torsdag 16 november 2017

Useless talking shop

Gothenburg is in chaos this week, with roads closed, tram routes cut and buses being sent on long diversions because the city is the choice of location for an EU talking shop, under the title "Social Summit for fair jobs and Growth"

"Together with President of the European Commission Jean-Claude Juncker, Sweden’s Prime Minister Stefan Löfven will host a Social Summit in Gothenburg on 17 November 2017, focusing on promoting fair jobs and growth. The Social Summit for Fair Jobs and Growth will gather heads of state or government, the social partners and other key players to work together on a more social Europe and to promote fair jobs and growth. 

"Well-functioning and fair European labour markets, effective and sustainable social protection systems and the promotion of social dialogue at all levels will be at the heart of the summit agenda."

Given the absence of a coherent theory of how the economy works, this expensive talking shop - with a lunch bill of £60 per head - can amount to little more than an exercise in virtue signalling.

Every EU country runs a tax system where the bulk of public revenue is raised through jobs taxes in one form or another. Sweden is one of the worst of all, with high a tax on income, starting at a negligible threshold, and a hefty payroll tax and value added tax at 25% (VAT - in Sweden, MOMS), with no threshold for registration and no exemption from food or other essentials.

VAT at a minimum rate of 15% is a condition of membership of the EU. It would be difficult to think of a worse tax, since it applies precisely at the point where supply meets demand. It is also subject to evasion and fraud on an industrial scale, as the EU is the first to admit.

One might have thought that EU leaders would be sitting down and discussing how to relieve their half-billion people of the burdens which they have imposed for the past half-century, and which stand in the way of fair jobs and growth.

The conference was a security headache and meant that those attending were effectively prisoners in the hotel compound and the conference area a couple of miles apart from each other. What made the news was a complaint on Twitter by the police on duty, which were handed lunch bags containing baguettes described as "inedible", while the politicians were sitting in the warm and getting lunches at over £60 per head. All of which has done nothing to enhance the image of the EU among the local populace.

The choice of Gothenburg was bizarre, as Sweden has dozens of suitable rural and island locations which would have been easy to secure, and would have given the politicians a chance to relax and enjoy the scenery during their breaks.

onsdag 15 november 2017

Has it worked, or is it the end of the road?

My former Parish Priest at Brighton, has written another depressing blog this week, lamenting the state of the Catholic Church.

The real question is whether the Latin church can recover? Some people point out that it has been through these crises before. But that was before liturgical reforms weakened the sacramental signs to the point of confusing Catholics as to the very meaning of the liturgy, and split the church into language groups so that it was hardly recognisable as catholic (with a small "C").

The problems also raise ancient issues such as the role of the Papacy, post-schism theology and dogma, and even the Filioque clause, which influences people's concept of the Trinity in a fundamental way.

The Latin church might recover. On the other hand, and it is difficult to see major changes of this kind when one is living inside them, it could be coming to the end of the road it has travelled for almost 1000 years.

If I were Chancellor...

I would be thinking along the following lines.
  • All import tariffs to be removed on B-day. The UK should not waste energy on trying to negotiate trade agreements. People abroad do not buy UK goods as an act of charity but because they want them or need them. It is up to them to put pressure on their own governments to get out of the way and stop preventing them from purchasing what they want. 
  • VAT to be phased out in two stages; it may result in no loss at all to the Exchequer. (this is the reason for the surprising conclusion)
  • Corporation tax to be scrapped on B-day. 
  • Additional revenue can be raised if required from the UBR (commercial rents will go through the roof if CT is scrapped, giving the Chancellor a juicy tax base). However, upwards-only rent revision clauses must be banned so that commercial rents can find their market level.
  • A national Council Tax to be raised on top Bands and G and H properties. 
  • Income Tax and NI thresholds to be raised substantially for people living and working in regions with depressed economies - at least £15,000.

tisdag 14 november 2017

Free trade case in a nutshell

That, "Industry and agriculture should be protected, for as long as we need people to have jobs", is a fallacy based on popular/populist economic misconceptions. Trump is following the line. The EEC/EU has followed the same line for sixty years.

