In this post I am temporarily moving away from my specialist subject of economics and talking about porn. Porn is definitely not my specialist subject – honest, Guv.

Anyway. Deborah Orr makes a well-reasoned argument in favour of the government’s plan to clamp down on the accessibility of internet porn. That plan is to make Internet Service Providers (ISPs) block online pornography from all UK households, unless those households choose to contact their ISPs and ask for it.

In general, I agree with what Deborah is saying. For example, I don’t see how such a policy infringes anyone’s civil liberties, since they can easily choose to opt in. Yes, I agree the filters will occasionally block non-pornographic sites but that doesn’t seem like an insurmountable problem and I don’t really understand why those people who choose to access porn would have a problem asking their ISP to activate it. After all, just because you’ve been doing it without having to ask before, it’s not like your ISP doesn’t know you’ve  been doing it and it’s not like they’re now going to phone up your mum and tell her.

Regarding the “Page 3 of The Sun” angle, I suppose I had always had a dream that page 3 would get consigned to the dustbin of time through the will of the people. It hasn’t yet and although I am sure it would in time, I have no problem with it being banned by the government now. Either way, I don’t see why that would need to be part of the same legislation that asked people to have to “opt in” to see online porn.

There are however, a couple of points that no one seems to have mentioned yet so I thought I’d mention them myself…

Imagine I’m living in my dream house and then someone builds a main road that passes close to it. That main road might have a big benefit to lots of people. Jobs might be created, commuting time might be reduced etc. I however, need to fit double-glazing in order to keep out the noise of the traffic. That’s a direct cost to me and I might receive no benefit at all.

Now replace the main road with internet porn and replace double-glazing with porn-filters. At the moment if I were a parent, worried about what my child might see online, I might decide to pay for my own software to filter it out. I would have to pay some money because of something than only benefits other people.

A “negative externality” is a term used by economists to describe a situation in which people who receive no benefit from something get hit by part of the costs for it. A main road through your town causing you noise pollution or a drop in the value of your home, a power station that sends pollutants through your windows – these are all negative externalities you receive in order for other people to receive the benefits.

Online pornography is an example of a “negative externality”: We have demand in our society for porn – I have no issue with that. However, because of that demand we have costs passed on to those who do not want porn. That cost might be paying for expensive software to filter out the porn or the cost might be having children exposed to porn. Either way, these things are negative externalities and the proposed government legislation gives us a way of getting rid of them.

When the ISPs introduce filters it will cost them money up front and it will cost them money in maintenance afterwards. For example, the filters will often mistakenly block non-pornographic sites. The ISPs will therefore need to have a team of people taking calls and checking content of the disputed pages, then deciding whether or not to allow broader access to them. The costs of this service will be passed on to the consumers, so monthly charges will be higher under this scheme than they would otherwise be.

If this cost is passed on to those opting in rather than those not opting in then this is a good policy – the negative externality has been addressed – that is, the cost of the benefit had been distributed among those who receive it.

Ok. On to my second point.

My second concern is perhaps more important. You might remember a recent post where I talked about a study looking at the benefits of wearing a helmet when riding a bicycle. For cyclists wearing a helmet there were two competing factors:

  • If you had an accident in which you hit your head you were more likely to walk away without serious injury
  • If you wear a helmet you might become less concerned about the risks of having an accident and therefore more likely to have an accident

The study did show that the first factor was dominant and that wearing a helmet was sensible but it also suggested that some cyclists with helmets had had accidents that they otherwise would not have had.

This is my main concern with the proposed legislation. The government is trumpeting this legislation as protecting our children when they are online but in doing so they risk giving parents false-comfort. The internet is not dangerous to children purely because of pornography. Such filters will not prevent children accessing chatrooms and becoming friends with people who are not who they say they are etc. etc.

So my message to the government: By all means bring in the legislation but make sure you couple it with clear guidelines for the parents of the children you are trying to protect. With or without this legislation, parents need to know exactly what their children are looking at online and who they might be talking to. Without that education, this legislation could create harm as well as prevent it.

