett describe (in the context of companies) as an 'economic moat': an innate feature which is hard to duplicate in rivals, and therefore forms a strong competitive advantage. You can do stuff with physical books which you simply cannot do with e-books, and therefore there will continue to be a market for real books alongside, as Jardine says, e-books. Both systems have benefits, and ultimately consumers will find how to adapt to the new technology. I believe it will also result in our appreciating more the benefits of physical books.

A few days ago, Tyler Cowen of Marginal Revolution pointed (src) to a story which asked whether e-readers would wall off social knowledge (src). It concluded that there are quite a few ways in which the package (e-reader + e-book) is inferior to books, and that e-readers as currently operated will not be good for society's general well-being. The article's key assumption, though, is that e-readers will rise and displace books: without that assumption, we will simply use books and e-books where they have comparative advantage. E-readers will not displace books entirely unless they are vastly superior: in which case, why are we worrying?

Concerns about losing physical books because there are certain things you can only do with them put the cart before the horse: the fact that there are certain things you can only do with physical books is in fact the guarantee of their continued existence. The mp3 file hasn't destroyed the CD (which in turn hasn't completely destroyed vinyl), the digital camera hasn't killed painting, and the Kindle won't kill books.

## Tuesday, January 12, 2010

### Any LaTeX users out there?

If you're not a LaTeX user, I warn you now: this post will not be pretty. Unlike LaTeX output, which as any mathematician will tell you is beautiful.

There's something a little odd I've just noticed. Try the following:

${Q^\alpha}_\alpha$ should give you a Q with a superscript α followed by a subscript α. This is the shortcut route for writing tensors (well, technically this is the trace of a tensor, but obviously the two indices don't need to match), since writing $Q^\alpha_{\phantom{\alpha}\alpha}$ is a bit laborious.

Then you might expect ${\hat{Q}^\alpha}_\alpha$ to give you the same, but with a hat on the Q. Not so. The αs come out vertically-aligned.

Bizarrely, $\hat{Q^\alpha}_\alpha$ gives the αs in the right alignment, but as you can tell from the code, the hat comes out cock-eyed.

The solution is to write $\hat{Q}{^\alpha}_\alpha$, which is a bit of an ugly fix, but hey, it works.

I wonder why it doesn't do what you'd expect.

### More corporate governance

Once again, I have led the news agenda. Will the papers ever catch up with me? On Friday I posted a ramble on corporate governance (link), noting that the pension fund industry has become a part of the problem rather than a part of the solution. In Saturday's Times, two articles appeared on corporate governance (1, 2), both making very similar points to my own. In the first, the Times' personal investment editor Robert Cole writes:
Meanwhile, a crazy contract of complicity lies at the centre of the crucial relationship between professional investment managers and boards of directors of listed companies. Consciously or subconsciously, both these sets of people are driven to protect their own self-interest rather than to serve those that own the capital they use, and sometimes abuse. Though the potential for wider benefits is palpable, greater participation by individual investors makes life significantly more difficult for boards of directors and institutional investment managers.

Is this why so little is done by those that have acquired the power to act to improve the position of the individuals and citizens they are meant to serve? Probably.

I concur.

Back to my post, a fund manager kindly commented on it: although he rejected my particular reasons ('He would say that, wouldn't he?'), he gave some of his own which I hadn't thought of. He argued, and I am sure he is right, that fund managers like to have access to boards, and that they therefore don't act against the board except in rare instances; he also argued that, again cogently, that boards engage in malpractice by, for example, bundling controversial or unattractive propositions together with routine ones to be voted on (for example, appending the board's pay alterations to the motion to accept the company's annual report).

I think I would summarise his examples as telling us that the relationship between the fund managers and the directors has been inverted: the shareholders have been made supplicants at the board's feet, when it should work the other way round. In all, corporate governance is in a pretty shoddy state. The fund manager's proposals were to make shareholder voting compulsory and anonymous: I don't how compulsion would work, and while I can see the sense behind anonymous voting from a governance perspective, it does make it harder for fund clients to hold their fund to account for its own decisions.

