Tag / Cost of living crisis

by Archivist

The Common Agricultural Policy – a costly protectionist racket

‘The Common Agricultural Policy forces consumers to pay ‘two or three times more for food than we would pay without the policy’
– Dalia Grybauskaite, EU budget commissioner 
“The way to build lasting economic growth [in Africa] is for Europe to end the CAP“
-Sir Digby Jones, former Chairman, CBI.

The Common Agricultural Policy is an EU-wide system of agricultural subsidies. It is a form of protectionism that represents the worst of European Union parochialism. It is designed to “defend” the European agricultural industry from cheaper products from outside producers. The EU spends between £45-50 billion per year (£49 billion in 2013) on this system which is approximately 43% of the total EU budget. The subsidies are combined with protectionist measures such as import tariffs and strict quotas on certain agricultural products from outside the EU. This has made European food prices some of the highest in the world and is seriously detrimental to foreign farmers.

The CAP subsidies have often caused overproduction, which has led to food being destroyed, or sold at below market prices through export subsidies or being stored thereby creating the, now infamous, “food mountains”. The subsidies exports are flooded into third world countries, especially Africa. By undercutting local farmers, who cannot compete with the low priced subsidised imports, the policy is distorting the market and impoverishing people. With growth and development being absolutely essential to the long term prospects of third world countries,the CAP is seriously harmful their underdeveloped economies. The subsidies prevent them from exporting agricultural produce to the EU on a level playing field, creating inflated food prices for us, and economic stagnation for them.

History

During negotiations on the creation of the “Common Market”, France used its influence as the second major power of the EU to lobby heavily for subsidies for its farmers which have stood ever since. This privilege was her price for agreeing to free trade in industrial goods and one of the many benefits France enjoys for its status as the secondary power behind the project. The CAP was created in 1957 under the Treaty of Rome and was implemented from 1962.

It aimed to increase productivity and to protect agriculture throughout the EU by controlling prices and levels of production, and to protect the countryside by subsiding the rural lifestyle. It has in-fact had the effect of protecting big agricultural businesses and enriching hereditary landowners while also damaging the rural environment. The subsidies led to big agri-businesses growing ever larger and stifling smaller producers. The CAP, by guaranteeing prices, encourages producers to use every bit of available land. Inevitably, they have altered the rural landscape with intensive farming. Every furrow is valuable thus efforts are made to use every bit of available space.

A landscape which had been unchanged for centuries and was famously pleasant and aesthetically pleasing is now less diverse. Ancient hedgerows have been torn up, swathes of land are blighted by industrialised prairies and polluted with high levels of chemicals and pesticides (leading to water pollution and soil degradation). The natural habitat of wildlife have been disrupted or destroyed, leading to widespread declines in the populations of many farmland bird species and other wildlife.

By the 1990’s the process of reform began in attempt to curb the amount of waste and address environmental concerns. By 2013, after the first full review since the policies inception, a number of reforms were been approved to be implemented in the period 2015-2020. They represent an attempt to move towards sustainable agriculture and prevent overproduction and include policies intended to preserve the environment and encourage new entrants into the industry. The reforms, while welcome, were a long time coming but have done nothing to address the fundamental problems with the policy. Further, far reaching reforms, of the kind sought by Britain for decades, are unlikely to happen because France and her allies benefit disproportionately from the subsidies and will not allow changes to that threaten the status quo.

Costly protectionism

Britain should strive to be an open, free-trading nation with a global outlook. The CAP is the very antithesis of free trade; it is protectionist central planning and economic isolationism. The cost of food has been steadily declining for decades but the great recession has created a cost of living crisis in Britain and across Europe, food prices have risen and the CAP exacerbates this, costing hard pushed consumers. The price inflation can be seen by comparing wholesale food prices in Europe to world market prices, this shows that we are paying 17% more for food than we would under market conditions.

