Toilet paper and Milton Friedman's four ways of spending money
As we all recall Milton Friedman said there are four ways of spending money:
“There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.”
Neatly illustrated here in this little tale of toilet paper:
We’re all becoming more aware about the damage single-use plastics and fast fashion has on the environment. Yet there is one product we all throw away every single day that, so far, has not been a major part of conversations about sustainability: toilet paper.
But America’s heavy use of toilet paper – particularly the pillowy soft kind – is worsening climate change and taking “a dramatic and irreversible toll” on forests, especially the Canadian boreal forest, according to a new report by two major environmental groups, the Natural Resources Defense Council (NRDC) and Stand.earth.
We appear to have a fundamental conflict here between those who would wipe and those who prefer Canada to have forests. Not that there is such a conflict, Canada’s large enough, with enough forests, that they regenerate faster than they’re cut down but still, that’s what we’re told. Leading to:
Major toilet paper brands have refused to use more sustainable materials, the report says, because Americans tend to more concerned than the rest of the world about ideal toilet paper texture in their homes, largely due to decades of marketing around toilet paper softness.
In Churchill’s letters there’s a part where he luxuriates in the soft stuff available on an American battleship compared to that of wartime Britain - this isn’t a new issue.
The authors offer a scorecard system to rate the brands that have the biggest environmental impact. It’s mostly the big brands of quilted paper that score badly, with Charmin Ultra Soft, Kirkland Signature and Angel Soft all receiving F grades because they contain little or no recycled material. Brands that use recycled paper, such as Seventh Generation and Natural Value, received an A grade.
Notably they say that “recycled materials are more commonly used in away-from-home tissue brands, like those found at offices or airports, where marketing for softness is less crucial”. So next time you’re greeted at the departure gate by toilet paper with a texture similar to a handful of gravel, you can take solace in the fact you’re saving the forests.
Or, as we might put it, those stocking the public toilets are spending other peoples’ money on other people, leading to not much concern about what is got…..
When Concorde first took flight
On March 2nd, the Anglo-French supersonic Concorde took to the air for the first time. Its maiden flight lasted 27 minutes, never exceeding 300 mph. The plane was later to fly at Mach 2.2, or 1,354 mph at an altitude of over 60,000 feet, nearly twice the height of conventional passenger jets. It could carry 92 – 128 passengers.
Backed by the British and French government, the costs were estimated at £70m. With delays and cost overruns not uncommon in government-backed projects, they eventually came to £1.3bn. The plane was a technological marvel, but an economic disaster because so few were sold. British Airways and Air France each operated seven aircraft, and there were six prototype and development aircraft built, making 20 in all. British Airways and Air France both ran it profitably only when development costs were written off.
It is rather typical of big government projects. Legislators and civil servants are not as cautious with taxpayers’ money as investors tend to be with their own. If government undertakes a big commercial project, it is a good bet that real commercial interests will not touch it. A popular phrase in the 60s and 70s was ”picking winners,” in which government was supposed to back projects that would pay off. Alas, “picking losers” would have described the policy more accurately. From DeLorean cars to the Meriden Motorcycles Cooperative, government always seemed to end up writing off the loans or investments it had made.
It is conceivable that Concorde might have worked if the development costs had been spread through several later derivatives, as Boeing did with its jetliners. A stretched version that carried more passengers, and other spin-offs that used the now-developed technology might have succeeded. But it was not to be. A fatal crash at Paris was reckoned to have been the beginning of the end for Concorde, and in 2003 it was retired.
It was undoubtedly a technological marvel. I flew it five times, and never tired of the thrill when the Mach-meter on the front bulkhead clicked up 2.0 in big red numbers. Otherwise there was no sensation of speed, even though it flew faster than a rifle bullet. I did take photos of a black sky and curved Earth seen though its small windows.
