Paul Lockett

Nonsense in the Pre-Budget Report - Part 2

2009-12-09T19:47:00.002Z

Budget 2009 announced that the Government would work with business to examine the balance of taxation on innovative activity, including intellectual property (IP). As part of this work, the Government has looked at the case for a reduced rate of corporation tax applied to income from patents (a so-called “Patent Box”). The Government announces that it will introduce a Patent Box applying to income from April 2013 to strengthen the incentives to invest in innovative industries and ensure the UK remains an attractive location for innovation.

It's a stupid approach which I can't see being anything other than unworkable. How does the government propose that a business should work out how much of it's income comes from patents? If a car manufacturer patents a new kind of light fitting, would the whole of the revenue from the sale of the car count as revenue from patents. If so, then pretty much every manufactured product is going to end up containing some patented part and corporation tax revenue will collapse. If not, then I can see no reasonable way of apportioning revenue to individual parts of the car.

I can see this proposal having three effects: increased patent filing, increased patent trolling and increased use of convoluted business structures, none of which are particularly desirable.

Maybe the unworkability is why the introduction has been put so far into the future.

Nonsense in the Pre-Budget Report - Part 1

2009-12-09T17:32:00.001Z

From the Pre-Budget Report:

To give support during the transition to recovery, the Government is maintaining for a further year the temporary increase in the threshold at which an empty property becomes liable for business rates. For financial year 2010-11, empty properties with a rateable value of less than £18,000 will be exempt from business rates, exempting an estimated 70 per cent of empty properties. This higher threshold reflects the effects of business rates revaluation. The Government continues to believe that, in the long term, beyond an initial rate-free period, it is right to charge rates when properties stand empty, since this increases incentives to re-let and reuse empty property, and avoids subsidising owners of empty properties.

So, the report acknowledges the benefit of charging business rates on empty properties, but exempts the majority of empty properties at a time when there is most benefit to be gained from creating incentives to bring empty properties back into use and there is a need for revenue to narrow the gap between government spending and government borrowing.

Absolutely barking.

The Growth of Bank Notes

2009-12-07T21:41:00.004Z

I've been involved in a few debates where I've expressed the opinion that the growth in the overall money supply is driven largely by growth in the fiat currency (notes, coins and Bank of England reserves). I've managed to pull together figures from the BoE in the past to show some movements, but I've never been able to get enough consistent data to show long term trends. Which is why I was glad to get hold of this graph from a speech given by Andrew Bailey, the Chief Cashier of the BoE:

I think that, by any standard, that's significant growth.

Copyright Back-Fire

2009-12-07T21:18:00.002Z

From Michael Geist:

Chet Baker was a leading jazz musician in the 1950s, playing trumpet and providing vocals. Baker died in 1988, yet he is about to add a new claim to fame as the lead plaintiff in possibly the largest copyright infringement case in Canadian history. His estate, which still owns the copyright in more than 50 of his works, is part of a massive class-action lawsuit that has been underway for the past year.

As my weekly technology law column (Toronto Star version, homepage version) notes, the infringer has effectively already admitted owing at least $50 million and the full claim could exceed $60 billion. If the dollars don’t shock, the target of the lawsuit undoubtedly will: The defendants in the case are Warner Music Canada, Sony BMG Music Canada, EMI Music Canada, and Universal Music Canada, the four primary members of the Canadian Recording Industry Association...

I find the draconian copyright laws around the world which have been created and continue to expand as a result of special interest lobbying to be thoroughly distasteful. However, on this occasion, I hope that the subject of the claim gets hit very, very hard.

The benefits of LVT seem to be sinking in

2009-12-01T15:46:00.002Z

Adam Posen, a member of the Bank of England Monetary Policy Committee gave a speech today which, while not directly suggesting Land Value Tax itself, used many of the economic arguments commonly put forward in support of it to promote the idea of using cyclical residential property taxes to combat house price bubbles. From the press release:

In a speech at the MPR Monetary Policy and Markets Conference in London today, Adam Posen – an external member of the Bank’s Monetary Policy Committee – discusses how asset price booms might be addressed in the future. He rejects the notion that monetary policy should be used to tackle asset prices, and believes other tools are needed and better suited for the task. In addition to macroprudential policies – such as those outlined in a recent Bank of England discussion paper – Adam Posen suggests there is merit in considering tools that tackle asset prices directly. In particular, he discusses the idea of an automatic stabiliser for housing prices...

...His focus on housing reflects his view that bubbles in real estate are often more destructive than in other assets. He says: "Real estate bubbles tend to have much higher real economic costs than equity bubbles, perhaps because they involve illiquid collateral and local spillover effects."

So what could be done to limit or pre-empt real estate price booms? He suggests as a complementary policy, changes to real estate taxes and regulation, to provide a counter-cyclical element – automatic stabilisers – to structures already in place in many countries’ housing markets.

Adam Posen stresses that the proposal is "…something modest, without any large implications for tax revenue over the cycle…". He says: "…it would mean having already existing title fees, capital gains taxes, stamp and transfer taxes, varying over time in line with price developments in the housing market more broadly. ...a simple blunt instrument targeted to lean against the wind in real estate prices in an automatic fashion."