Central planning and market intervention always creates distortions and unintended consequences. The worst of all the damage caused by the CAP is the way it punishes consumers, especially the poor. The Common Agricultural Policy should be abolished; this would represent a drastic measure to address the cost of living crisis, cutting food bills for all European citizens and bringing relief to impoverished households across the continent.

Advocates of the CAP will protest but for the way forward we need only look to New Zealand. Farmers there had enjoyed generous taxpayer funding and were disconcerted at the thought of losing out but in 1984 when the government was faced with a budget crisis it decided to repeal all subsidies. Did the predictions of disaster and an end to small family farms come true? No, since then the agricultural sector has thrived!

Much like in Europe subsidised farmers in New Zealand had become dependent on government aid and were, in-effect, farming in such a way as to meet targets to make them eligible for subsidies.  This was detrimental to productivity and innovation. When all subsidies were removed farmers in New Zealand proved to be entrepreneurial, innovative and adaptable.  Now, instead of trying to maximise the amount of government aid received, agricultural practices are now motivated by the demands of consumers and farmers are focussed on good business practice. it is as simple as growing things that consumers want to eat. Productivity is up, efficiency and innovation has increased and the industry is thriving without taxpayer hand outs.

Abolish the Common Agricultural Policy and Europe could have a dynamic, diverse, prosperous and growing rural economy too, and we would all be saving money on our food bills.

by Archivist

Huzzah for the voluntary sector!

Hurrah, civil society is not dead! It warms one’s heart to know that there is still a great deal of compassion and get up and go amongst the British public. Just over six years ago an economic catastrophe of the kind not seen since the 1930’s sent us spiralling into a major recession. We are still suffering the consequences and will continue to do so for years to come. Unemployment rose, wages stagnated and a cost of living crisis struck; the poor struggled to pay bills and many found themselves unable to afford enough food for their families.

In response, various groups of empathetic people around the country got together by their own volition and decided to do something to help those in need. The aim was to provide the poor and needy with fresh food at the point of crisis. The food was provided by supermarkets and wholesalers and the food banks were set up purely through private charity, with not a single penny of public funding. They proved to be a resounding success and helped many people, thus they expanded across the nation and soon food supplies began to flood in from private individuals and businesses. Today, thousands of people are going to food banks and benefitting from the generosity and thoughtfulness of their fellow human beings. This is a national disgrace and a scandal according to left wing statists who have managed to shroud this great success story in political point scoring and negativity.

Ah, but they argue that a “rich” country like Britain should never have any need for food banks, that nobody in such an apparently rich country should ever struggle to afford food. They then use this notion, and the fact that the number of people using food banks has risen considerably, as an argument against austerity, and as a stick to beat the Tories with and prove that they are intent on starving poor people to death while they eat caviar from golden tea spoons and guffaw. Many even cite the issue as evidence that the whole capitalist system is fatally flawed and must be replaced. There a number of problems with these arguments.

First of all, calling Britain a “rich” country and pointing to its position in the economic league table as evidence that nobody should ever go hungry is a facile point to make. This country has a budget deficit of over 100 billion, a current account deficit of 70 billion and a national debt approaching 1.5 trillion (£1,500,000,000,000) that can never be paid back. The simple fact of the matter is that the United Kingdom plc. has gone bust.

There are however many wealthy individuals in this country (rather a different thing), but what do leftists want, to confiscate the property and money from the wealthy by force and hand them to the poor? Well, yes, many of them probably do. A few of them would probably rather like to put on their fresh-from-the-sweat- shop Guy Fawkes masks and string a few of the rich folk up before posing for selfies with Russell Brand. Revolution!

Imagine that, enacting such a redistribution process and marvelling at the subsequent exodus of people and wealth, the death of productivity and inevitable economic catastrophe- the food banks would not be able to cope with the queues formed. Those using food banks as an argument in their tedious theses that capitalism ought to be overthrown are wilfully ignoring the historical fact that shortages of food and goods are a permanent feature of centrally planned economies.

