Sugar tax – good intentions, with unintended consequences

It looks like nothing’s going to stop the introduction of sugar tax on soft drinks in the UK. Draft legislation has been published and the new tax is set to start in 2018. There have been numerous studies demonstrating the need for this indirect tax, or predicting its likely impact (see the most recent one here). The problem is, that none of the previous studies (at least not the ones I’m aware of) consider the dynamics of what will unfold after the introduction of this new tax. Effects on the prices of other products are elegantly ignored. Because a hike in the price of sugary drinks is likely to be accompanied by an increase in the price of healthier alternatives, my bet is that the tax will not significantly reduce sugar consumption. On the other hand it will lead to a more general price increase, hitting the poorest more than the rich. Read more of this post

Rising xenophobia – a tragedy of the commons?

There have been a number of reports documenting the recent rise of xenophobia in our liberal democracies. In this short thought experiment I look at whether a tragedy of the commons type argument could be applied to this phenomenon, and if so, how its solutions could be adopted. The issue is massively complex, and this short piece isn’t going to do justice to it. This post is nothing more than a simple analogy that I thought up whilst ‘enjoying’ my early morning run in refreshing 7 degrees below zero. Read more of this post

The liberating effect of killing off a state-owned rival

When the final flight of the Hungarian national flag carrier, Malev landed in Budapest there were widespread concerns about the European Commission’s decision to declare Government payments to the company as illegal state aid, leading inevitably to the company’s shut down. Four and a half years on, evidence appears to show that shutting down the incumbent state-owned fat cat was probably the best thing that could happen to Hungarian passenger air transport.  Read more of this post

Milton Friedman’s return to UK economic policy?

An open consultation titled ‘Competition regime: Competition and Markets Authority (CMA) – government’s strategic priorities’ was published today with the goal to seek views on the government’s proposed new strategic steer that will outline the priorities for the CMA during this parliament. Nothing overly exciting, until one looks at the first Annex and its first line that says:

The most important single central fact about a free market is that no exchange takes place unless both parties benefit.” – Milton Friedman

Moreover, the consultation goes on and makes claims like: ‘Throughout history, free and open markets have consistently shown themselves to be far more balanced and effective than anything government can deliver.’

Why is this important? Because according to the document, the steer’s purpose it to provide ‘a clear statement of how the government sees competition fitting with its wider objectives for the economy’ and that the ‘Steer gives a clear mandate to help government design policy interventions and, when necessary, actively challenge any government rules and regulations if they consider they are negatively affecting competition’.

Friedman’s famous quote was said in an interview in the context of the importance of trading despite government limitations on trade, and referring to the mutual benefits of private markets over government coercion. Friedman used his statement to draw attention to situations where natural law overwrites black letter law. A government recognising the importance of Friedman’s quote is already laudable. The question is was the choice of the quote a deliberate hint or only a random coincidence?

Behavioural biases in regulation

Something has puzzled me for a long time. Why are regulators so willing to apply achievements in behavioural economics to public policy in such a one-sided way? In the UK, there is a Behavioural Insights Team, whose mission statement is “to apply insights from academic research in behavioural economics and psychology to public policy and services”. Yet, to my best efforts (although I may not have looked thoroughly enough) I could not find anything else than how consumers are behavioural agents, which has to be taken into account when designing policies. Nowhere was there any discussion that regulators may also be characterised by the same behavioural biases. Read more of this post

Dangerous performance measures

A recent review of police performance in the UK found that Kent police has been chasing the cases that produced easy numbers which is by no means equal to cases that are actually high priority. The most surprising part of the story is the public disbelief that surrounds this announcement. Read more of this post