Several private firms are working on supersonic passenger or business jets, with the first prototypes due to fly later this year or early next. New technology on the airframe shape is expected to reduce or eliminate the supersonic boom that limited Concorde to breaking the sound barrier only over oceans. It did establish, at vast expense to British and French taxpayers, that there is a demand for faster air transport at premium prices, and no doubt more level headed private firms will develop aircraft that can tap into that demand and make the money from it that government failed to do.
The privatisation of probation - or a change in probation
A report out that recent changes to the probation service didn’t work. Or were costly, Or that privatisation was to blame. That last not being quite what was found although it will undoubtedly be what is said about it.
The thing being how the probation service worked was changed at the same time as who did the probation was. It therefore being more than a little difficult to blame anything on just the who.
Problems with the partial privatisation of the probation system in England and Wales have cost taxpayers almost £500m, the government spending watchdog says.
That’s what will be the political football, obviously enough. Privatisation, costs. Reality being just that tad bit more complex:
Prior to the reforms, which were designed to drive down re-offending rates, convicts who had served less than one year did not have to be supervised by probation services.
But from 2015 every criminal given a custodial sentence became subject to statutory supervision and rehabilitation upon release into the community.
The Ministry of Justice (MoJ) said this meant an extra 40,000 offenders were being supported each year.
The NAO report said that between January 2015 and September 2018, the number of offenders recalled to prison for breaching their licence condition increased by almost half, from 4,240 to 6,240.
Over the same period, the percentage of offenders recalled to custody who had received sentences of less than 12 months increased from 3% to 36%.
Checking more people led to more people being found in violation of their terms. Given that we’d rather like people not to be in violation of those terms this might be regarded as an increase in the efficiency or effectiveness of the service. And yes, obviously enough, a rise in the cost of the system. Banging up the criminals does indeed have a cost.
What we want to know about the privatisation or not is whether a not-privatised service would have cost more or less under the same terms and conditions. The one thing we don’t know - and the one thing that just about no one is going to discuss here either. But, you know, politics, just blame the privatisation.
The machine that emancipated women
On March 1st, 1873, E Remington and Sons of Ilion, New York, began production of the first practical typewriter. Before then messages were hand-written, and difficult to read if the writer had poor handwriting. The typewriter enabled words to be written faster and more legibly, and with standardized letters that looked exactly the same each time.
Its immediate commercial impact was that it speeded up business communication and made it less prone to error. Remington created the QWERTY keyboard, and went from selling 1,400 typewriters in 1882 to 14,000 in 1887. The QWERTY distribution was chosen because some people typed so fast that the mechanical rods attached to the keys stuck together. Under the new pattern, the most used letters were spaced out so the rods didn’t jam together. Remington’s success led to other manufacturers adopting the same layout.
In an article in The North American Review, 1888, "The Typewriter; Its Growth and Uses," P G Hubert wrote: “With the aid of this little machine an operator can accomplish more correspondence in a day than half a dozen clerks can with the pen, and do better work,”
The typewriter had a sociological impact as well as an economic one. Hubert also pointed out that the typewriter provided employment opportunities for women. Prior to that time, the most common jobs for women were in domestic service, with teaching being the main outside professional job for those better educated. He observed that typing jobs paid as much or more as teaching did.
The spread of secretarial jobs and the rise of the typing pool gave women new economic power. It changed attitudes, as women were now able to join the productive economy. Women had more opportunities for independence, and restaurants emerged to meet the lunchtime needs of female workers.
Opinions were at first divided, with some religious leaders deploring the fact that mixing the sexes in workplaces gave rise to opportunities for sin. On the other hand, others tied the growing economic power of women, made possible by the typewriter, to a more assertive determination to become full citizens by acquiring the right to vote.
Having ruled for nearly a century, the day of the typewriter drew to a close, its remains preserved in the keyboards of our computers like flies preserved in amber. Even those keyboards might soon fade away as voice recognition technology supersedes them.
Just a little story about technological advance and living standards
One of the advantages of ageing into maturity is that one can recall what it was like. Until one has aged through into senescence of course. About which. At about the arrival of the majority of one of us mobile phones were really a pretty new thing. Airtime was £1 a minute, about what the hourly wage was at the low end. The capital cost of one of the new phones - which had to be bolted into a vehicle to be useful - was about that of a reasonable second hand car.