And me? I still don't have many ideas. Increasing private shareholder ownership is good, but if that is behind nominee walls then no improvement in governance will be forthcoming under the present arrangements. Apparently a recent Companies Act gave nominees the right to demand shareholder rights for their clients, but individual clients still do not have direct access to their legal rights: that is an obvious candidate for alteration. However, with such a large amount of the UK's companies in the ownership of collective investment vehicles, there still needs to be some change in the way fund managers, boards and clients interact.

I'm a firm believer in economic freedom as the best engine for prosperity, and a cautious fan of the capitalist system as evolved in the Anglo-Saxon west. (I make the distinction, because I advocate improvements to the latter, but see the former as absolute.) However, both economic freedom and our ever-evolving capitalist system rely on private property rights. When the law separates, as it does, beneficial ownership from effective ownership, we end up with the City effectively owning and running itself. Clearly, we ignore such a state of affairs to our cost.

## Monday, January 11, 2010

### Is this what they mean by hedge fund?

In the Telegraph's personal finance section, the following stories all have co-existed over the past few days:

Thatcher's shareholder dream comes true, says ONS (link)
(Figures show that 15% of households now own shares, and predicts an increase in the proportion.)

Investors turn their backs on the stock market (link)
(Figures show that only 17% of people plan to buy shares in the next little while.)

Neil Woodford: 'The attractiveness of shares is as great as I can remember' (link)

In fairness, Woodford's position is internally consistent; but what Questor is thinking tipping against Woodford's non-cyclical recommendations, I have no idea. And are we on the way up with regard to private shareholdings (which I would regard as good news) or not? The Telegraph's finance section must be madder than a box of frogs.

### A choice we needn't make

As the obnoxious policy of a cap on population numbers comes up again, and as J. C. M. Dave declares that he doesn't want the UK population to hit 70mn, I have to ask: what measures would he support in the event of natural population growth alone taking us there?

The UK natural population growth rate was 0.36% according to the Optimum Population Trust (src), not an organisations whose opinions I generally endorse, by the way. At that rate, it will take us 42 years to hit 70mn, so this is long enough to put some plans in place. But what will they be? There are three basic choices: forced sterilisation, the slaughter of the innocents, or mass deportations.

Talk of population caps is ill-informed and misanthropic. Sadly, both Labour and the Tories have long taken the view that they ought to play bash-an-immigrant. It's long past time the UK ought to have woken up to the benefits that immigration brings.

## Saturday, January 09, 2010

### Tory classical liberalism

Progressive Vision, the classically liberal, non-partisan pressure-group-cum-think-tank (link) has managed to score another hit. First they set up Liberal Vision (link), a classically liberal 'ginger blog' within the Liberal Democrats. I have linked to their weblog on my sidebar.

Now — well, at the Tory party conference in October — they have set up Progressive Conservatives (link), headed by Syed Kamall, Conservative MEP for London, and governed by an executive board composed of influential, well-known people within Conservative politics. In an article for ConservativeHome today (link), Kamall argues that the true Conservative progressives have always been on the side of social liberalism as well as economic freedom. His case is that progressivism is about giving people responsibility for their own lives, and that increasing state control is inherently anti-progressive.

Kamall is looking for Conservative party members with a classically liberal outlook to join the new grouping, and of course I wish him every success. It looks like they could use some people to get things moving: the PC website is not the most fast-moving of places, and the weblog has precisely one entry. So if my reader is a prime target of Kamall's endeavours, I commend the new grouping to him.

## Friday, January 08, 2010

### The Milkh Markheting Board? 'Oo are they?

The Guardian's comment threads can carry some gems sometimes. Here's a (slightly re-worked) description of the two main parties in the UK:
The problem with redistribution is that robbing Peter to pay Paul leaves Peter broke. Labour 'fix' this by robbing Peter to pay Peter. The Tories 'fix' it by telling Peter to grow a backbone. Neither question the 'robbing Peter' bit.
That's from a thread following on from an article by a milk farmer, Anthony Bradley, about the woes of milk farming (src). Not that he's got a vested interest, oh no. The article itself is so wrong-headed it's just begging for some analysis, but the comments are even better. Here, for example, is one of the contributions:
you are dead right ... it's time for farmers to start theior own co-operative or milk marketting board, and hammer the supermarkets
And wouldn't you know, that's exactly what they have been doing (1, 2). It's an eminently sensible approach, because the co-op has greater negotiating power to obtain higher prices, and the extra return can be shared with farmers according to the amount of milk they produce, less a bit for administration. The co-ops can go bust, as Dairy Farmers of Britain did recently, but it is a sensible, positive, 'freer market' solution than the MMB.

