Stealth Taxes

In this week's Madsen Moment, Dr Pirie looks at the issue of Stealth Taxes. Government should be honest about the taxes it expects people to pick the bill up for.

We're struggling to see Julian Baggini's point here

We're told that Adam Smith and this free trade lark are wrong because, well, because what?

However, decades of seeming plenty, with supermarket aisles full of cheap, enticing products, moved food off the list of political priorities. cold war images of people queuing for bread in the Soviet Union reinforced the belief that government’s only role in feeding its people was to enable a free market. The fundamental principle of food policy was reduced to Adam Smith’s famous line: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Two new reports published today suggest that with Brexit looming we need to put food back at the top of the political agenda. A policy briefing by the Soil Association shows how the rules of global food trade affect public health as well as economies. It suggests that if Britain entered into a trade deal with the US along the lines of the North American Free Trade Area (Nafta), we can expect rising obesity. This is exactly what happened in Canada and Mexico after they joined Nafta. As cheaper, ultra-processed, high-sugar foods became more widely imported from the US, people understandably ate more of them.

The Adam Smith style free market contention is that those free markets provide more of what people want than alternative systems. And that they provide them cheaper.

That more people get more cheap food as a result of free markets in that Adam Smith style is not a refutation of the benefits, nor even a problem. Rather, it's a confirmation of the base contention, isn't it? 

At which point, what is it that Baggini is complaining about?

Ah, yes, the poor shouldn't have plentiful and cheap food because they'll become large and clutter up the countryside with their unsightly blobby bodies. Or something.

There was a time when philosophers at least prided themselves on their logic, wasn't there? 

A Legless Healthcare Announcement

The PM’s £20bn. healthcare announcement may remind you of Dudley Moore auditioning for the role of Tarzan even though he had “one leg too few”.  Back in January, the Government made a big deal of adding “Social Care” to the name of the Department even though it had already had that role for six years.  The announcement reflected the widely held view that the NHS and adult social care should be seen together and, indeed, the NHS could only work if social care was adequately funded and integrated with it.

Last year the Department of Health (DHSC) announced it would free up the 5% of beds occupied by people well enough to move to social care. But discharging patients earlier is only part of the potential savings from integration. With better funding and management of adult social care, fewer older people would need to visit their doctors or be admitted to hospital in the first place. Naturally the Government did not provide any money to achieve those aims and they were not realised. The funding adult care green paper, due these past two years, is still not expected for some months.  Insiders predict it will be a damp squib. On Monday, The Independent put it this way “Theresa May to warn social care must wait until 2020 for extra funds, despite pledging £20bn for NHS.”

Since 2009/10 the NHS has figured out that their own funding of adult social care actually saves money for the NHS. In 2015/6 they provided nearly £2bn and this year it is probably close to £4bn. No one in the DHSC, it seems, has worked out the optimal diversion of resources between the NHS and adult social care. As a starter, it could redirect the £760M it spends on unnecessary quangos. Don’t hold your breath on that. The DHSC does not spend any money on adult social care at all: the funding mostly comes from local authorities with a declining contribution from the Ministry of Housing, Communities and Local Government. This has been topped up with three extra contributions:

• “A Social Care Precept, under which local authorities are able to increase council tax levels by up to 2% or 3% (above the referendum threshold)…..
• An improved Better Care Fund –to include additional social care funds of around £4.4 billion between 2017/18 and 2019/20
• An Adult Social Care Support Grant which will provide £240 million to local authorities in 2017/18 and £150 million in 2018/19.”

How the Sajid Javid, then Secretary of State, determined, in February 2018, that £150M would fix the £2.3bn. funding gap passeth all understanding.

Unsurprisingly, omitting social care from the new health funding has been greeted with horror by local authorities: “Glen Garrod, president of the Association of Directors of Adult Social Services (ADASS), said the Government’s plan to increase funding for the NHS while leaving out social care was similar to ‘pouring water down a sink with no plug in.”

Health care in England should be seen as a whole, a trinity of Health England (prevention), NHS (curing) and social services (caring). The DHSC has responsibility for, and funds, the first two but the third escapes their consideration.  The whole structure, with its commissions and quangos, trusts and advisers, managers and independent primary practices, is such a mess we need a non-partisan convention or commission to make sense of it and then what the optimal spending mix should be. 