This policy could be a good one as long as we understand that it is not a solution – merely a step in the right direction.



Not Learning From Our Mistakes

Over the last few years on this blog, I have often talked of the importance of understanding the problem. That is you can’t properly solve a problem unless you understand what’s causing it.

For example, what caused the financial crisis? If you want to prevent a reoccurrence, you need to understand what caused it and make sure you put something in place to prevent the same mistakes being made in the future.

The government pedals the story that the financial crisis that affected the whole world was caused by the irresponsible spending of the previous Labour government. I’ve written in detail about why that’s a fallacy here but I’ll summarise it briefly:

The banks started lending higher and higher loan-to-value mortgages to people wanting to buy houses. In older times the banks would have worried about house prices going down but house prices had not gone down for so long that banks forgot about those risks. Borrowers were able to take on bigger and bigger mortgages relative to their wealth, which in turn led to a huge increase in house prices. The huge increase in house prices led banks to lend even more irresponsibly in order to provide the now even more unaffordable mortgages to borrowers. That led to further increases in house prices. Etc. etc.

By the time the banks realised they’d made a bubble and that bubble was about to burst it was too late. Lots of people couldn’t make their mortgage repayments all at once. The banks had started by lending the money they held in savings but as the bubble took off, the money that they held in deposits wasn’t enough to finance the mortgages they wanted to give so they borrowed more and more in order to lend it out again. When the homeowners were unable to make their repayments to the banks, the banks were unable to make their repayments to each other. Like a house of cards everyone became insolvent and the governments of the world had to take on a lot of debt to bail them out. The financial crisis was upon us.

This is how house prices in the UK have compared with the median wage since 1997:

UK house prices vs median wage

UK house prices vs median wage

In the ten years running up to the financial crisis the average house price in the UK almost trebled and wages were not going up anything like that amount. This was the result of irresponsible lending and it was happening all over Europe and the US.

But now forget this for a moment and suppose that you didn’t understand what caused the financial crisis. Put yourself in the shoes of a government minister who has spent the last five years marketing the argument that the crisis had nothing to do with the banks’ private lending. Suppose instead you had put a huge amount of marketing effort into perpetuating the falsehood that the financial crisis was all down to the public spending of the previous government.

I don’t think I’m asking you to make a huge leap of faith by accepting that you that if you’d put everything behind that wrong assertion it’s quite possible you’d have come up with the wrong solutions to the problem.

Throughout his time in government, George Osborne has frequently appeared with a brand new, broken lightbulb taped to his forehead. The latest example is called his “Help to Buy” scheme. In this scheme, the government will encourage banks to offer high loan-to-value mortgages by providing guarantees for them in the case that the borrower defaults.

Yes. Read that last sentence again. That is really what they want to do.

When the financial crisis hit, the banks quickly changed their policy from lending high loan-to-value mortgages to not lending high loan-to-value mortgages, ‘cleverly’ spotting that these had directly caused their insolvency. Our government now wants to bring back this bubble-inflating, crisis-causing system and so much so that it is prepared to offer a tax-payer funded subsidy to the banks to get it going again.

Using public money to subsidise high loan-to-value private mortgage lending is really not a good idea. It is a policy that directly encourages banks to make all of the same mistakes that caused the financial crisis but (and get this) this time the banks won’t be liable and have to ask to be bailed out! This time the taxpayer will just fund the defaults directly! Ace!

When I’ve talked about bad government policy in the past, I’ve often pondered on whether the motivation has been government incompetence or something more sinister. For example, did they cut public spending in an economy suffering from a lack of demand because they didn’t understand that my spending is your income or was it because they saw a chance to evilly create a smaller public sector in order to align it with their own idealisms? Well, who knows?

In the case of the “Help to Buy” scheme though, I can really see no possible motivation, good or evil, for pursuing such a terrible strategy. In the past we could have argued that they were being clever and devious but not any more.

“Help to Buy” simply shows that they have no idea what they’re doing.