To all the free marketeers commentating on this subject I have a simple question: If there is only one customer how can it be a free market? The supermarket between them decide the price paid for milk through their agents like Dairy Crest. Milk is not a product them lends itself to the simple distribution of other products hence the inception of the MMB.
So the solution to a non-existent monopsony is to re-introduce a genuine monopsony. Yep, the level of analysis below the line has never been great.

But then, the analysis above the line isn't all that brilliant either. It all starts to go wrong in the headline, where he assumes that the producer interest should be the focus of government action. As the first commenter points out, scrapping the Milk Marketing Board was a pro-consumer initiative, and it has worked spectacularly, keeping milk prices down for consumers.

It doesn't get any better in the sub-head, where Bradley blames Margaret Thatcher for the demise of the Milk Marketing Board. The only snag with that piece of Guardian anti-Thatcherism is that the legislation abolishing the Milk Marketing Board was passed in 1993, two years after the Tories successfully evicted Thatcher from Number Ten.

He moves on, labouring under the assumption that milk farming is a necessary activity of the United Kingdom: but surely if our agricultural land can be used for something more economically useful, that would be a good development. It is an oddly conservative point of view to say that because we have always had milk farmers in a certain area or country, we must always have them.

Bradley also misses the fact that industry, even civilisation itself, are only possible because the vast majority of us don't have to spend our days trying to acquire food from scratch. You can see the basic idea in this graph (src). Essentially, the argument goes thus: economic and cultural development requires spare time to spend on new projects; that spare time can only arise if we don't have to spend every waking hour looking for food and clothing and so on; hence, increasing agricultural development drives economic development. Increasing agricultural development, of course, drives farmers off their land and into other occupations.

He complains about the fact that spot sales (sales 'on the spot' [1]) don't always occur, but doesn't ever note that the development of a futures market would make milk distribution more efficient for everyone. Interestingly, Brussels is considering setting up a European milk futures market (src). There's not a lot comes from Brussels which I can wholeheartedly wish every success, but this is one.

Getting rid of the Milk Marketing Board was a good idea (and a word to the Tories: setting it up again is consequently not a good idea), and dairy farmers have managed to use co-operatives to replicate the better aspects of what the MMB did, without the damage to the consumer caused by monopsony and taxpayer funding. Meanwhile, there are market developments, specifically the development of a futures market, which could take place in order to improve the market efficiency. The gains from such developments would redound to everyone involved: farmers, supermarket shareholders and customers.

[1] It seems odd, but as far as I'm aware, the two phrases are not directly related.

### A ramble on corporate governance

Everyone's favourite crusading, blogging, left-wing tax accountant (link) and I have little in common. [I have to confess to finding Tim Worstall's series dedicated to Murphy's economic education (src) both edifying and amusing.] But while Murphy and I may disagree on whether tax incidence (wiki) exists and how it falls (and I may make the occasional mistake in my attempts to convince him), we did find something we can agree on: corporate governance isn't working very well at the moment.

I wondered how it could be fixed, and observed that a large part of the problem is that pension funds are large owners of our large corporations. That gives rise the old principal-agent problem (wiki), among others. I perceive a few different ways in which problems can arise.

Firstly, most pension funds have clients who invest money and shareholders who own them. (Closed-ended funds are structured so that the clients are the owners: this cannot apply to them.) Where a conflict arises between the interests of the shareholders and the clients, is it clear whose interest the pension fund manager serves?

Secondly, the real principal-agent problem: when pension fund managers' interests collide with the clients', it is obvious whose will win out. To take the obvious example, managers have an interest in getting good salaries and bonuses. This is made easier if their counterparts in comparator companies — in whom they frequently manage shareholdings — are well-remunerated. Of course the City chaps are also going to be very understanding of the need for high executive salaries. So guess how they vote on corporate pay?

Thirdly, pension funds and other corporate shareholders tend to spend less time on smaller holdings; but a small shareholding for the fund could be a very large holding for the company [1]. An absentee shareholder who simply votes with the board, if at all, and takes no interest in the running of the company beyond the paperwork, is bad news for the business, and thus for the other shareholders. It doesn't matter when the delinquent owner doesn't own much of the company, but if there's half a dozen of them at a few percent each and they're still not taking their responsibilities seriously, there's a problem.