It is also important to realise that it is nonsense to believe that there were not many, many poor people struggling financially in previous decades, the economic crisis has simply exacerbated the problem. When I worked as a volunteer for a health and social care charity (mainly working with criminals and drug addicts) many clients sought referrals to food banks. The reasons that people use food banks are varied, around 1 in 5 cite low income and 1 in 6 cite benefit changes, beyond this the causes are wide ranging. There are social problems such as family break down, debt and crime that have been deeply engrained long before the current crisis, and glitches in the welfare bureaucracy are inevitable considering the sheer number of people on the books. The real shame is not that food banks exist at all, but that they haven’t existed for longer. The first one was set up in the year 2000 and was a success, due to this the initiative spread and many more opened. This fact rather discredits the argument that food banks are a symptom of coalition failure, unsurprisingly as more food banks appeared more people have made use of them.

So, what is the future for food poverty and food banks in Britain? The Archbishop has called for the state to get involved but this is exactly the wrong solution. Food banks have been a resounding success and far from being a “disgrace”, as the self righteous Jack Monroe has said, they are a victory for the voluntary sector and a great achievement for the industrious individuals running them. How would state funding, and a new government department, improve what is already working so well? It is baffling to cite the failures of state bureaucracy as one of the reasons people are left short and then argue for the nationalisation of food banks. It makes no sense to call for taxpayer funding when we are facing years of cuts in public spending to bring the nation’s finances under control. Government profligacy is a major factor in our current economic plight; we have to look different solutions.

For a start the left must stop politicising this issue and using it to further their ideological agenda. Food banks are not an argument against austerity, especially when that so-called austerity involves borrowing £2 billion a week just to cover government expenditure. Their moralising over food poverty becomes transparent when they avoid discussing the inflation of food prices caused by the Common Agricultural Policy (heaven forfend that they would criticise their beloved EU), or the heavy taxation (including lifestyle taxes) of the poor as previously mentioned by Simon Gibbs.

What we need is for the state to keep out of food banks. If politicians want to help they should encourage and help their constituents set up independent food banks in their communities. The real solution is to expand the initiative further, food banks should become a permanent fact of our national life and we should celebrate them. Lets have one in every town! Many supermarkets already have donation baskets; I want one in every supermarket across the country! The fund raising operation should be expanded to help cover the costs of start ups and operation. Other charities have donation boxes in shops, fund raisers in the street, why not the great charities feeding our hungry? The call for the state to swallow the sector into its bloated and creaking welfare state is misguided. The success of food banks have shown us that with a little stimulus from conscientious individuals civil society can spring to life. Rejoice that our society is one capable of great humanity and compassion, let’s harness that and encourage the voluntary sector to even greater successes.

*Donate to the Trussell Trust*

by Simon Gibbs

Full Video: The Causes of the Cost of Living Crisis

The cause of the cost of living crisis in Britain is Government. That is the overwhelming message of our October 23rd panel event. The panel discussed the origins of the meme, the origins of the crisis. We agreed that a decent standard of living is to be earned, not taken from others.

On food pricing, the EU’s subsidies and trade barriers force tax payers to pay to increase the price of food, with ridiculous examples of agricultural subsidies flowing into London boroughs.

On energy, it is Government policy to restrict the demand for energy by increasing the price of it with carbon trading and micromanagement of the energy sector.

On housing, we didn’t even cover the money supply, but there was unanimous agreement that planning restrictions, especially the green belt undercut supply and force prices up.

On all our simple pleasures, and many of our necessities, indirect taxation adds 37% to the tax bill of the poorest in society.

Inequality is falling and the 1% are no longer racing ahead. It is time to end the war on wealth and give people the freedom to produce it, and the freedom to teach each other how.

Today George Osborne will be telling us how much Government can afford to give us – give it a break George.

by Simon Gibbs

Inequality and Labour Markets with Ben Etheridge

It has been said that Ed Miliband has grasped the nettle of inequality by reframing the debate around the cost of living crisis meme. For some, this represents a final hope of justice – social justice, that is.