The misconception ignores the principle of competitive advantage. You would not fry your own fish and chips if there was a perfectly good fish and chip shop across the road. Human progress has been built on division of tasks so that each does that which they are best at; the big strong guys went out hunting, while the weedy short-sighted ones stayed in the camp and made spear tips and fish hooks. Trade arises through the exchange of skills. Without specialisation, the little group of hunter-gatherers would have blunt spears and the weedy guys would have got eaten while out foraging.

The same principle scales up. A single family of homesteaders has to do everything for themselves. When a few more arrive, they can share out their tasks, take advantage of economy of scale and use their special skills to the advantage of the whole community. These benefits continue to accrue until a network of exchange relationships encompasses the whole of mankind.

Tariffs and trade restrictions get in the way of the development of the network. At the crudest level, they have the same effect as transport costs and are functionally equivalent to sanctions imposed by a hostile power. If trade restrictions were beneficial, one would expect islands, and countries like North Korea, to be more than averagely prosperous. It would also be advantageous to restrict trade between, for example, Oxford and Reading.

But it is worse than that. If you fry your own fish and chips, you have to pay retail prices for your ingredients and clean up the mess afterwards. It is an inefficient use of your time. Thus is it with protected industry. If they are less efficient than the foreign competition, they draw resources from the rest of the economy and make the whole less efficient, and indeed less competitive. Protection draws an economy into a vicious circle of decline. Even worse: if consumers are forced to pay more than necessary for some things, then they have less over to spend into the economy elsewhere, which then suffers from artificially reduced demand. Protection of one sector causes unemployment everywhere less. It is a lose-lose situation.

And that is just at consumer level. Where imports are components or raw materials used by other industries, those industries are forced to pay more than they would otherwise have done and become less competitive. The anti-dumping measures against Chinese steel are a good example. European manufacturers were deprived of access to a low-cost raw material. That did not make the low-cost steel go away. It was bought and used by manufacturers elsewhere, who were then in an advantageous position to out-compete the Europeans.

The rational response would have been to encourage European businesses to purchase and stockpile as much of the cheap steel as the Chinese would let them purchase. It is counter-intuitive, though not so very different from the way we manage our own household affairs.

EU protectionism has a particularly damaging effect at the borders of the tariff wall, as those who will be affected by the situation in Ireland have realised. But this is no different from what has been happening at the eastern boundary of the EU, on both sides. It has a particularly damaging effect in eastern Poland, Latvia, and Slovakia, where a natural trading region with ancient cultural and economic ties has been arbitrarily divided.

The situation with agriculture is slightly different. Foreign competition means lower food prices (again to the benefit of the rest of the economy), and therefore lower farm-gate prices. Marginal farms go out of business and the land is put to other uses. In the case of upland hill farms, this would be advantageous as they need to be managed for, among other things, water retention to prevent regular flooding of urban areas within the catchment zone.

Elsewhere, farmland rents drop and farmers go over to other productions. Given the terror of a wave of chlorinated chicken coming into the country, free entry of imports creates a marketing opportunity for producers of the wholesome alternative.

The idea that agriculture would cease is based on a lack of understanding of a basic principle of land economics.

måndag 13 november 2017

The terror of chlorinated chicken

I came across this in the Guardian comments section today

Will "The terror of American chlorine washed chicken" beat “Britain is stronger, safer and better off in Europe” for first prize in the post-referendum decider?

The most recent study by the Agency showed that 65% of raw shop-bought chicken was contaminated with campylobacter. An estimated 300,000 cases of food poisoning are attributed to the bug every year in England and Wales alone.

The Food Standards Agency, Defra, the UK poultry industry, and major retailers have agreed a new target that will measure efforts to reduce the levels of the food bug campylobacter in chickens. There are three categories of contamination levels and, currently, 27% of birds are in the highest category.

The Agency's proposed action on campylobacter includes:
  • working closely with the UK food industry to trial new intervention measures on the farm, in slaughterhouses and at retail level.
  • setting a new target for reducing the levels of campylobacter on chicken.
  • helping to ensure people can protect themselves from infection with campylobacter by making sure they are aware of the need to avoid cross-contamination when handling raw chicken and to cook chicken thoroughly.
In addition to the fight against campylobacter, the Foodborne Disease Strategy outlines a full five-year programme for the reduction of food poisoning cases from all sources.