I don't really know how this can be resolved. The only idea I have, and it's mad really, is to allow only individual shareholders to vote, to attend AGMs and so on. It's mad because you can't seriously have owners who are unable to exercise their full ownership rights over a company. What if there was a vote on winding the company up, for example?

No, nominee ownership already disenfranchises small shareholders, and I think we need to be moving away from that, not ensnaring more shareholders in an unrepresented state, even if they are pension funds. That leaves me back at square one: I believe there is a problem, but I haven't got the foggiest what could be done to solve it.

[1] As an example, one of the smallest companies on the FTSE markets is Empyrean Energy. It had, on the 14 May 2009, three stockbroking companies as the top three shareholders, carrying in excess of 30% between them, which is a total value of only £5.4mn. I rather doubt that TD Waterhouse, Barclays or Halifax pay much attention to the goings-on at Empyrean Energy.

## Thursday, January 07, 2010

### The inefficiency of health and safety

I was chatting with a shopkeeper who works just round the corner from where I live about the snow this afternoon, and he was talking about the pavement outside the shop. He had been told (I always wonder by whom and under what authority) that he was legally liable for any accidents which might occur on his (rather small) patch of concrete outside the shop, if had failed to keep it clear. He had also been told that if he cleared the public footpath which was at the front of the shop, then he would be liable for any accidents on that. In other words, he was liable if he didn't clear his own path and if he did clear the public one. Wise man that he is, he cleared the public one anyway, because he took the view that it was broadly better if older people didn't fall over and hurt themselves.

John Redwood has reported similar concerns (src), and a Risk Management Consultant — who ought to know! — on the UK Business Forums has confirmed the same position (src), so this seems quite likely to be true.

It set me thinking. We dislike this kind of "'elf 'n' safety gorn mad" stuff because it erodes the fabric of society, and Melanie Reid did a good job of explaining that sentiment in today's Times (src). There's another side to it as well, though: it's economically inefficient.

Clearing a public pavement provides many positive externalities: not only does the one doing the clearing benefit, but anyone using that pavement benefits. It helps people move around local shops, improving their business. It decreases the number of accidents, which relieves pressure on our health systems as well as reducing the pain and upset of broken bones, or worse. It offers local children an opportunity to provide a socially useful service in exchange for a little bit of extra pocket money.

Now, positive externalities are difficult to internalise, just like negative ones, which is a dry way of saying that even given the existence of local children, it is hard to charge the beneficiaries of pavement-clearing properly. However, the potential for liability is quite another matter. This particular positive externality is driven further away from a desirable level of production by the potential imposition of liability. Clearing pavements has positive economic effects: why are we placing a negative reward on it?

UPDATE: Tim Worstall comments, and the BBC confirms (src), that this isn't H&S, but what's known as a 'tort of nuisance'. DC's comment that Germans are obliged to clear the public pathways in front of their homes also goes for Austria, Switzerland and, surprisingly, the US. Apparently, a case for shovelled snow in the UK would have to show malice or carelessness. So you're probably safe as long as you shovel the snow out of the way: in front of next door's gate, on the other hand, would probably be actionable.

### Brown's ideological mini-me

That's Ben Brogan's wonderful description of the egregious Balls this morning (src). As Labour continues with the self-flagellation, one has to look to his future, and particularly to the general election. On the one hand, I would dearly love for Ed Balls to lose his seat. He represents all that is wrong with Labour in its obsession with centralised, state control of practically everything. A clean break would be wonderful, and the removal of the Normanton Menace would be a signal, if only a signal, that this is possible.

On the other hand, who after Gordon Brown is better placed to make sure that Labour is unelectable for about two decades than Balls? Not even Harman is as awful as Balls. If he were to win the ensuing leadership battle, Labour would be dragged on a long march back towards the statist left. He should also horrify sensible members of his Co-operative Party (a minor party in perpetual alliance with Labour), whose principles he seems set on betraying at every available juncture. At best, we might hope that a Balls leadership would be enough for the Co-operative Party to dissociate itself from Labour's passionate embrace: for we are learning that whatever Labour loves, it loves to death. Perhaps if the current, increased interest in mutuals is sustained, the Co-operative Party would be able to position itself as an independent, non-statist, left-of-centre alternative to both Labour and the Liberal Democrats.

