Liberal Vision

A Critique of ‘Steady State Economics’

Here is a brief account of human history:

For the vast majority of human history, the size of the economy was small compared to the size of the biosphere. But over the last hundred years or so, this balance has changed remarkably due to the increase in the number of people in the world and the growth in each person’s consumption of goods and services. […] Due to economic growth, humanity now uses eleven times as much energy, and eight times the weight of material resources every year as it did only a century ago. The global economy is now so large that it is undermining the natural systems on which it depends. The result is a wide range of global environmental problems: climate change, biodiversity loss, stratospheric ozone depletion, deforestation, soil degradation, and the collapse of fisheries. The list goes on (O’Neill et al., 2010, pp. 23–26).

Here is another account of the same phenomenon:

From 2 million or 200,000 or 20,000 or 2,000 years ago until the 18th century there was slow growth in population, almost no increase in health or decrease in mortality, […] increase in wealth for a few, and mixed effects on the environment. Since then there has been rapid growth in population due to spectacular decreases in the death rate, rapid growth in resources, widespread increases in wealth, and an unprecedently clean and beautiful living environment in many parts of the world […] In the 19th century the planet Earth could sustain only one billion people. […] Now, 5 billion people are living longer and more healthily than ever before, on average. The increase in the world’s population represents our victory over death (Simon, 1994, pp. 22–23).

Unlikely as it may seem, both authors are really describing the same planet, representing two diametrically opposed sets of assumptions. The first view, ‘Malthusianism’ or ‘Steady State Economics’ (SSE), holds that the planet’s biosphere is highly fragile and can only cope with a low level of human economic activity. If the latter exceeds its ‘planetary boundaries’, it overstretches the biosphere’s carrying capacity, and thus depletes the world’s ecological capital: according to the SSE view, the lifestyle we have grown accustomed to is akin to the lifestyle of a prodigal heir, who squanders the family wealth in a mindless consumption frenzy. The only way to prevent disaster is to downsize the world economy to a level which the planet can absorb. Since this is deemed impossible in a capitalist economy, an economic system in which the state tightly controls all economic activity is advocated.

The second position, ‘rational optimism’ or ‘sceptical environmentalism’, rejects the SSE assumption that people are just passive consumers of the resources they stumble across. Rather, people are seen as potential problem-solvers, who can overcome resource constraints given the appropriate institutional setup: a system of secure property rights and the free formation of market prices.

Suppose demand for resource X was growing at a much faster rate than supply. A Steady State Economist would typically extrapolate this trend into the future, calculate the date we will ‘run out of X’, and describe the consequences in a melodramatic fashion. A sceptical environmentalist would argue that if this trend continues, the price of X will increase. This entices X-suppliers to look for ways of tapping into hitherto inaccessible X-deposits, and X-consumers to look for ways of making more with less X. Entrepreneurs, meanwhile, are enticed to look for ways of substituting X.

Whichever approach one finds intuitively more convincing, the empirical track record of the optimist position is vastly superior. Over the past 200 years, all kinds of resources have been predicted to run out and all kinds of ecological disasters have been predicted – next to none has ever materialised.

On the macro level, the long-term trend since the Industrial Revolution has been for the world to gradually become more populous and more prosperous. If the global ecosystem was in danger of bursting under the weight of our economic activity, it would have burst long ago. Instead, all kinds of social, health and environmental indicators have improved.

So what explains the continued fascination with doom-and-gloom theories? Most modern-day Malthusians make no attempt to hide their loathing of mass consumerism (e.g. New Economics Foundation, 2009). So there may be a predisposition, on their side, to ascribe negative consequences to a process which they are opposed to anyway. This highlights, once more, the danger of using economic analysis in order to seek confirmation for one’s preconceived intuitions.

Kristian Niemietz is the Poverty Research Fellow at the Institute of Economic Affairs, where he has been based since 2008. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca and is currently studying for a PhD in Public Policy at King’s College London. He has interned at the Central Bank of Bolivia and the National Statistics Office of Paraguay and worked for the Institute for Free Enterprise.