So, he isn't suggesting LVT directly, but he's using the underlying reasoning. I think it can be shown fairly easily that property sales taxes, such as stamp duty, won't have the desired effect, as they'll stiffle sales, but they won't restrain rental values, so the underlying bubbles will continue. Take those taxes out of the equation and you're left with taxes on residential property owners varying in line with property prices, at which point you've made a large step towards fully fledged LVT.

The full speech, which can be downloaded from the same webpage as the press release, gives the impression that the argument is there to be won.

Richard Murphy Doesn't Like It When You Agree With Him

2009-11-28T13:06:00.002Z

Something which has amused me when I've posted on Richard Murphy's blog recently is that he seems to get more ill-tempered when I agree with him than when I disagree with him. I think it's an indication of the narrow world view he has, where you're either pro-big state, in which case you are good and you will invariably agree with everything he says, or you're a market fundamentalist, in which case you are bad and will invariably disagree with everything he says. He seems to have put me firmly in the second pigeon-hole, so when I disagree with him, it gives him an opportunity to throw his typical insults my way, but when I take a position which is comparable to his, it seems to really infuriate him because it challenges his simplistic assumptions and usually results in him blocking my comments.

The latest incident occurred during comments following a post about the theology of taxation. Another commenter questioned the ability of businesses in common ownership to deliver, to which Murphy replied:

"Try John Lewis

Try the Cooperative Bank - which has not needed bailing out

Try Coop farms - the biggest and some of the best in the UK

Try any coop

Try the building society movement - which showed better robustness than the banks except when subverted by management"

A debate developed from that point when I highlighted that John Lewis is in effect a workers co-operative and the others are consumer co-operatives and any in-depth analysis should treat them separately. Another commenter, a self-confessed Marxist, took a general position that worker ownership was the only broadly acceptable business structure and ended up suggesting a regulation which would require all businesses with 30 or more employees to be worker owned. My response was:

"So, at a stroke, you would outlaw:

-The Co-operative Bank

-Building Societies

-Larger Credit Unions

-Co-operative Insurance

-Co-op Supermarkets

-Co-op Travel

-Mutual Insurance

Essentially, the whole of the co-operative movement would be declared illegal. I think the co-operative movement is one of the nations great success stories and something to be proud of. I’d need a very, very good reason to even begin to consider its prohibition."

At this point, Murphy reared his head and posted:

"Paul

I guess I could leave you and Carol to slug this out forever

But candidly you are proving yourself to be a boring pedant with no contribution of worth to add to debate - like Worstall et al

So I am drawing his debate to a close

Richard"

He had a similar temper tantrum when I took a position which didn't fit into his stereotype on the subject of empty houses. In the original post he suggested levying a tax on empty houses in order to bring them back into use. I commented that I though that approach would be unworkable, but something similar could be achieved fairly easily by adjusting the Council Tax system, such that, among other things, the owner pays, there are no exceptions for unoccupied property and the tax is used to collect a greater proportion of local government revenue. A fairly typical straw man argument came my way from Murphy, along with some reasonable comment from other posters. The exchange was going fairly predictably, until I responded to a comment from other poster who had said that he didn't believe any political party would be brave enough to introduce laws with the intention of causing a drop in property prices. My response, which was blocked, was:

"Unfortunately, I think that's true. At the moment, on one hand, we have the Tories committing to freeze Council Tax and portraying it as the worst tax we currently have according to their ideology, on the other we have people like Richard, who usually claims to oppose everything the Tories stand for, accusing me of trying to hit the worst off when I suggest increasing Council Tax, which he portrays as the worst tax we currently have according to his ideology.

It's an unholy alliance which, unfortunately, is not uncommon."

I think this must have infuriated him even more because his instinctive rush to argue against my position left him in the "increasing tax is bad" position which he tends to vilify others for and finding himself arguing in favour of the Tory party line most definitely wouldn't have been to his liking.

I find it astonishing that somebody can be so dogmatic that they would rather you disagree with them than agree with them.

Two Approaches to the Internet

2009-11-20T19:05:00.003Z

So, which government's approach to the internet domain name system would you rather have,

The US:

The Internet Corporation for Assigned Names and Numbers, the body that oversees some of the core mechanisms of the Internet, has been granted independence from the U.S. government.

On Wednesday, ICANN and the U.S. Department of Commerce announced that they had signed a new agreement that states the Internet body is "independent and not controlled by any one entity." It also commits ICANN to remaining a private, not-for-profit organization.

or The UK:

Following Ministerial changes, today the government has set out the future governance arrangements and overall programme plan for the delivery of the actions contained in the Final Digital Britain Report (released in June).

The Implementation Plan clarifies that in the Digital Economy Bill, which is planned as part of the next legislative programme, subject to parliamentary time, the Government will seek reserve powers to regulate the distribution of domain names in the UK.

19th Century Responses to 21st Century Realities

2009-11-16T20:05:00.001Z

From The Register:

A man who served 15 years for the gruesome murder of a famous German actor is taking legal action against Wikipedia for reporting the conviction.