A journalist wanted to call the UK head of IBM. Did so, called that mobile car number, and was told !”I’m sorry, he’s on the other line”. This was sufficient evidence of truly conspicuous consumption that it was written up in the computer press.
This morning a quick email exchange ended by a “Well, I’m just about to get on a plane”. Followed minutes later by the revelation that said plane, from NZ to the UK, had WiFi and thus email free to passengers.
Yes, obviously, the value of all of this depending upon what people have to say to each other.
And yet there are those who insist that living standards haven’t budged in these past few decades. That real wages just haven’t risen. That’s not an assertion that’s really viable, is it?
Nylon and the double helix
Both nylon and DNA play major roles in today’s economy, and both were discovered on February 28th of different years. Wallace Carothers, working for DuPont, invented nylon in 1935, while Francis Crick and James Watson on this day in 1953, excitedly told friends about the double helical structure of DNA.
The significance of nylon is that it is a fully synthetic fabric, made entirely from chemicals. There had long been semi-synthetic fabrics made from animal or vegetable products, starting with linen, made from flax and dating back thousands of years. Rayon, another semi-synthetic made from wood, was first produced in 1905. Nylon, made from petroleum products, was the first commercially successful fully synthetic fabric. Women’s stockings made from nylon were shown at the 1939 New York World’s Fair, and the product came along just in time to replace imports during World War II. It was used for parachutes and ropes throughout the war.
Carothers was not primarily motivated by money, though his move from Harvard to DuPont nearly doubled his salary. He had an enquiring, problem-solving mind, and liked to take on difficult challenges and succeed where others had fallen short. Nylon was his greatest achievement, although he was also a key figure in the development of neoprene synthetic rubber. Unfortunately, he never lived to see the full success of nylon. He was a depressive, and committed suicide in 1937, not knowing the degree to which his achievements had left their mark on the world.
Francis Crick and James Watson worked at Cambridge using X-ray crystallography data from Maurice Wilkins and Rosalind Franklin. Watson’s book, “The Double Helix,” is regarded as a classic of popular science, telling the story of their discovery in a gripping first-person account. It was a race to be the first to decode the structure of DNA, with Linus Pauling as their main rival. Both worked feverishly, desperately afraid that someone would beat them to it. When they finally realized it was a double helix, they dashed to the Eagle pub in Cambridge and drew the double helix in beer on the table to explain it to their friends. It’s a pub I sometimes visit, and it has a plaque marking the discovery.
They were awarded the Nobel Prize in Physiology or Medicine in 1962, jointly with Wilkins. Franklin had died tragically young aged 37, four years earlier, and could not share the prize because it is not awarded posthumously. Although the Nobel Prize came with a substantial sum, this was not what motivated them. They did it for the excitement and achievement of discovery, like Carothers, and had the additional motivation of glory. They wanted to be acclaimed by their peers, and knew that success would likely bring the coveted prize.
In both cases the discoverers made the breakthrough, but entrepreneurs turned it into commercial success. DuPont made handsome returns by promoting both nylon and neoprene with aggressive market strategies. And many businesses have profited by applying the discovery of DNA to practical and medicinal uses. I had significant portions of my genome mapped by 23andMe shortly after the company was founded in 2006. Now I am in the process of having my full DNA sequenced by a commercial firm that does so.
It is important to understand that it takes not only discoverers moved by the thrill of solving the problem; it also takes entrepreneurs to turn that discovery into something that people will willingly pay for. Nylon and DNA are but two examples of something that happens all the time.
We agree with Vince Cable's facts, it's the interpretation which.....
We have a certain little disagreement with Sir Vince Cable here. We’re not arguing the facts in evidence, rather the implication of them.
