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Sighted in the long grass of the Autumn Statement – a dynamic model of the economy

budget-boxAlong with the rest of the Adam Smith Institute I have been advocating for years that the Treasury should use dynamic modelling of the economy.  Put simply, this means factoring in the behavioural changes that policy innovations will induce.  The previous method, typified by Gordon Brown, was to assume that if a 10% tax raised £100m, then putting it up to 15% would raise an extra £50m.  It took no account of the effect the tax increase had on people’s behaviour.  Some taxes lead people to consume less by putting up prices.  Some, like those on alcohol, might encourage people to smuggle more.  Absurdly, the taxes on smoking, allegedly designed to discourage it, calculated their likely revenue yield on the assumption that the same number of cigarettes would be bought.

In Wednesday’s Economic Statement there appeared the Treasury’s dynamic model on corporation tax.  It factors in the likely growth that tax cuts in this area will lead to, and therefore reduces the likely loss of revenue that tax cuts will entail.  Hurrah!  It’s a small victory but an important one.  Now sweep it through the rest of the economy, applying it to all taxes, regulations, incentives and allowances.  Suddenly we’ll find ourselves in a world where tax cuts stimulate economic activity and bring in more revenue, where lowering tax rates on the rich results in them paying a higher share of the total, and where lowering the burden of regulation promotes competition and drives down prices.  It’s called the real world, and we’ve occasionally visited it before.  Now it’s time to do so again.

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Are we hard-wired to enjoy chocolate cake and sugary treats?

choc-cake2The Telegraph reports that scientists from the Institute of Clinical Physiology at Pisa in Italy have found that some of us do respond more compulsively than others to sugary and fatty foods.  They monitored the brain reaction of subjects confronted by rich, sugary foods, and found that some people experienced a lower pleasure response than others.  Even a picture of chocolate cake was enough to send the pleasure centres in some subjects’ brains into spasms, whereas it scarcely registered in others.

I can guess why our ancestors might have evolved with a preference for energy-rich foods.  Those attracted to such foods might have thereby increased their survival chances, and it could help explain why such foods are popular with so many people today.  On the other hand, I rather suspect that conditioning and experience might play a part, too.  Many of Britain’s war babies, brought up under World War II rationing, grew up regarding confectionary as a luxury treat and developed a sweet tooth in consequence.  On the other hand, I know people whose childhood came after sweet rationing was ended, and who regard savouries as a treat.  Many of the latter prefer to finish a meal with Welsh rarebit or biscuits and cheese, rather than the puddings preferred by the former.  I myself eat two squares of dark, cocoa-rich chocolate every day, but I rarely eat cakes, pastries or puddings.  It’s not that I don’t like them, just that I don’t think I should eat them.  It’s different at Christmas, of course, because there’s a great deal to be said for stimulating our dietary pleasure centres in the middle of the darkest and coldest part of the year.  In fact just thinking about it improves my mood immensely…

SpaceX brings more competition into satellites launched to geostationary orbits

spacex-falcon9With Tuesday’s blast-off of its modified Falcon 9, SpaceX has put its feet firmly into the marketplace for geostationary satellites.  An upgraded version was needed because previous flights have taken satellites and cargoes into low Earth orbits, including trips to the International Space Station.  This time the aim had to be for 22,500 miles high, rather than the 120-140 mile range of low flights.  The satellite, designated SES-8, was for the Luxembourg-based SES company which operates over 50 satellites to beam signals down to over 6,000 TV stations.  The new 3.2 tonne SES-8 will provide services to developing markets including China, India and Vietnam.  It carries its own propulsion system to modify its initially eccentric orbit into a circular one 22,500 miles high and 95 degrees East.

SpaceX has low-cost advantages over both the European Space Agency using Ariane 5, and International Launch Services using Russia’s Proton rocket.  Analysts were predicting a real shake-up of the market as SpaceX gears up to double production of its Falcon 9 rockets from 12 to 24 per year.  It has a large backlog of customers waiting for places aboard its flights, in a market estimated to be worth $190bn per year.

In the early days of spaceflight, everyone thought it would always have to be confined to governments because of the cost.  No-one guessed that software and internet billionaires would indulge in a passion for boys’ toys by developing private spaceflight.  Author Robert Heinlein came close, though, with “The Man Who Sold the Moon.”