Attorneys took the action on behalf of Wolfgang Werlé, one of two men to receive a life sentence for the 1990 murder of Walter Sedlmayr. In a letter sent late last month to Wikipedia officials, they didn't dispute their client was found guilty, but they nonetheless demanded Wikipedia's English language biography of the Bavarian star suppress the convicted murder's name because he is considered a private individual under German law.

Werlé's "rehabilitation and his future life outside the prison system is severely impacted by your unwillingness to anonymize any articles dealing with the murder of Mr. Walter Sedlmayr with regard to our client's involvement," they wrote. "As your article deals with a local German public figure (such as the actor Walter Sedlmayr), we expect you are aware that you have to comply with applicable German law."

They go on to say they are currently taking legal action against Wikipedia in the trial court of Hamburg. And according to the Electronic Frontier Foundation, Werlé's attorneys have also gone after an Austrian internet service provider that published the names of the convicted.

This is ridiculous on so many levels. When crimes and convictions occur today, they will be reported on news websites and blogs, which will be available in perpetuity. Even if this kind of action were successful, it would be pointless unless there was a worldwide requirement to purge all news sites of old stories, or retrospectively delete names. In essence, it would require the recording of history to be outlawed.

This kind of action also increases the chance of the plaintiff getting exactly the kind of publicity they are trying to avoid (ironically, as a result of the action, he now has his own Wikipedia entry). I certainly wouldn't have been aware of the case or the people involved if it hadn't been for the efforts of the killer trying to stop me becoming aware of it.

Some cases make the law look stupid. This one just makes it look irrelevant. I really don't think it matters what the outcome is. Even if the action is successful, the page will continue to be accessible from servers outside German and people will be able to search for the name of the victim and find the names of the killers on countless websites.

Quote of the Day

2009-11-07T18:54:00.004Z

I've seen the section of this letter from Thomas Jefferson which says "He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me," quoted numerous times in debates about copyright and patent laws, but it's only quite recently that I've come across the letter in its entirety. I find the way that Jefferson addresses the validity of property in ideas and the basis of property rights as a whole quite brilliant:

It has been pretended by some, (and in England especially,) that inventors have a natural and exclusive right to their inventions, and not merely for their own lives, but inheritable to their heirs. But while it is a moot question whether the origin of any kind of property is derived from nature at all, it would be singular to admit a natural and even an hereditary right to inventors. It is agreed by those who have seriously considered the subject, that no individual has, of natural right, a separate property in an acre of land, for instance. By an universal law, indeed, whatever, whether fixed or movable, belongs to all men equally and in common, is the property for the moment of him who occupies it, but when he relinquishes the occupation, the property goes with it. Stable ownership is the gift of social law, and is given late in the progress of society. It would be curious then, if an idea, the fugitive fermentation of an individual brain, could, of natural right, be claimed in exclusive and stable property. If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody. Accordingly, it is a fact, as far as I am informed, that England was, until we copied her, the only country on earth which ever, by a general law, gave a legal right to the exclusive use of an idea. In some other countries it is sometimes done, in a great case, and by a special and personal act, but, generally speaking, other nations have thought that these monopolies produce more embarrassment than advantage to society; and it may be observed that the nations which refuse monopolies of invention, are as fruitful as England in new and useful devices.

Considering the exclusive right to invention as given not of natural right, but for the benefit of society, I know well the difficulty of drawing a line between the things which are worth to the public the embarrassment of an exclusive patent, and those which are not. As a member of the patent board for several years, while the law authorized a board to grant or refuse patents, I saw with what slow progress a system of general rules could be matured.

The photo of the Jefferson Memorial can be re-used under the terms of a Creative Commons Attribution 2.0 UK: England & Wales Licence.

Around Manchester - Richard Cobden

2009-11-02T23:52:00.001Z

Something that often strikes me when I travel is that, when I go somewhere new, I make the effort to look around me and take in the history and detail of the place, but at home, I tend to get from place to place without paying much attention to what's around me every day. Given that I live in Manchester, arguably the world's first industrial city and the heart of the battle to move from mercantilism to free trade, I've started to feel like I've been wasting an opportunity, so I've decided that in between my usual posts, I'll post some photos of the local sites of political interest. To start, here's a photo of the statue of Richard Cobden:

It is in St Ann's Square, an area I've commented on previously because of it's use of shared space principles.

Cobden was a Liberal MP for Stockport and Rochdale, but it was his position as a leading figure in the Anti-Corn Law movement for which he is most renowned. He campaigned extensively for the repeal of the Corn Laws both inside and outside parliament, eloquently setting out the advantages of free trade over protectionism. Robert Peel, who was Prime Minister when the laws were repealed, gave Cobden the credit for bringing about the change.

A few of my favourite Cobden quotes are:

Peace will come to earth when the people have more to do with each other and governments less.

The great rule of conduct for us in regard to foreign nations is—in extending our commercial relations—to have with them as little political connection as possible.

I warn ministers, and I warn landlords and the aristocracy of this country, against forcing on the attention of the middle and industrial classes, the subject of taxation ….. If you were to bring forward the history of taxation in this country for the last 150 years, you will find as black a record against the landowners as even in the Corn Law itself.