In the UK every year, around one million people suffer a foodborne illness, leading to 20,000 needing hospital care and around 500 deaths. Given the inability of so many not to poison themselves should the chicken eaters not be demanding chlorine washed chicken?

fredag 10 november 2017

Irish border headache

One of the disputes that has bubbled up over Brexit is what to do about the border between Northern Ireland and the Republic.

It seems that the UK government has not a clue about what to do over import tariffs. WTO rules mean that it will be difficult to do the really stupid thing and impose them, even if it wants to. The chlorinated chicken will be on the shelves and if people don't want, that is where it will stay until it is sold off as cat food. That means in turn that the Republic would have no problems with getting imports across Great Britain.

It also means that that since the UK government is not proposing retaliatory tariffs so there is no reason why farm produce from the Republic should not enter the UK as now. What would be the point of making people pay more for their Kerrygold?

All the obstructionism is on the EU side as the single market rules kick in. This will cause the same trouble as is already experienced in places close to the EU's eastern border, on both sides; at Kaliningrad, Narva, Daugavpils, Bialystock, Vyborg, Pskov, Minsk, Lviv, etc.

From this point of view, a sensible option for the Republic would be to join Britain in leaving. The Republic's trade is not particularly focussed on the rest of the EU - its exports consist substantially of high value products like pharmaceuticals, which can be sent as air freight.

Fear of what would happen is largely based on a warped view of what the economy is for. Behind nearly all the comments on both sides of the debate is an assumption that the purpose of the economy is to keep people busy, that work is a good thing and as much of it as possible should be created.

We all know from personal experience that the economy exists to provide our wants and needs, whilst doing as little work as possible. There is a disconnection somewhere.  From this follows the received view is that exports are good, that imports are bad, that countries must have balance of payments surpluses and that the economy is a supply-push system.

Thus, on this view, access to markets is a privilege to be negotiated for. All of this is to forget that the worst punishment one country can inflict on another is to prevent imports from getting into that country, by sanctions, blockades and other hostile actions. If the received view were correct, North Korea would be among the world's most flourishing economies.

The reality is that the economy is driven by demand. Smuggling is an indicator of repressed demand. The idea of negotiating "trade deals" is based on a bluff. If the UK government puts a blockage on the import of Kerrygold and all the other Irish dairy produce that fills the shelves of Britain's supermarkets, the public and the trade will start to kick up a fuss.

What would be the effect of unilateral free trade? Sterling deposits would build up in the supplier countries. The value of sterling would drop, making UK goods relatively more attractive, at which point the demand for the UK goods would start to creep up again. If it did not, due to import tariffs, the supplier countries would experience a dwindling demand for their products from UK customers as the value of sterling continued to drop and imports were replaced by home-produced goods. Sooner or later the bluff would be called. The whole silly edifice then starts to fall apart as it is seen for what it is.

torsdag 9 november 2017

Nothing to celebrate

The 1989 Brighton Festival celebrated the bicentenary of the French Revolution, under the theme "A Taste of Freedom". I thought at the time that it was not the sort of thing that anyone should celebrate - mass murder and two decades of war were the consequence.

2017 marks 500 years of the Reformation and 100 years since the Russian Revolution, which took place on 8 November 1917. The first was a catastrophe for Europe, the second for the world. The death tolls in each amounted to millions. The Reformation has been the occasion of "ecumenical" services, consisting mostly of the singing of some Protestant hymns and sermons by representatives of different denominations, such as this one last Sunday at Uppsala; a dreary affair apart from an excellent sermon, by Cardinal Arborelius.

BBC Radio has filled up the week with commemorative programmes of the Russian Revolution, so that is best avoided. The Russians themselves have had more sense, having been on the receiving end of it, the event is being marked, if at all, by memorial services for the victims of Communism. President Putin, who once lamented the dissolution of the Soviet Union as “the greatest geopolitical catastrophe of the century” deems the October Revolution itself, the USSR’s foundational event, no cause for celebration.

Useless talking shop

Gothenburg is in chaos this week, with roads closed, tram routes cut and buses being sent on long diversions because the city is the cho...