Before considering the merits of the case I asked Ben Etheridge what had actually happened with respect to inequality since the 2008 crisis. Ben acknowledges the public discourse over the gap between the extreme top and extreme bottom he says that in fact overall inequality has gone down since the crisis six years ago.

The big story for Ben is that inequality has increased between the generations. Pensioners have done okay, but the young – regardless of their original earnings position – have suffered greatly. (I clarified this with Ben, pensioners have not improved their lot, they have merely suffered less)

Kristian asks whether the position of pensioners is uniform for pensioners that are, or are not homeowners, and if perhaps the reason for pensioners’ better position is timing – did they buy their assets before the crisis happened? Ben clarified that in fact the statistics he was thinking of related to current incomes, so housing is less of an important issue. One group that has done unusually well is older workers (something, I note, that Sam Bowman mentioned as a possible consequence of minimum wage rises). Ben explained that employment rates for workers over 55 have gone up, with people not wishing to retire and a relaxation of compulsory retirement over the last 5 years feeding that desire.

Ian volunteers that there is a curious phenomenon of the top 1% have done unusually well, but that once stripped out the ratio between the bottom and the remaining top incomes is surprisingly low – just 1:40 – and that this ratio is much more acceptable to him (there is simultaneous surprise at each end of the panel that a figure has been put to what would be acceptable inequality).

Ben replies that there was a long term trend for the top 1% to stretch ahead of the rest, but at the beginning of the crisis they did particularly badly and since there is no noticeable trend for them compared to anyone else – a statistical observation that differs wildly from the popular narrative.

Ian confesses to be quite seduced by Rawl’s argument that inequality ought to be tolerated to the extent it serves the interests of the poorest people in society. As such, he says, that the relative position of the 1% ought to be considered a problem because it cannot be demonstrated to serve people in the bottom income quintiles. Ian asks Ben whether there is evidence that the rise of the 1% does serve the poor.

Ben confines himself to further details of how the bulk of additional wealth in the US has gone to the 1% but considers the redistribution of that to be a political matter. He does not, however, have a problem saying that some of it should be distributed, only that the amount to distribute is a political question and not an economic one.

I ask Yaron, as a proponent of his own favoured moral theories, whether the Rawlsian position is one he identifies with. He does not. He does not believe that we measure our success according to the effect we have on others. He believes that there are sound rational reasons why the top 1% (in fact the top 0.1%) had got richer. They have not been exploiting the poor, instead it is because they are more productive – mainly because they have access to a global population as a market. For Yaron inequality is justice, because people are rewarded by the market based on their productivity. Unless it can be shown that the wealth of the rich was stolen, coerced or fraud has been committed then the income distribution is the result of voluntary transactions and it is therefore morally acceptable.

I turn to Kristian to introduce the topic of monetary policy. Kristian explains that quantitative easing – money printing, in effect – inflates the wealth of those who are already wealthy. Kristian is more interested, however, in the question of why it is the very top 1% of the income distribution who benefit from global markets and not the top 2%, for example.

Ben suggests there are many explanations that have been put forward but the answer is not properly known. He expands on the explanation offered by Yaron earlier that “superstars” – Jack Nicholas, Rory McElroy, leading brands – are known to global audiences now and to demand converges globally for those particular names or brands. Kristian wonders whether this fully explains that the trend is isolated to the very top, and whether the tax system may have a role. Ben is sure that nobody knows for sure. I press for names of people working on the problem and am given Thomas Piketty (whose work was discussed here recently) and Emmanuel Saez (who has worked with Piketty).