This article first appeared in the Economic Affairs Student and Teacher Supplement (Feb 2012) and is reproduced with the kind permission of the Institute for Economic Affairs.

Why I am against plain packaging of tobacco

Earlier today I mentioned that I have joined Forests Hands Off Our Packs campaign opposing the introduction of plain packaging of  tobacco. I promised a fuller explanation of why I am opposing it . Here are my reasons

The term ‘plain packaging’ is deliberately misleading. The Tobacco Control industry doesn’t want plain packs at all. It wants cigarettes sold in ugly, standardised, uniformly coloured packets with even larger and more grotesque graphic health warnings on both sides of the packet. And this is meant to help people quit smoking? Ever larger health warnings and gross pictures haven’t worked to date – and we all know why. If you want to encourage obese people to take up a healthier lifestyle you don’t start out by showing them how disgusting they are. You offer inspirational and supportive messages. If the aim of Government is to encourage quitting – and insists on continuing with messages on packets– why not make images and messages on packs positive/informative – say, showing the quit line number – or a picture of a sportsman- (hey you could be like this if you quit smoking). Making packs even grosser than they already won’t achieve the aim of cutting smoking, it is saying you are disgusting and society should feel free to have a dig at you – that is tantamount to state bullying and that has no place in an educated free society.

There is actually no evidence that ‘plain’ packaging will stop under 18s from taking up smoking or help adult smokers quit. That is because only one country – Australia – has decided to introduce “plain” packs. This law comes into effect later this year. Doesn’t it make sense to wait a few months to assess the impact – and identify any unintended consequences – before we race headlong to similar legislation in the UK? What is the rush? The ban on vending machines has only just been introduced and the ban on displaying tobacco in shops has not even started. We should surely assess the outcomes there.  There have been grand claims made in the UK about the many “research studies” that have been conducted showing the positive effect that “plain” packaging will have on youth smoking rates. But I think that we should take such studies with a pinch of salt. Asking people whether they think “plain packaging” would help people quit, or deter youngsters is just speculation…opinion.. It is not evidence. I spent many years working in market research and I know that what people say they will do when they are talking to researchers – is not what they do in real life. So are the tobacco control researchers stupid? I doubt it. I am afraid we are seeing all too many “activist academics” who start with an idea and then work out,with evangelical zeal, how to “prove it”.  I support an “evidence based drugs policy”, not studies asking people to second guess what they might do, run by people seeking to prove their ideas are right rather than finding the truth. And I say again – beware of unintended consequences – I am deeply concerned that making tobacco more taboo is just going to encourage more under 18s to take it up not less.

If the aim of government is to reduce the take up of smoking amongst children why not tackle the real issue – distribution. We already have laws that prevent the sale of tobacco to under 18’s. Spending money on enforcing existing laws would be much better use of public money than rushing to introduce new ones. The sale of illicit and counterfeit cigarettes is a huge problem in the UK as well as the rest of Europe. It is estimated that 190 billion are manufactured each year in China alone and 65 per cent of the cigarettes seized in the EU are counterfeit. These fake cigarettes contain eye-watering high levels of heavy metals, rodent droppings and goodness knows what else (go watch the Panorama programme). If we care about public health – then let’s get rid of these. Criminal gangs don’t care who they sell to and are offering them at half the price of legitimate cigarettes. Where do you think kids will go to get their cigarettes? And “plain” packaging will make the counterfeiter’s job easier. According to Ruth Orchard, director general of the Anti-Counterfeiting Group,

“Plain packaging represents an invitation to counterfeiting. If put into practice for the tobacco industry, this could impact on all sectors where counterfeiting is rife. It creates a trading environment where packaging is no longer distinctive and products become easy to replicate illegally.”

So why are we punishing the local community shop keeper – making it more difficult for him to ply his trade, whilst making it easier for his competitor, the criminal gang boss, to do business?