And yet, on the other, other hand, do I think it would be healthy for the country to experience a Tory ascendancy, faced with an opposition riven with internal strife, splits and leadership woes? Not at all, although it would be better than the current shambles.

So, do I hope for a new MP in Normanton, or not? Internal strife is infectious: it's spread from the Labour party to me.

## Wednesday, January 06, 2010

### Telling Gordon where to stick his scanners

Out of the eater, something to eat; and out of the comments, action. Ed P tells me he has set up a Number Ten petition asking for the Prime Minister (whoever ends up as Prime Minister after the latest convulsions have died down) to consider Israeli security procedures, rather than going ahead with full-body scanners. The Israeli procedures would probably be far more cost-effective, and the aggregate balance between security and privacy would probably be better off as well. Obviously you have to check luggage and what people carry on their persons, but one would hope that we could be a little smarter than thinking that if we can check more and deeper we can be safe.

So we need to profile, but intelligently. 'Dumb' profiling, which basically targets beardy young men with Arabic-sounding names, is obviously discriminatory and highly silly. Terrorists can get around it with ease, and all it does is alienate people whose support is valuable in countering extremism and terrorism. But 'smart' profiling, which looks at individual passengers' behaviour and intelligently assesses whether they appear to be a potential risk, definitely has to be a part of the anti-terrorist toolkit.

If you think that this is an issue worth flagging this up, please sign here and put a link on your own weblog. Ed has put quite a short time limit on the petition, of 6-Mar-10: I guess in response to the swiftness with which the government is likely to move. So please take a look, sign and pass the link on.

## Tuesday, January 05, 2010

### War's back on, chaps

It was October 2008, and Iceland's banks were crashing down around our ears. People worried about losing life savings, or stoozed money (look it up), or savings they intended to use to support themselves through PhD writing-up. (Never mind how I know that. I just do.) We teetered on the edge of worse-than-frosty relations with Iceland, and noting that the number of inconvenienced customers of Icelandic banks was roughly equal to the number of Icelanders, I (modestly) proposed that we simply tool up the angry customers and ship them out on longboats (link). John H baggsied a place on the first longboat, but then it was all called off as Iceland backed down and promised, eventually to do the decent thing.

The Icelandic President has now vetoed the decent thing (src), so it's back to the longboats, and this time we have time to ask the Dutch whether they'll play as substitutes. Even Iain Martin is asking, Will Brown invade? (src) The man's languishing in the polls, and he needs a break if he's going to have a chance. Thatcher had the Falklands: will Brown strike while the iron is hot, levy the angry Icesave customers, and win for Britain the glorious Wad War?

### Shall the Malthusians win?

At Comment Central, Danny Finkelstein asks whether the United Kingdom can feed itself using its own agricultural output (link). The answer, he concludes, is that it is possible. I would like him to ask whether it is sensible.

The Secretary of State for the Destruction of the Environment, Food and Rural Affairs, Hilary Benn, was on the Today programme this morning doing a passable impression of his father in arguing that the UK needs a Twenty-Year Agricultural Plan (src). He perceives a future food crisis, and the Bennite Solution is to make the UK self-sufficient in food by 2030. The factors which will make this crisis are the diminution of oil stocks, growing and increasingly wealthy populations in the developing world, and the disruption of marginal agricultural land by climate change.

This is the modern, reheated version of the Malthusian crisis, first proposed by Thomas Malthus, an eighteenth-century British economist and vicar. (As an aside, this is another mark against church ministers dabbling in economics. They really aren't able.) Malthus believed that although population grows exponentially, output of food grows only linearly. You can see that on his prediction, we'd probably be well beyond the starvation point already.

But we're not, even if isolated areas are sometimes pushed nearer to it than anyone would like. Why so? Because unforeseen technological development has made our agriculture more efficient over the years. We produce far more per acre now than we have done in history, thanks to fertilisers, machinery and scientific understanding of how best to grow crops.