Given that we’ve rather expensive housing in the UK the idea that we should subsidise people to buy housing does seem a little odd. As we’ve been saying - shouting - these years it would be better to increase supply, that thing which is known to reduce prices at any given level of demand. That’s not what the government decided to do, as we know, and as we argued against. The reason why we argued against being what would happen:
Housebuilder Persimmon made a record-breaking £1bn profit last year – equal to more than £66,000 on every one of the homes it sold – with almost half of its house sales made through the taxpayer-funded help-to-buy scheme.
Well, yes, stoking - subsidising - demand is going to cause that sort of thing:
Vince Cable, the Liberal Democrat leader, accused Persimmon of “pinching their profits from the public purse”, adding: “Far from benefiting first time buyers, the major effect of help-to-buy is to drive up demand while having no effect on supply. The result is not help for those who need it, but a boost to the profits of big developers.”
The blame attaches though not to Persimmon. Economic actors can only react to the incentives government puts before them. The blame attaches to the damn fool way the government decided to spend our money. Something we would prefer Sir Vince to have emphasised despite his general insistence that more of our money being spent is the solution to everything.
If we desire more houses, or lower prices for them, then we want to increase supply, not subsidise demand. Be worth pointing that out, no?
NHS CEO gets yet another boss
One has to feel sorry for Simon Stevens, the long-suffering CEO of NHS England. Every chief executive has a Chairman but few have ever lambasted their own organisations to the extent that Lord David Prior last week criticised the NHS and, by inference, current and previous Secretaries of State: “Do you know any other big organisation in the world that hives off its digital strategy into a separate organisation, that hives off its people and HR strategy into a different organisation, and splits its purchasing function from its sales function? Because that’s where the NHS has been. You could not have designed something that has inherently, at its heart, more dysfunctionality.”
A major part of the problem is the sheer number of quangos and committees telling Stevens how he should do his job. The Taxpayers Alliance suggested last year that the 19 health quangos could be reduced at a stroke to seven, saving three quarters of a billion pounds and releasing top managerial time to improve NHS England.
Instead of that, Health Secretary Hancock today announced yet another meddling quango: “NHSX: A new joint organisation for digital, data and technology”. The press release says “The CEO of NHSX will have strategic responsibility for setting the national direction on technology across organisations. The CEO will be accountable to the Health Secretary and chief executives of NHS England and NHS Improvement.” Odd that. If digital technology is to be the saviour of the NHS as the Health Secretary believes and NHSX will be in direct charge of it, surely NHS England will be accountable to NHSX, not the other way around. We already have a similar problem with NHS Improvement, i.e. which is in charge of change and therefore who reports to whom? This compounds it. In Lord Prior’s language, do you know of any big organisation in the world that hives off development to outside agencies?
But it gets worse because NHS Digital already has all the responsibilities now being ascribed to NHSX and NHS Digital employs 6,000 people to do them. It also has the ambiguity of being part of the NHS and independent from it. It is also supposed to have the same relationship with social care except it does not bother to do that at all.
Today’s press release quotes Sarah Wilkinson, chief executive of NHS Digital, as saying: “This new joint venture between the organisations who currently define digital strategy and commission digital services will create cohesion in these activities by concentrating work and capabilities in one unit.” So all this digital leadership will become a single entity? Dear me no. She goes on to say: “Within NHS Digital we view NHSX as an important and welcome initiative and we are absolutely committed to working closely with colleagues in NHSX to make this new venture a success.”
Quite frankly, this is Yes-Minister-speak for “These two organisations will fight like cat and dog.” Creating a fight without purpose in the biggest public sector department, what a fantastic use of taxpayer funds.
Lord Prior is right: NHS England’s CEO needs fewer bosses but more responsibility.
Lord Byron defended the Luddites
On February 27th 1812, two week before the publication of Childe Harold’s Pilgrimage brought him instant fame and considerably more wealth, Lord Byron delivered his maiden speech in the House of Lords at the age of 24. It was a stirring defence of the Luddites, the machine-breakers who smashed the textile machinery that threatened their jobs. They were an oath-based group who met at night, masked and in numbers, to break into Midlands textile factories and destroy the machines they housed.