I warn them against ripping up the subject of taxation. If they want another league at the death of this one – if they want another organisation and a motive – then let them force the middle and industrial classes to understand how they have been cheated, robbed and bamboozled …..

For a period of 150 years after the conquest, the whole of the revenue of the country was derived from the land. During the next 150 years it yielded nineteen-twentieths of the revenue. For the next century down to the reign of Richard III it was nine-tenths. During the next 70 years to the time of Mary it fell to about three-fourths. From this time to the end of the Commonwealth, land appeared to have yielded one-half the revenue. Down to the reign of Anne it was one-fourth. In the reign of George III it was one-sixth. For the first thirty years of his reign the land yielded one-seventh of the revenue. From 1793 to 1816 (during the period of the land tax), land contributed one ninth. From which time to the present one twenty-fifth only of the revenue of the revenue had been derived directly from land.

Thus, the land, which anciently paid the whole of taxation, paid now only a fraction, or one twenty-fifth, notwithstanding the immense increase that had taken place in the value of the rentals. The people had fared better under despotic monarchs than when the powers of the state had fallen into the hands of a landed oligarchy who had first exempted themselves from taxation, and next claimed compensation for themselves by a corn law for their heavy and peculiar burdens.

The photograph of the statue of Richard Cobden can be re-used under the terms of a Creative Commons Attribution 2.0 UK: England & Wales Licence.

Hats off to TalkTalk

2009-10-30T08:33:00.000Z

The more that Peter Mandelson has pressed for draconian laws against unauthorised file-sharing, the more impressed I've become by the stance taken by TalkTalk.

I'm not naive enough to think that their objections to the proposals aren't primarily driven by commercial concerns, but their stance has been much stronger than other ISPs. They've eloquently and simply highlighted the problems with a proposal which threatens to make people guilty until proven innocent and committed to challenge any extra judicial penalties which they may be directed to issue. I find it quite refreshing that a business is prepared to challenge the government head on rather than sneakily trying to curry favour with it.

Strengthening the Poverty Trap

2009-10-26T23:40:00.001Z

The think tank Reform has published a report which has called for "middle class benefits" such as maternity pay, child benefit, the winter fuel allowance and free TV licences for the elderly, to be scrapped and replaced with benefits focused on the poorest.

I think the concerns that they put forward are reasonable, such as the idea that some people are effectively being bribed with their own tax money. I've also got some concerns about some of the individual benefits mentioned, but, in general, I think a shift from universal benefits to means tested benefits is a bad idea, for a number of reasons.

The belief that some people are being bribed with their own money can be looked at from another angle; universal benefits create less discontent, as people are less likely to feel that they are paying to subsidise others. If everybody pays something to fund a benefit and everybody gets something back, there's likely to be less ill-feeling than if only some are feeling the benefits.

Another, more material, advantage is the cost of administration. Means tested benefits, while they may target the money more effectively, also tend to have higher costs, as carrying out the means testing, amending systems as people's circumstances change and carrying out investigations to ensure people are not mis-reporting their circumstances, will almost always require more bureaucracy than a universal benefit, which doesn't require the same extensive monitoring. A related benefit is the greater privacy associated with universal benefits, which don't require the same extensive reporting of the recipients’ circumstances to the state.

The real advantage to be gain from universal benefits, though, is the way in which they can help people to lift themselves out of poverty. To many, the idea that you can help the poorest by giving state payments to those who are better off sounds counter-intuitive, but it's relatively obvious when you look at what happens at the cross over point between being in the poorest group and the next poorest group. With means testing, there can be a poverty trap; as somebody works their way out of poverty, they can find that the withdrawal of benefits results in them making little gain, or worse, actually makes them poorer. That the poverty trap exists has been acknowledged by the actions of various governments, but usually in a hugely ineffective way. The clearest example is probably the use of tax credits. In order to reflect the fact that the complete withdrawal of benefits when somebody starts working can often leave them worse off, as the costs associated with working eat up the gains, tax credit are used. The problem is that the cost of administering them and the burden placed on the recipients to report any change in their circumstances undo a lot of the potential positive effects. With universal benefits, that is not an issue. People don't have to worry about the costs or paperwork involved with child benefit when their circumstances change, because there aren’t any and when there's less cost associated with making yourself better off, there's less keeping you poor.

As I hinted at the start, I don't think all the benefits mentioned are a good thing or perfect as they are. A particular issue I have is with maternity benefit, which is in effect a reverse means tested benefit, as the more you earn, the more you get. At most, I think such a benefit should be at a fixed rate. However, even with those concerns acknowledged, I think that, given a choice between a means tested benefit and a universal benefit, the latter should be the preferred option unless there are overwhelming reasons to choose the former.

Recent Silence

2009-10-22T21:04:00.002+01:00

Apologies for the recent lack of posting. I've been travelling, but I intend to start posting again in the next day or so.

A Sad Indictment

2009-09-09T21:27:00.002+01:00

In a follow-up to a Radio 4 programme about seat-belts being made compulsory, the BBC website carried an article outlining the thread of the show. One sentence felt particularly depressing:

Yet in the 1970s and early 1980s, there were repeated Parliamentary battles about our right to go hurtling through a sheet of glass - battles which aroused a level of passion that seems strange today.