Lord Darzi is a surgeon and former (Labour) Health Minister and has, with Lord Prior, his Tory equivalent, been demanding an extra £50bn. which turns out to be 3.5% p.a. - not far from the government’s £20bn, which is actually 3.4% p.a.  Don’t ask me to explain politicians’ arithmetic. Although he preaches integration, Lord Darzi’s his arithmetic does not practice it: his £50bn is just for the NHS. He does, however, agree that NHS reform should come before the necessary funding is evaluated, the right leg of healthcare provision, the NHS, does need more money and should have it.  But this £20bn. announcement is one leg too few.  As Cook put it “I have nothing against your right leg but then, neither have you.”

This is bananas - incorrect uses of the word "however"

The Guardian brings us some good news. A small - and British, for what little that matters - company is getting somewhere with solving one of the world's problems. That specific thing we hope gets solved being bananas.

The world's commercial crop is, pretty much exclusively, one cultivar, the Cavendish. There are hundreds of others out there, but that just the one is the commercial industry. More than just a cultivar, they're all clones. Thus any disease that can affect the one plant (an herb apparently, not a tree) can and will affect all globally. As is currently happening.

We know roughly what to do about this as we've done it before, when the Cavendish replaced the earlier clone Gros Michel suffering the same problem.

So, a problem, someone's working to solve it, and ain't that great? At which point we are told:

However, they face competition from other research companies and academic institutions.

However's not the right word there. We face uncertainty - we simply do not know what is the right, in detail, response. Perhaps it is to move to another cultivar. Maybe it's GMO to make the Cavendish resistant. Maybe it's to abandon banana cultivation. Well?

Which is exactly why we use markets as our experimentation machine to find out. Lots of people try in lots of different ways and we use that calculator of the entire economy to work out which is the best answer.

The correct phrasing therefore is "Huzzah, they face competition from other research companies and academic institutions."

There's a reason to have private ownership of something like Hastings Pier - to cover the losses

The "community organisers" who lost out in their bid to purchase the bankrupt Hastings Pier are complaining. Yet there's a good reason to have such things in private hands. Shareholders, private such, don't just collect the profits when there are any, they also pay the losses when there are such:

Campaigners fighting to save Hastings pier for the community are “devastated and furious” over its sale to a businessman for a fraction of what it cost to rebuild.

The Eastbourne hotelier Sheikh Abid Gulzar was reported to have paid £50,000 for the pier, which was rebuilt with £12.4m of lottery money but went into administration last November.

Well, yes, but why did it go into administration?

Partly funded by donations from 3,000 local residents, it was subsequently hailed as “the people’s pier” by Ben Derbyshire, the Riba president, and credited with “evolving the idea of what architecture is and what architects should do”.

But now Hastings Pier Charity, which employs 44 people, has admitted that it has been unable to agree a new three-year business plan with its major stakeholders — the Heritage Lottery Fund, which provided £11.4 million for its restoration, Hastings borough council and East Sussex county council.

The organisation, which became the first community benefit society in 2013, had hoped to raise £800,000 to become self-funding but entered insolvency when it fell short of its target.

Nonetheless, it said it felt it would be wrong to ask its 3,000 community shareholders, each of whom donated £100 to get the project started, for more money to meet the pier’s operating costs.

Ah, so they've already tried that community route and despite massive subsidy it failed. Which is where this private shareholder thing comes in. We can, and should, assume that more capital will be put in. For without it it will go bust again. And with private shareholders there is at least the possibility of their stumping up more such capital, something which a community organisation clearly has great difficulty in doing.

The importance of those shareholders being revealed once again. Sure, they take the profits, but they also provide the capital to cover the losses, don't they? 

Wood and trees - Tesco the best, Waitrose the worst for food waste, apparently

An interesting little insight into how some think the world should be run. The underlying subject is food waste in the supermarket supply and retail chain. An odd thing to be worrying about really, as the very existence of that supermarket supply and retail chain is what reduces food waste to minimal levels in the first place. Any reading of FAO and the like reports reveals that it is their absence which leads to 50% and about of food rotting between field and fork. Their existence leads to  some being tossed from the shelves, to be sure, also to odd bags of salad rotting at the back of our fridges. But the efficient food collection and distribution systems which are supermarkets is the very thing which reduces food waste.