Courtesy: didbygraham

We know that actions have consequences and in a liberal society we should encourage everyone to take responsibility for their lifestyle choices. But I for one won’t accept government shouting at us hysterically every time we do something that the state disapproves of. That is exactly what “plain” packaging amounts to. It is, as I say earlier, state bullying. If we allow plain packaging on tobacco how long before we see similar state diktats spread to other products. And it frankly does not wash that tobacco is a special case and plain packaging on other goods won’t follow. Sin taxes brought in on tobacco exist on alcohol already, with calls from the health lobby to go much further (minimum pricing) and now we see calls for a Fat Tax. We have health warnings on tobacco – and we are now seeing calls for health warnings on alcohol. We will soon experience a display ban on tobacco – we are now seeing pressure to stop sweets on display at checkout stations. We have the smoking ban – to limit where you can smoke – and we are now seeing calls for the reintroduction of more stringent licensing laws limiting where and when you can drink. If we allow the packaging of a legal product like tobacco to be interfered with to such an extent, it is only a matter of time before chocolate bars and other “unhealthy foods”, fizzy drinks and alcohol (all considered addictive by the way) similarly disfigured. And I can tell the argument they will use – if we put tobacco in plain packs to signal it is a public “bad” – we are sending a signal to young people that fizzy drinks/chocolate/fatty foods/alcohol are ok to consume and we can’t have that.

There are other issues that weigh seriously with me but the above are the most important. To me.

As a Liberal Democrat I believe in discourse and debate. I am not asking you to sign the petition against it for the reasons above. These are my reasons. But I would urge all Liberal Democrats to not allow their dislike of smoking to cloud their judgement. Be clear of all of the issues – including the possible unintended consequences of legislation- before making  a decision. I would especially ask our politicians not to jump on the anti-tobacco band wagon – nor disrespect those that engage with them by accusing them of being “tobacco stooges” when they disagree.  People are getting very angry that law after law is being passed without reference to the consequences, or effectiveness, of past or even upcoming legislation.

All of the above are reasonable arguments I think, why we should say loud and clear NO to plain packaging. And they are the reasons why I have joined the Hands Off Our Packs Campaign. But perhaps my mum has the best response to the plan to introduce “plain” packaging… “Well that won’t bloody work!” And she is right. Mums always are.

Clearing up some confusion about ‘market failure’

Nick Clegg thinks that the “short-termism and recklessness [that] eventually consumed our banks, taking the whole economy to the edge of a cliff” is an example of “market failure”.

For David Cameron, it is a sign of “a market failure [that] between 1998 and 2010 the average pay of FTSE executives [went] up four times”.

While for Ed Milliband, there is a “the market failure in the finance gap for SMEs that want to expand.”

All three make a common and simple mistake: they believe that market success is defined by a number of uneconomic measures such as social justice, or even (that ultimate weasel-word) fairness, and that it is a sign of market failure if market participants (that is to say, you and I) do not act in a way that the politicians think is appropriate for a market actor.

But that isn’t what market failure means at all. Market failure is a clearly defined economic term, and it has nothing to do with whether we get the outcomes that we want.

I explain this in more detail in my latest article for the Institute of Economic Affairs. Please visit their site to read more and to leave your comments.

Shocking market failure as woman rejects apricots

Mark Littlewood: Liberal Voice of the Year

Congratulations to Mark Littlewood, formerly of this parish, for winning LDV’s Liberal Voice of the Year.

As we posted hear a couple of days ago, we thought Mark was a deserving candidate – but even we were somewhat surprised by the decisiveness of the vote.

Mark Littlewood 32%

The Occupy Movement 13%

Ken Clarke 13%

Mohamed Bouazizi 11%

Nick Davies and the Guardian 10%

Ai Weiwei 8%

Hugh Grant and the Hacked Off Campaign 6%

Hilary Rodham Clinton 4%

Barack Obama 3%

Love Thy Nimby

In the past week, the Coalition have backed controversial plans to construct the London to Birmingham section of HS2, a major public works scheme that aims to connect the capital to Scotland by high-speed train over a generation into the future.  However it’s looked at, the logic of this depends upon a highly dubious belief  - that a trainline that won’t open until 2026 and will only reduce the journey time by half an hour at most is the best possible use of £33 billion of public money.