If it is now viewed as strange for parliamentarians to stand up to defend the right of people to participate in an activities which pose little demonstrable risk to others, it’s a sad indictment of the parliamentarians we have.

The effect of compulsory seat-belts is something I've blogged about previously. It is a law I'm still very uneasy about, not just for civil liberties reasons, but also for practical reasons; while it seems undeniable that the law has prevented some deaths, there has been an unwillingness to consider the possibility that the law may have increased other risks. As is so often the case with precautionary laws, the possibility of unintended consequences is ignored.

One of the most authoritative voices on the subject is John Adams, who has, for some considerable time, pointed out that, while compulsory seat-belts might increase the safety of drivers who may not otherwise wear them, there is a possibility that those drivers' increased sense of safety could result in less cautious driving and greater risk to other drivers, pedestrians and cyclists. The strength of the theory of risk compensation has been demonstrated across a range of activities, something the article acknowledges, but in what feels like a very weasely way:

His general theory of risk compensation is now accepted among transport safety experts in some situations, although not when it comes to seatbelt wearing, where Adams ideas are still some way outside the mainstream.

To me, it seems a little desperate for somebody to acknowledge that an increased perception of safety can result in increased risk taking, but continue to deny that the effect could have any impact in one specific situation.

For anybody wanting to hear the opposing argument to the one the BBC promotes, I recommend reading John Adams’ response.

Patently Absurd

2009-09-03T18:42:00.002+01:00

Trevor Bayliss, with the support of Vince Cable, has called for patent infringement to be made a criminal offence, in part by using the argument that it would bring patents in line with copyright, for which infringement can be a criminal offence.

I've posted on previous occasions about my lack of enthusiasm for the treatment of ideas as property, but putting that aside, this argument shows the problems that can arise when people start to accept the term "intellectual property" and treat copyright and patent laws as if they are interchangeable, when they are fundamentally different. Take Vince Cable's comment:

There isn't the protection that exists in other areas of intellectual property. If people steal ideas from creative artists, you can go to prison for that. But patent theft is just part of life.

Putting to one side his use of weasel words such as "steal" and "theft," the major flaw in his position is that he assumes copyright and patent work the same way, which is not the case. The crucial difference is highlighted by the word "copyright." It prevents the direct copying of a piece of work. If somebody independently creates the same, or similar, piece of work, no infringement occurs. Patents are very different. If one person patents an idea and a second person independently comes up with the same idea, the second person would be infringing the patent if they used that idea, irrespective of the fact that they are completely unaware that somebody else has had the same idea.

So, as much as I might disagree with the criminalisation of copyright infringement, at least you can tell fairly easily whether or not a particular act is criminal. With patents, that would not be the case. Without being aware of every single patent which is currently in force, there would be no way of knowing for sure whether or not using a given idea would make you a criminal, a situation which is at odds with the basic principles of the rule of law.

Of course, people could argue in favour of criminalising knowingly infringing a patent, with accidental infringement continuing to be a civil matter. This would, however, bring its own set of problems:

Firstly, determining whether or not a patent has knowingly been infringed would be difficult and in many cases, impossible. Unlike copyright, where it is highly unlikely that two people would independently produce the same song, book or film, patents can apply to inventions where it is perfectly possible for two people to independently have the same idea.

Secondly, if only knowing infringement is a crime, it encourages wilful ignorance. People may deliberately avoid checking for pre-existing patents to reduce the risk of being criminalised.

All in all, I think the suggestion is one of the worst I've seen for some time.

Football Learns from Politics

2009-08-28T17:33:00.002+01:00

As a Manchester City supporter and somebody who has always been disdainful of Michel Platini's apparent one man crusade against English football, it won't be too much of a surprise to learn that I'm not exactly keen on Platini's latest proposal to restrict club spending. Out of the confused incoherent mess of suggestions and issues (essentially, we need to cut the amount of debt in the game, but it's not the clubs with the debt that are the major concern, it's the ones with no debt), one statement from Platini stood out like a steaming pile of manure:

"It's mainly the owners that asked us to do something - Roman Abramovich, (AC Milan's) Silvio Berlusconi, (Inter Milan's) Massimo Moratti. They do not want to fork out from their pockets any more."

So, a group of men who used their wealth to fund successful football clubs want to close ranks and pull up the ladder now they see somebody threatening to out-do them at their own game - that's nothing but a cartel attempting to block competition. The fact that Platini is more than happy to act as a vehicle for this arrangement, well, I can think of no other way of describing it than Mandelson-esque.

It's one of the worst features of politics transferred to football - a special interest group colluding with a power broker in order to skew the rules in their favour. I don't know whether the comparative shameless openness about the situation in football makes it better or worse.

As a supporter, I'm fairly confident that anything Platini comes up with will be effectively useless. Any focus on club debt is going to impact on clubs such as Real Madrid most heavily and I'm fairly confident that he doesn't want that, given his apparent preference for defending the status quo and reserving his ire for the English game. That then leaves absolute spending limits (again, unlikely for the same reason) and limits on spending as a proportion of revenue, which could be circumvented very easily by owners putting money in through stadium naming rights purchases or executive box auctions.