But, you know, far too many people with too much time on their hands:

Another day, another supermarket-bashing report – even if this latest one is slightly unexpected. This time it’s aiming at the upright, conscientious, middle-class shoppers’ favourite. But now Waitrose has been criticised by the campaign group, Feedback Global, for being the worst performer out of 10 UK supermarket chains at tackling food waste.

According to Feedback Global’s findings, Waitrose provides no public data on food waste. It redistributes a small quantity of food compared with other retailers, has done limited work with suppliers to reduce food waste, and has no programme to send permissible food surplus to serve as animal feed. This is in striking contrast to Tesco – the supermarket all right-thinking people like me are supposed to hate. Tesco was the first group to produce third-party audited food-waste data, and in 2017, according to the report, increased its food surplus distribution network by 40% on the previous year, donating 7,975 tonnes of food to people in need.

The full report is here.

The problem with this is that the report is noting how well the varied supermarkets do the form filling and box ticking. Where's the report on how near out of date food is given away to the homeless, do we have that document detailing stuff sent off for animal feed? What the report doesn't do is provide any information at all on who is throwing how much food away.

For example, imagine for a moment. A supermarket chain has an aggressive discounting policy. Anything getting near to the end of shelf life, close to sell by date, is discounted so much that crowds of the impecunious storm the stores and cart it all away. The chain has no food waste at all in fact. They therefore don't fill in all the forms as there's nothing for them to form fill about. By the standards used in this report that supermarket chain would be bottom of the listing. 

No food waste at all, no concomitant documentation about disposal of food waste, bad marks.

We do not, not in the slightest, claim that Waitrose emits no such waste. We haven't a clue whether it does or not in fact. But a measurement system which cannot even tell how much food waste there is isn't going to be all that useful in measuring food waste now, is it? 

As up at the top the issue of how much emanates from the supermarket chains we think entirely unimportant, as it's their very existence which reduces the original problem of food being wasted. But if we do want to worry about it let's do so by studying reality, shall we, not the paperwork?

Perhaps it should solve the problem, but does it?

We can all think up solutions to varied societal problems, methods of achieving desires. Some of them are even based upon reasonable logic. For example, if the gender pay gap is the creation of gender different reactions to the arrival of children, will insisting upon gender neutral responses lea to the eradication of the gap? Seems a reasonable enough insistence to be honest.

It's also largely our own view - men and women tend, note, tend - to react differently to the arrival of the little ones and the intersection with that working world out there. That's what causes that gender pay gap. If that reaction were entirely gender neutral - if, for example, 50% of fathers became primary child carer - then we do think that the pay gap would disappear.

That doesn't though mean that mandatory paternal leave is going to do away with that gap: 

In the family of Canada’s provinces and territories, Quebec has long been the noisy, rebellious child. In 2006, it divorced itself from the country’s complex and lacklustre parental leave programme. The province created its own system, the Quebec Parental Insurance Plan (QPIP), a model influenced by Scandinavian countries and with the aim of improving gender equality.

Well paid paternity leave which can only be taken by the bloke. This has more than a small resemblance to things being proposed here, doesn't it?  But the important question isn't whether the logic seems reasonable, it's whether it actually works. You know, that testing of a hypothesis against reality?

Among the provinces, P.E.I. is the standout performer. The province gets a "B," but with a wage gap of 10.7 per cent it places fourth overall, after Belgium (3.3), Denmark (6.3), and Norway (7.1). Manitoba rounds out the top five with a wage gap of 13.2 per cent.

The next highest-ranking province, New Brunswick, places 9th overall and also gets a "B" with a gender wage gap of 14.3 per cent, in line with peer country the Netherlands (14.1). Ontario (16.2), Quebec (16.4), and Nova Scotia (16.4) get “C” grades with gender wage gaps comparable to those in the U.K. (16.9), the Switzerland (16.9).

Hmm. Quebec has greater paternity leave than places with lower gender pay gaps. And, also, places with higher. We actually appear to see no effect at all, no even correlation, between better paternity leave and the gender pay gap.

Agreed, it might all be a little early and all that. Perhaps a society of displaced Frenchmen is different. Or a still largely Catholic society is. But we don't have any evidence that the policy works, do we? 

