Uber forms of governance



















Economic Nonsense: 24. Strong laws are needed to curb the activity of speculators

The villains of the piece change as the economy changes. At one time it was money-lenders, then corn merchants. In modern times speculators are up there with bankers in popular dislike. Speculators are commonly perceived as people who add nothing to a product, and often as people who profit from the hardships endured by others. They are seen to buy cheap in the hope that the price will rise, then sell at a profit without having added to or improved whatever it was they speculated on.

In fact speculators often provide a useful service. They can take the burden of risk that others might find difficult to deal with. The speculator who buys a farmer’s crop in advance gives the farmer the certainty of a price. Farming is an unpredictable activity, and the market price when the crop I harvested might be higher or lower than that agreed price. The speculator hopes it will be higher and takes the chance, but the farmer prefers the certainty of a known price that enables him to plan his affairs.

When speculators buy or sell commodities hoping to profit from price changes, they dampen some of the fluctuations. If they bet on a future shortage, they will buy now in the hope of selling for a higher price. If enough of them do it, the effect of buying now is to raise the price now, signalling to users to curtail their use, and to producers to bring out more supply. The same happens in reverse if they bet on a future glut by selling.

Businesses that sell to other countries face the uncertainty of not knowing what their goods might fetch in foreign currencies at the time of their delivery. They can smooth this by buying or selling currencies in advance from speculators prepared to take a punt on future changes in exchange rates.

The invisible service that speculation adds to goods is risk management. It is a valuable service, but because people cannot see it, they see it as money for nothing. Always there will be populist politicians prepared to trade on their resentment and propose tough laws to curb an essential service that helps markets to work more efficiently.











Enemy of the steak: what’s wrong with government diet guidelines

As an amateur chef I have become increasingly interested in the government’s guidelines and regulations around food. For something so central to our lives, the advice and rules the government makes to do with what we eat are usually overlooked. Two developments this week suggest that this is a mistake.

I have previously argued that government regulation is often bad because, if it turns out to be bad regulation, it imposes a single error across an entire group of people or firms. That view may explain the financial crisis, where banks were required to hold lots of mortgage debt by regulators who thought they were forcing banks to be sensible.

Now, it looks as if it might also apply to diet guidelines. This week a new paper has been published that argues quite convincingly that, not only does modern evidence show that government guidelines to reduce dietary fat intake were a bad idea, they were even against the bulk of the evidence available at the time.

Today, it’s being reported that the US will stop advising people to avoid dietary cholesterol, because of a change in nutritionists’ view of how our diet affects our bodily cholesterol levels.

The Verge says that ‘The DGAC is more concerned about the chronic under-consumption of good nutrients, noting that Vitamin D, Vitamin E, potassium, calcium, and fiber are under-consumed across the entire US population.’ Interestingly, high-cholesterol foods like eggs, offal and seafood are very high in some of those vitamins.

It’s tempting to suggest a connection there – that vitamin deficiencies may be a direct cause of misguided government diet advice. And this may be the case. But, having looked around and spoken to the British Nutrition Foundation, I can’t find any work by either the government or independent academics on how much impact these guidelines have on what we eat, let alone on our health. (The exception is the five-a-day campaign, which has been fairly successful.)

If it turns out that diet guidelines have been wrong on things like fat and cholesterol, and maybe things like salt as well, what are the costs? I see there being two potential downsides to bad advice. The first is that the advice is actually dead wrong and drives people to eat in ways that ends up being worse for their health. Perhaps this is true of the cholesterol advice.

The second, which is more ambiguous, is the welfare cost. We eat not just for sustenance but because it gives us pleasure – a steak done well is much better for me than a well-done steak, because, even though the nutritional content is basically the same, it makes me happier. If government guidelines have been mistakenly putting people off eating foods they enjoy then they have been costly in welfare terms even if the health impact is not significant.

Of course people may need to get advice from somewhere, and I don’t see any reason to believe that government advice is worse than, say, the stuff you get in the Femail section of the Mail Online website. But if government diet regulations are still likely to be mistaken, and they influence people much more than any single bit of diet advice from an independent source, then they may end up holding back a process of private trial and error that would give us better information about what’s good to eat over time.