I look forward to this plan falling flat on its face.

The Pirates are Coming!

2009-08-12T21:42:00.006+01:00

As reported in the Telegraph, the UK now has a Pirate Party officially registered with the electoral commission. It's a interesting addition to the political landscape, especially given the success of the Swedish Pirate Party in the European elections.

The party's website makes it clear that the UK party exists in its own right and will be making its own policy which may differ from the Swedish party, so I'll definitely be keeping an eye on the site to see how the UK party's views on freedom in the digital age compare to the Swedish approach.

Bruce Schneier's Blog

2009-08-12T08:33:00.003+01:00

If you don't read Bruce Schneier's blog, I strongly recommend taking a look. His expertise is in cryptography and technological security, but the real beauty of his blog is the way he relates the principles of security to other fields.

I was particularly intrigued by his recent post on self-enforcing protocols, which are systems which can function without a third party acting as an referee to prevent cheating or resolve disputes. He highlighted self-valued property taxes as one example of a self-enforcing protocol.

This is something I've touched on previously. The way the system works is for each homeowner to value their own home, on the understanding that, if somebody else offer to meet the valuation, they will be obliged to sell. The tax is then levied as a percentage of their valuation. It works as a self-enforcing protocol because, if the householder deliberately undervalues his house in order to reduce his tax bill, he risks having to sell the house for less than he really thinks it's worth. Whatever you think of the tax itself, it should be clear that the methodology would avoid the risks of corruption, valuation error and dispute which are a feature of other methods of property tax valuation.

What I hadn't realised before reading the article is that the Greek government has used that type of system for taxing antiquities, so there is some recent experience of it being used in practice.

Schneier is also the originator of the Individual I campaign, which calls for greater respect for individual rights, something I find very refreshing coming from a security professional at a time when governments increasingly try to use security as an excuse to restrict individual rights.

Vote Counter Improvements

2009-08-06T13:12:00.003+01:00

On the off chance that at some point in the future, somebody feels the urge to use the closed list vote counter I produced during the European election, I've tidied up the layout and introduced some pie charty goodness.

The script that I've used to produce the pie charts can result in the charts getting cluttered if there are several parties with a small share of the votes, but I find that it gives a nice comparison between the share of the votes and the share of the seats.

Original Appropriation

2009-07-15T14:53:00.002+01:00

Over the past few days, I’ve been reading some of the work of Peter Vallentyne [1], a Professor of Philosophy at University of Missouri-Columbia. One particularly interesting piece is On Original Appropriation [2], in which he analyses the basis of property rights. He concludes that self-ownership doesn’t imply any system of property rights, beyond the requirement that one person doesn’t violate the self-ownership of others by forcibly taking from them items which they have in their physical possession.

Of course, that isn’t to say that systems of absentee ownership of items, concepts, etc. are not morally justifiable; many of them are promoted on the grounds of utilitarianism, contractarianism (the approach I tend to take) or a belief that it is morally right to give people exclusive rights over the fruits of their labour. What Peter Vallentyne’s work shows is that any attempt to derive other property rights from the right of self-ownership is bound to fail, as they are two independent concepts.

1. http://klinechair.missouri.edu/Vita_Revised.htm
2. http://klinechair.missouri.edu/on-line%20papers/Original%20Appropriation.doc

The Elitist Core of State Socialism

2009-07-13T18:59:00.002+01:00

Over at the Tax Research Blog, having pretty much argued that the only way to make the world better is to increase government debt in order to increase the size of the state and been unable to effectively refute the opposing arguments, Richard Murphy has resorted to accusing people who don't want a massive state of being “socially violent” [1].

It’s an interesting piece, because it highlights what a nasty, arrogant and pessimistic creed state socialism is, particularly the version promoted by Richard Murphy. There is an unspoken belief that people are inherently evil and without the state controlling our behaviour, we’d have no consideration for each other. The unlegislated convention of queuing must be incomprehensible to the big state mentality and the existence of an institution such as the RNLI, entirely voluntarily funded, must be absolutely inconceivable.

Another aspect of state socialism, which seems to be particularly prevalent in the British approach, is the paternalism which assumes that, if the state is redistributing wealth, it must spend it too, rather than giving the recipient a choice. Contrast the approach with the education system in Sweden, a country often held up as a model social democracy. Education is state funded, but the system allows parents, if they wish, to obtain a voucher equal to the amount spent on a state school place and use it to pay for a place at a privately operated school. The desire to ensure a certain level of provision isn’t used as an excuse to centralise decision making in the same way it is in the UK; the public are treated, at least in this area, as intelligent individuals who are capable of making their own decisions.

The state socialist approach is built on a foundation of elitism. It assumes that, as an ordinary person, you are so selfish and callous that the only circumstance in which you will help your fellow human being is if you are forced to by those more caring than you. It also assumes that you are too stupid to make your own lifestyle choices and need the state to buy a whole range of goods and services on your behalf to protect you from the effects of the stupid purchases you would make if left to your own devices.

The implicit assumption is that the state socialists who will be doing the forcing and choosing don't suffer from the same flaws as us mere mortals. They have declared themselves morally and intellectually superior and therefore fit to rule over the rest of us with a rod of iron. Quite frankly, anybody with that level of arrogance is the kind of person I least want in a position of power.