The government are trying to sweeten opposition by floating figures of how many jobs it will create, always rather neatly ending in ’000′. The correct response is to pull a innocently confused expression and enquire, ‘I’m sorry, but isn’t that irrelevant?’ To make job creation on this scale anything but spin we must first know how much these jobs pay, how long they will last, who they will be given to and how they are economically productive.

If job creation were the name of the game, why not just pay one billion of the world’s poorest people £33 to spend a day digging wells. That would give the government an impressive amount of jobs to boast about on polling day and might actually do some good. It’s not about an empirical evidential base either as the case for the project is based upon unfounded assumptions over the direction of future technologies and the habits of businessmen and overlooks the economic harm caused by taking £33 billion out of people’s pockets.

No, this seems to be about ideology, as from the rather telling quote from the Transport Secretary:

“If we used financial accounting we would never have any public spending [and] we would build nothing.”

Who needs evidence when you’ve got belief?

But who’s ideology is this? After all, the project was set up by a Keynesian Labour government and is now being supported by a government that rejects Keynesian stimuli. The trouble is, it’s just about everyone’s belief as I recently found out campaigning against my local council’s proposals to build a thousand new homes on the local Green Belt over five years. While local residents overwhelming welcomed my input, my somewhat socialist acquaintances attacked me for nibyism. What came as a surprise was that my libertarian acquaintances attacked me for much the same reason.

Both argued that local residents should let the councils proposals go through, no matter what the social, environmental and economic arguments against them. Development is necessary, they said, signalling my cue to shut down my mental facilities and bow to perceived wisdom. How could ideologists of such opposing first principles support the plans which have provoked thousands of formal objections and united villagers together? My guess is that it’s for the same reason that every post-war government (with the debatable inclusion of Thatcher’s) have supported the ‘post-war consensus’.

For those who don’t know, the post-war consensus was the belief that the outwardly impressive centralised, bureaucratic planning that had seen us through the war could herald a golden age for Britain. What started with socialist MPs and William Beveridge was later supported by Churchill’s government and has been the stalwart of state plans for economic development ever since. It’s gifted us such ineptly managed projects as the Channel Tunnel, the Millennium Dome and all those lovely sink estates.

Now Labour’s 1947 planning system (which instructs bureaucrats to ignore the opposition of local residents and gives the power for local authorities to forcibly appropriate your property should it be in the way of ‘progress’) is gifting us HS2 and a thousand protested homes on Gravesham’s Green Belt. The government says HS2 will create hundreds of thousands of jobs; Gravesham Council say each house built creates one job. The government claim against reason they have compelling evidence that HS2 will be popular in 2026; Gravesham Council say much the same about homes must be built now for the market of 2031. Neither have a credible mathematical ground to back up their omniscient vision and both can only guess what changes they are likely to inflict upon the local communities, environments and economies.

While libertarian think tanks are siding with the nimbys against HS2, I find it odd that libertarians should find it so unfathomable that local campaigners like myself are not a threat to the free market. Liberalism is about believing that individuals are better at shaping their lives than the state and when thousands of locals are contributing arguments against a development, that can only be a good thing. It’s about protecting those individuals from vested interests and many local councils are being far from transparent about the wealthy developers who lobby them. Economic liberals should support critical scrutiny against the instinct that development is always to be preferred.

Our philosophically bankrupt government have now embraced the statist planning system to which nimbys are often the last line of defence. The Coalition fails to the see the irony that at a time when Scottish independence is being widely discussed, the UK is about to make the same bankrupting mistake which led Scotland to sell its freedom in the first place – speculating in a state-funded transport development which private investors wouldn’t so much as toss as a cable at. If we free-marketeers truly wish resources to be channelled where they are most productive, it’s time we suspended mistrust of the warnings of nimbys and respected the local knowledge they possess.

David M Gibson is a classical liberal, member of the Liberal Democrats and active campaigner. A collection of his writings can be found at davethedystopian.blogspot.com, as well as on the Freedom Association website.  David recently  posted “the stupid 100%” and “Sympathy for Occupy LSX” here on LV.