Yaron has, I understand, actually read Piketty and is keen to describe some of the problems. Piketty starts his book by describing inequality as immoral – something Yaron regularly disputes, in fact he had just done so. Yaron also claims that Piketty misunderstands the nature of capital, seeing it as an undifferentiated and passive actor in the economy that earns 8% return without effort, and his pricing of capital assumes an effective market for it, which is not a safe assumption. Yaron gives a perspective on the problems of the US tax system and how changes have not been reflected in Piketty’s treatment of the data, and references problems in the data that other commentators have picked up. Yaron is frustrated that this flawed book is given any credibility at all.

I turn next to the subject of Kristian’s research – the measurement of poverty as a relative thing – and whether this means there will always be some people who are poor. Kristian says that in fact it is possible to, mathematically to have an income distribution in which the lowest paid are within 60% of the median. To do it, you need an income floor and to compress the distribution. He says no society has ever done this, including progressive examples such as Sweden and Denmark. Instead he suggests that you measure living standards directly by measuring consumption, and avoid the use of a median.

Kristian explains that the conventional relative measurement of poverty tends to produce effects such as poverty declining during financial crises because the rich have become less rich, not because the poor have done better and improved their living standard. This quirk means that the recession under Labour reduced poverty more than their welfare largesse.

Yaron agrees, adding that World War II did a lot to reduce inequality because blowing up the assets of the rich tends to shift the wealth and income distribution that way (as does signing up the lower classes as soldiers and killing them). For Yaron inequality and relative poverty are not the right questions, for him the problem is one of freedom. He says there are lots of reasons that a larger global pool of employees, especially one that has brought in lots of developing nations. The most extreme talent is relatively rare in such a pool – Yaron gives the example of China creating demand for the “rare talent” of CEO’s that is unmatched by any additional supply from that country (for the time being). For Yaron this is a “reflection of justice” in which people are rewarded for their particular skills and abilities.

Kristian volunteers that “extreme egalitarian” such as the authors of the Spirit Level, are fond of the war-time economies. Yaron adds that Piketty has made the same reference to the same period of falling inequality but repeated that the war and destruction which caused that fall should not be encouraged.

I offer the last word to Ben Etheridge who speaks up a little for the idea of worrying about inequality. He says it is equality essential for prosperity. To nods from the panel he mentions equality before the law and in front of civil institutions. Nods cease when he gets to mentioning universal healthcare and education as part of the same category as equality before the law. Finally, Ben worries that we ought to worry about the 1% stretching away because this will put the institutions he just mentioned under threat.

This last point proves a little too contentious to leave alone, so I challenge Ben to describe how the rise of the 1% is a threat to these institutions, “will they go and knock them down?”. Ben clarifies that he was talking about the capture of political institutions in particular and suggests that there are precedents in history for societies breaking down when elites take over.

Kristian asks Ben whether he felt that there would be less of a problem if politics was simply less important (an obvious libertarian solution to the corruption issue). There is much drawing of breath when Ben suggests “politics is always important”.

Yaron comes in because he feels the cause of potential breakdown is not at the top but at the bottom. He thinks the main issue there is that public education consistently fails the poor. Richer families are always able to afford a better education, but public schooling let’s down the poor and does not equip them with the kind of technological skills in particular that they need.

Ian Dunt smells a rat and asks if Yaron would abolish all public schools? Yaron says he “absolutely” would.

Suddenly there is intense debate again – we are not looking like finishing yet! Ian Dunt asks how people will afford to get to these schools. Yaron refers to fellow Micklethwait mentoree James Tooley’s “Beautiful Tree” which describes the systems of private education in surprisingly poor districts and says there “he does not think there is such as situation” in which the poor would be unable to afford a private education that pulls them up. This amazes Ian Dunt who speaks of the kind of person living in London working for Tescos on 16,000 a year who has difficulty surviving. Yaron says that the slums of Calcutta and Nigeria people do in fact afford education.

Yaron pulls out his trademark iPhone and, while qualifying that he would not simply privatise education and leave everything else alone, he would love to see the kind of melting pot of innovation that goes on in the App Store applied to the education industry. Cue applause from this audience!