1. http://www.taxresearch.org.uk/Blog/2009/07/13/naming-libertarians-for-what-they-are/

The National Express Issue

2009-07-04T10:47:00.001+01:00

As far as I can see, the problems surrounding National Express’s operation of the East Coast rail franchise stem from two basic issues:

1. The bidding process will necessarily result in the most optimistic bidder obtaining the franchise, so there is always a possibility that the franchisee will have overstretched itself in making the bid and may be unable to fulfil the contract. That in itself isn't a major problem; the potential for failure is part of what makes markets more responsive than state monopoly control, but it does mean that, if the government wants a continual service in all circumstances, it needs to consider the possibility of failure at the outset and allow for it.

2. Perhaps more importantly, the contracts are static whereas the economy is dynamic. If the contracts don't allow for the possibility of a recession occurring during the term of the contract, there is always the possibility that a bid which seemed reasonable at the outset will turn out to be non-viable in a downturn.

One possible way around point 2 and possibly point 1 as well, would be to apply the same methodology I’ve outlined in the past as a potential system for self-assessed land value tax. In simple terms, the potential franchisees would bid at the outset for the right to run the service, knowing that while they hold the franchise, they will be required to pay an annual fee equal to a percentage of their own estimate of the resale value of the franchise (say 15%), knowing that, if another operator agreed to meet that valuation, the franchisee would be obliged to sell to them.
That way, in a downturn, the operator would be able to reduce the valuation, rather than going through the upheaval of giving up the franchise only for it to be re-auctioned at a value likely to be far lower than the original.

Obviously, there would be a lot of detail to work out, but I think the idea has potential.

The Economics of Illegal Activity

2009-07-02T21:01:00.002+01:00

I find that the general understanding of economics is disappointingly low, but when it comes to the economic impact of illegal activity, it seems to be almost non-existent. Take the following claim from the trial of a man who was prosecuted for selling set-top boxes which allowed people to access scrambled cable TV without paying [1]:

Ari Alibhai, prosecuting told Liverpool Crown Court that the fraud deprived the industry of millions of pounds and caused customers to pay higher monthly charges.

That kind of claim is likely to go unchallenged and gradually become received wisdom, but I think the higher monthly charge claim can quite easily be shown to be the opposite of the reality of the situation.

The claim relies on an unspoken assumption that when a business operates, it sets out to make a fixed amount of profit and if it doesn't make it from one customer, it will make it from another. That is, of course, complete nonsense; almost every profit making business will seek to maximise its return, not just hit a target and go no further. The reality, as anybody with the most basic knowledge of economics will tell you, is that prices are set by supply and demand.

A cable TV supplier will generally set the price at a level which, in the long run, will maximise profit, which will be determined, in simple terms, by the number of customers multiplied by profit per customer.

So, how does the availability of illegal set-top boxes impact on the price? It suppresses demand, by providing cheaper competition. The box will be cheaper, but it will also bring with it the risk of prosecution, so, each customer who is prepared to use one of the boxes is faced with a simple decision - is the saving worth the risk of being prosecuted? As the difference between the price of a legal box and the price of an illegal box becomes greater, more people will say yes and opt for the illegal choice. What the illegal box does is introduce a reduction in demand for the legal product, which should, in theory, result in a reduction in the price charged.

To some that may sound counter-intuitive or even nonsensical, but there are examples of the effect in practice; for years the music industry claimed that copying music pushed up prices, but when file-sharing emerged as a technology which allowed people to easily share perfect copies, the cost of CDs fell.

Of course, none of that impacts on the guilt or innocence of the accused in a court case, but in the interests of economic accuracy, it would have been nice to hear the defence responding to the prosecution by saying "This kind of fraud deprives the industry of millions of pounds, but it keeps prices down for everyone else!"

1. http://www.theboltonnews.co.uk/news/4277942.Illegal_set_top_box_fraudster_is_jailed/

Mervyn King Seems to Get It

2009-06-19T13:15:00.001+01:00

The more I listen Mervyn King, the more I get the impression that, as Governor of the Bank of England, he's had a reasonable understanding of the situation he's been faced with, but little real influence. One of his recent speeches has a lot of value in it[1]. Early on in the speech he highlights an effect of the current climate which, although it may have some negative elements, I generally think is quite positive.

Investors continue to demand high returns to finance banks. Put bluntly, market data on credit spreads imply that some banks are viewed as a worse credit risk than some of their customers. As a result, companies that can bypass the banks to access capital markets directly are doing so. Indeed, in the first four months of this year, more finance was raised in debt and equity markets than is normally the case in an entire year.

In this context, banks are risk externalisers; when somebody with money invests it directly in a business, they do so with an understanding that, if the business fails, they stand to lose some or all of their investment. When a bank acts as a middleman in that transaction, the person lending the money will often have an expectation that a proportion of their money is guaranteed to be safe, so the risks will be the same, but rather than the lender shouldering all the risk, it is shared by the lender and the taxpayer, who has to underwrite the guarantee. In that context, a shift towards direct investment is a positive thing as it internalises the risk, rather than socialising it.