The Department for Business, Innovation and Skills shows off the Aston Martin Vantage wearing patriotic colours

aston martinAs I have remarked already, one advantage of working near the Parliament end of London’s Victoria Street is that you walk past the Department for Business, Innovation and Skills.  They make a habit of putting British technological expertise on display, and on Monday it was the turn of Aston Martin.  Proudly wearing a union jack design, I’m pretty sure it was the V8 Vantage, complete with its 7-speed ‘Sportshift II” transmission.  This gives it closer gear ratios and a lower final drive.  Its specs tell of 0-62 mph in 4.9 seconds, making it difficult to beat from a standing start at traffic lights.  That V8 produces 426PS of peak power and 470Nm of torque, but let’s talk about looks.  It’s low and sleek, radiating power as either a roadster or a coupé, and while it was a little dark for me to see inside clearly, we are promised a “passenger environment of exquisite finesse” that is “created by expert craftsmen.”  OK, it’s British and it’s cool, but the key question on everyone’s mind is whether this is a car that Bond would drive.  I think it definitely is, though not in those colours.  He’d go for something a little less showy, and since there are hundreds of unique colour and finish combinations, he’d be satisfied.

Just another great picture of Jupiter, but this one’s from a different angle

jupiterfrommarsThe High Resolution Imaging Science Experiment (HiRISE) has taken some first class very detailed photographs.  This one is of Jupiter and some of its major satellites.  What makes it fascinating is that HiRISE has photographed it from Mars.  Because Mars is nearer to Jupiter than is the Earth, the resolution is akin to that achieved by the Hubble telescope in Earth orbit.  But HiRISE is in Mars orbit, the most powerful telescope to have left the vicinity of Earth.  The photo has been enhanced because the focussing mechanism was wrongly set, so the image has been ‘sharpened’ afterwards.  Also note that HiRISE sees more infrared than we do, so achieved different colours than the human eye would see.  Even with these caveats this is still a remarkable picture and sets me admiring once again the feats that science and technology are now capable of.  One day, I am sure, human beings will look through telescopes in Mars orbit and on the surface and will see fascinating sights.  But this is a good start.

Life moves at a faster pace as new technology spreads more rapidly than it used to

consumption-spreadsThose who complain that life is becoming faster have new evidence to back them up.  Prof. Rita McGrath writes in Harvard Business Review that recent new products have spread into more general use in a shorter time that their predecessors took.  She reproduces the above chart from Nicholas Felton of the New York Times showing how long it took various products to pass into general use.  From electricity to the internet, the pace of adoption has speeded up.  It was decades before telephone ownership reached 50 percent, starting before 1900, but only 5 years before mobile phones achieved the same penetration from 1990.  The chart tells its own story, covering things like cars, radios and refrigerators as well as microwaves, VCRs and computers.  The story is the same.  Innovation spreads more rapidly.

What does it mean?  Those who market new products have to move quickly to exploit their advantage, for one thing.  It probably signifies that competition is easier and barriers to entry are lower.  There are possible social consequences, too.  There might be a wider cultural gap between young people who are more adaptable and ready to adjust to new technology, and older people more set in their ways.  It might be that older people feel more alienated from a society that revolves around gadgets they find it difficult to accommodate.  The chart tells a story of accelerating adjustment to change, and it’s not something everyone feels comfortable with.

Those who favour economic and social freedom tend to compare the present with the past, rather than with some hypothetical imagined future

futureWhen I addressed the University of Brighton a couple of weeks ago, I went through what I called the viewpoints of neo-liberalism.  By this I meant only to show the students how those of us who support the general outlook of Friedrich Hayek and Milton Friedman view the world.  I invited the students to spend 15 minutes or so “looking at the world through neo-liberal eyes” as I put it, somewhat tongue in cheek.  I went through 10 of the ways in which those inclined to this philosophy viewed the world.  I did take a video of my address, and I am in the process of writing up extracts from it.  I might refer to some of them here.

I covered such things as the essentially subjective nature of value, of the importance of factoring time into economic transactions, and my third point told how we of that persuasion tend to compare the present with the past.  Others look at what is and compare it with a vision in their mind of what it might be.  We are more empirical, comparing it to what was.  Life expectancy about 150 years ago was about 30 years, and had been so for millennia.  Now it is about 68 years globally, and higher than that in developed countries.  We look at death to mothers in childbirth, and see it is now a tiny fraction of what it was even at the turn of the previous century.  We look at infant mortality and see how that, too, is now a tiny fraction of what it was.  Many of the diseases of the past have been conquered or controlled, and although there are new ones now that we live longer, we are in the process of controlling those, too.  In the past most people battled to survive at subsistence level, whereas now we have more people above poverty and starvation than ever before in the history of humankind.

In other words we see things as being better than they were.  Of course we can imagine a future which will be better than our present, but the empirical approach is to compare present with past, examine what made the difference, and attempt to do more of it.  What made the difference was economic development and wealth creation, not the redistribution of existing wealth.  It was opportunity, not equality, that drove progress, and we who support freedom want to see more of it, so that the future world will be as different from the present as ours is from the past.

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