Our own reading of this and the situation in general is that it isn't maternity or paternity leave itself which causes the pay gap, it's the decades long difference in life and work priorities that does. Something we think might be rather harder to change in a sexually dimorphic species.

The document that changed the world

Forty years ago, in 1978, 18 farmers from the village of Xiaogang in China, met at night in secret. They had seen subsistence and famine. Exhausted and emaciated, they lacked the energy to work the collective fields as Party discipline required. A few years earlier they had seen 67 of their 120 population starve to death in the "Great Leap Forward" Now they took matters into their own hands. By flickering lights (none had seen electricity), they came forward in turn to sign a document dividing up the collective farm into individual family plots, whose owners could keep most of the proceeds of their labours.

They knew the dangers, and added a clause to the contract pledging that if any were betrayed and executed, the others would raise their children until aged 18. Following that historic contract, the village produced more food next harvest than it had in the previous 5 years combined. Surrounding villages spotted what happened, and the farmers of Xiaogang were exposed.

Had Mao-Zedong been in power, they would undoubtedly have been exposed and executed for betraying the principles and cornerstone of Socialism. But Mao had died, and Deng Xiaoping, the great pragmatist, was consolidating his power. He held off punishment until their illegal experiment had been studied, and pledged to adopt their innovation across China. Famously Deng had said, “It doesn't matter if a cat is black or white; as long as it catches mice, it's a goodcat.” Xiaogang's practices were good; they caught mice.

China leapt from being a net importer of food into being a net exporter, and the Chinese economic miracle was launched. Its growth rates since have ranged between 7% and 10%. India and other nations followed suit, and the neoliberal hegemony began. Living standards doubled. Life expectancy doubled. Deaths from disease and malnutrition went down to a tiny fraction of what they had been, as did deaths in childbirth and infancy. It has constituted the greatest economic advance the world has ever seen, and the greatest improvement in history in the living standards and life chances for ordinary people.

It began with a piece of parchment secretly signed by trembling hands in the flickering light of 40 years ago, but it has reverberated around the world. Those 18 brave souls who defied authority to try a new way of doing things were the pioneers of a revolution that has transformed the prospects for humankind. We salute them today.

It's definitely, absolutely, a measurement error - just, well, how large a one is it?

As Paul Krugman pointed out, productivity isn't everything but in the long run it's pretty much everything. That productivity of labour is the largest, by far, determinant of future living standards. Thus the recent slow down in the labour productivity numbers is something to worry about. Most people getting this wrong, including Martin Wolf:

One possible explanation is mismeasurement. It is, and always has been, difficult to measure the impact of new technologies, particularly now when many services are free and many are provided, invisibly, from outside the US. Yet it is hard to accept that measurement suddenly became more difficult in 2005, when the US productivity slowdown began.

He mentions that only to dismiss it as not being the true reason. Yet it is the true one, Hal Varian is right, GDP doesn't deal well with free.

The various possibilities are that we're not having a technological revolution, we're just about to have one, the rich are taking all the gains, or we're measuring it wrong.

So, the example we've oft used. WhatsApp provides telecoms services to some 1 billion people. It takes the labour of some 200 people to do so. There is no price associated with this service. No advertising, no fee, therefore where it appears in GDP is a little odd. For the only thing we do see are the wages of those who provide it. We just don't see any consumption nor production value, only those costs.

The effect of this is that WhatsApp appears in our global economic statistics as a reduction in labour productivity. We've got labour costs, no associated production nor consumption, that's a decrease in productivity.

So, we've a system whereby 1 billion people getting free telecoms off the labour of 200 people is recorded as making us poorer, lowering labour productivity? That's madness, isn't it. It's also an obvious measurement error. Thus the answer to our productivity problem is measurement error, isn't it?

The only thing left to argue about is whether measurement is some, most or all of the problem. We'd say more than all of it ourselves but we're willing to listen to counterarguments.

Madsen Moment – The Minimum Wage

On Monday we gathered in Parliament's Terrace Pavilion to hear Professor David Neumark deliver the annual Adam Smith Lecture. This year it was on the impact of the Minimum Wage in the USA and the UK.

Building on what we heard at the lecture, Dr Pirie uses this week's Madsen Moment to explain why the policy fails its most basic test – helping the poor.