King seems prepared to cut to the chase when it comes to national debt.

But five years from now national debt, as a proportion of national income, is expected to be more than double its level before the crisis. So it is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament, so returning to a gradually declining path for the ratio of national debt to national income.

It's on the issue of banking regulation that he really hits his stride.

If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give.

That sounds perfectly sound to me. I'm not keen on the idea of state guarantees generally, but if they exist, it seems especially unwise to offer them to the riskiest institutions. The frustrating thing is that the actions of the government have often run in the opposite direction to King's comments, encouraging the merger of Lloyds and HBOS being the prime example. Facilitating consolidation at the same time as bailing out banks because of their size displays ridiculously short term thinking, especially in an industry where the barriers to entry are so high.

Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments

That sounds reasonable enough; if you want an extensive guarantee, then in return, you have to show that you're restraining your risk. That's what I'd expect from any other insurance policy.

or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements

Again, that's reasonable enough, although the caveat is that rapidly increasing capital requirements can increase the immediate demands on banks and damage their stability.

or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner.

This is where I think he really hits the nail on the head and it's something he expands on later in the speech.

One important practical step would be to require any regulated bank itself to produce a plan for an orderly wind down of its activities. That would provide the information to the authorities the absence of which made past decisions about the future of institutions difficult. Making a will should be as much a part of good housekeeping for banks as it is for the rest of us.

Attempting to completely prevent the failure of banks will always prove futile, so as a strategy it can never be more than a damage limitation exercise. The real need isn't to prevent failure, but to ensure any failure is orderly. Banks can happily be left to fail, so long as they don't end up externalising costs in the process. "Too big to fail" seems too sweeping a statement to explain the situation. "Too big to collapse" would probably be more accurate.

The one point at which King seems to understate the situation is:

Privately owned and managed institutions that are too big to fail sit oddly with a market economy.

I wouldn't say they sit oddly with a market economy, but that they are completely incompatible with a market economy. The strength of true market economies is that they evolve. The businesses which satisfy the demands of customers most effectively tend to succeed and those which don't fail. In that way, bad practices get forced out and good practices thrive. Like biological evolution, it may not be a completely smooth process, but it is effective. Guaranteeing the survival of a bank, no matter how unfit for purpose it is, stifles that process of evolution and begins to introduce some of the characteristics which make command economies so unresponsive.

1. http://www.bankofengland.co.uk/publications/speeches/2009/speech394.pdf

Copyright in Digital Britain

2009-06-18T21:18:00.003+01:00

As is often the case with government documents, the tone of the copyright section in the Digital Britain report reveals more than the substance. Given the collapse of the attempt to introduce a "three-strikes" law in France [1], it was unlikely that a similar approach would be suggested. What has been proposed amounts to carrying on with the law pretty much as it is and doing something else, unspecified at this point, if copyright infringement doesn't reduce within a year. In contrast to the relatively bland proposals, the language is in places emotive and weighted, such as:

The Government considers online piracy to be a serious offence. [2]

Aside from the fact that the use of the word "piracy" to describe copyright infringement comes across as puerile in a government publication, the sentiment appears to be at odds with the public mood. Copyright provokes a range of opinions; some view it as an illegitimate state granted privilege, some view it as an expedient state mediated bargain and some view it as a legitimate property right. However, outside of a relatively narrow set of lobbying groups, I know of few people who would consider copyright infringement to be a serious offence. In fact, I think you'd struggle to find many people who would consider it to be anything more than a relatively minor misdemeanour.

By pushing so heavily against the general mood, the government threatens to achieve the opposite of what it is aiming for. On a party political front, the success of the Pirate Party in Sweden shows what can happen when a government enacts draconian laws, even when the issue is one which is rarely at the forefront when it comes to election time. Outside electoral politics, the effect can be even more profound. It might be an unpleasant thought for authoritarian politicians, but it is customs and social norms which tend to define what is socially acceptable, rather than the force of law. In the long run, it tends to be custom which over-rides law, rather than the other way around. Legal brute force is a highly inefficient means of changing behaviour; it might be effective at guiding people in a slightly different direction to the one they're moving in, but if it's used to push the mass of people in a direction they don't wish to go, it will tend to break down.

In terms of copyright, a general disregard for the law is already in evidence. Under UK law, ripping a CD and putting it onto an MP3 player is prohibited, but I know of no-one who has any respect for that law. Of course, many will be unaware that the law exists, but even when people become aware of it, I've seen no evidence that their behaviour changes one iota. It's a clear example that even people who would ordinarily consider themselves "law-abiding" are prepared to ignore laws if they view them as outdated, pointless or stupid.

By describing online copyright infringement as a serious offence and retaining copyright laws that the general public clearly has no respect for, the government risks pushing copyright into the same category as the requirement that London Hackney Carriages must carry a bale of hay and a sack of oats or the requirement that all men in England must carry out longbow practice - laws which still sit on the statue books, but are regarded as amusing historical anomalies which don't need to be observed.

1. http://news.bbc.co.uk/1/hi/technology/8093920.stm
2. http://www.culture.gov.uk/images/publications/chpt4_digitalbritain-finalreport-jun09.pdf section 18.