Benn's pessimistic assumption is the mistake that Malthus made: he thinks that we are as good at growing food as we ever can be, and output cannot increase much further either through efficiency or through completely new channels. I don't suppose that for one moment. We may run short of oil-based fertilisers if oil stocks become depleted, but other alternatives exist, and I expect someone will find a way to make them more cheaply and efficiently when the incentives are there for them so to do. [EDIT: apparently 'oil-based fertilisers' are a bit of a myth. But whenever oil stocks reach noticeable depletion, the increasing price of that factor in agriculture, however it arises, will be an incentive to move away to something cheaper.] Even if we can't eke much more out of the soil — and I find that hard to believe, on the basis of past history — we are moving towards an era of hydroponic farming (wiki) and, possibly, the growth of meat in the laboratory (wiki). In short, food production can still grow.

So if we're not in any significant danger of running out of food, isn't self-sufficiency a good idea anyway? Again, no.

It cannot possibly be more secure to rely on one country for all our food. We are far more secure if we rely on the world market, because there is a much greater potential supply out there than there ever could be over here. One hard frost could wreck the UK's food supplies, but it would be a major event which caused serious damage to the world agricultural market.

It may seem attractive to a politician, who can have a Twenty-Year Plan emblazoned with his name, but acquiring all our food from one bread-basket is a dangerous, insecure proposition. Further opening our borders to food imports, including allowing in processed foods from developing countries, and stopping the mad Common Agricultural Policy which subsidises farmers at the taxpayer's expense, is a far better way to ensure our future food security.

Regular readers will know that I am implacably opposed to the pernicious Badman Review, which recommended to the most control-freakish member of the Cabinet that he arrogate to his office yet more power over families, by imposing a registration and inspection regime on home educating parents. Ed Balls leapt at the review's conclusions and promised to implement them in full. Surprise, surprise.

Sensing the nearness of the time, the Government is, apparently, expediting its State Interference in the Lives of Children and Families Bill 2010 (link) in order to get it through before it finally gets kicked out goes to the country: second reading is happening this coming Monday. Going so quickly has involved cutting short a consultation — which, as we know, is only ever a fig leaf for the Government to do what it was planning anyway — and ignoring the genuine concerns of the relevant Parliamentary Select Committee (src). This adds political malfeasance to outright illiberalism.

If you've ever wanted the chance to say 'Bad man!' to Balls and 'Balls!' to Badman, here it is. There are two petitions on the Number Ten website which would be worth your attention.

The first is in favour of the principles of parental priority in education, and the freedom to educate without interference unless there is reasonable suspicion of wrongdoing. It is a very positive petition and in fact doesn't mention Badman directly at all. You can sign the petition here.

The second is calls directly for the rejection of Badman's recommendations, particularly in its insistence on registration and a 'minimum standard'. You can sign it here.

I have signed both, and encourage you to do the same.

## Monday, January 04, 2010

### Welcome to my new readers

If you've come from Tim Worstall and Obnoxio, welcome! (If you've come from Facebook, welcome as well!) I suspect the initial rush has worn off, so if you've come as a result of their kind words, I hope you hang around, and would welcome your contributions in the comments. I prefer it when what I write generates interesting discussions, as that's the way we all learn. As Hayek wrote in Liberalism,
It is the discussion and mutual criticism of men's different opinions derived from different experiences which was assumed to facilitate the discovery of truth, or at least the best approximation to truth which could be achieved. Freedom for individual opinion was demanded precisely because every individual was regarded as fallible, and the discovery of the best knowledge was expected only from that continuous testing of all beliefs which free discussion secured. (src)
In anticipation of a more lively conversation, I've changed my comments policy, experimentally. It was because of some serious spamming a few years back that I moved to requiring commenters to hold Google accounts, which has served me well. A couple of comments elsewhere have made me reconsider and I have relaxed this to allow anyone to comment. If I start getting masses of spam through, I shall change this back, at least to requiring registered users; if that doesn't stop it then I shall revert to the successful original policy.

You'll note that the name of the blog is The Melangerie; that's intended to convey that I have a breadth of interests and topics for posting. I have maintained a focus over the past couple of years on the politics-economics-news side of things, but we all have different aspects to our lives. I'm also a Christian, an academic mathematician, and more besides, so you'll also find me posting about theology, cycling, universities, research, interesting mathematics… the list will go on. Who knows, maybe you'll find out about things you didn't have any idea about before!