Byron was opposing Perceval’s Frame Work Bill, which introduced the death penalty for that and related offences. His case was that the men who did this had no alternative but starvation. He said:
“But whilst these outrages must be admitted to exist to an alarming extent, it cannot be denied that they have arisen from circumstances of the most unparalleled distress.” And that:
“nothing but absolute want could have driven a large, and once honest and industrious, body of the people, into the commission of excesses so hazardous to themselves, their families, and the community.”
Byron claimed that the machines destroyed the livelihood of the poor, simply in order to make the mill owners more rich.
He was right to spot that new technology often causes distress to those whose practices it makes outdated and unnecessary, but he did not realize that it also creates new jobs, together with increased productivity and wealth. The Industrial Revolution greatly boosted the standard of living of working people, and created the wealth that enabled medical advances and improved sanitation to better their lives. The machines whose destroyers he defended enabled goods to be produced more cheaply, to become more affordable, and to sell in wider markets.
The typewriter greatly reduced the demand for scribes, but it made vastly more new jobs possible. The word processor and the computer also outdated some jobs but created more. People today worry that Artificial Intelligence will make many jobs redundant, which it will, but it will also create new jobs. It will increase productivity and the wealth of society, and will generate new jobs from the augmented spending power it will sustain.
No masked and armed gangs are yet breaking into premises to smash computers like modern age Luddites, but if they did, no doubt some latter-day Byrons would rise up to defend them. And if they did, they would be just as wrong and short-sighted as the original Byron was.
Schrödinger’s Basic Income: What Does the Finnish UBI Experiment Really Show?
The preliminary results of the Finnish Universal Basic Income (UBI) experiment (2017-2018) have been released. So, what does the preliminary evidence from the experiment show? The unwelcome answer is: not much – at least not much that we didn’t already know based on previous studies.
In the famous thought experiment by the physicist Erwin Schrödinger, the cat in the box is simultaneously dead and alive. Similarly, the Finnish UBI experiment is simultaneously a success and a failure, depending on one’s background assumptions and interpretive slant. In behavioural psychology, the concept of “framing” explains how the same situation can be explained in wildly different ways (sometimes even diametrically opposed), depending upon one’s frame.
As an illustration, here are two contrasting headlines about the same experiment:
“Universal income study finds money for nothing won't make us work less.” - New Scientist, February 8, 2019.
“Universal basic income trial in Finland fails to help unemployed people back to work.” – The Independent, February 8, 2019.
Which one is correct? Or are they both right? (Spoiler alert: yes.)
Despite some false reporting in the global media, the Finnish UBI experiment ran its uninterrupted course for the two years (from January 2017 to December 2018) and has now concluded. The primary aim of the Finnish UBI experiment, as stated by the centre-right government, was to test whether UBI could be used to incentivize employment. The target group consisted of 2,000 long-term unemployed people, between the ages of 25 and 58, randomly selected from all over Finland. Participation was compulsory. The target group were given an unconditional monthly payment of €560, no strings attached, with the ability to top up their income from any other sources.
We will have to wait until 2020 for the final report, but the government has released some preliminary results based on a) employment data from the first year of the experiment and b) a phone survey conducted towards the end of the pilot. According to the government’s own report, the preliminary results suggest that “self-perceived wellbeing improved” and “during the first year [there were] no effects on employment.” If we combine these findings with comparable data from studies around the world, it is likely that UBI would not significantly reduce work incentives. Nor would it significantly improve them. The glass is half full and half empty, at least in the short run. The results also suggest UBI is likely to boost psychological wellbeing and health indicators of poor people—but again the size of the effect is subject to uncertainty; and it is unclear whether the boost is permanent.
Furthermore, it is important to realize that the Finnish experiment suffered from several methodological problems from the very beginning:
Observing the long-term effects, both economic and psychological, will take years, even decades.
The experiment excluded various key demographics – e.g. part-time workers, entrepreneurs, young people, and disabled people – who might benefit from the in-built flexibility of the UBI system.
The experiment did not include a regional saturation study, so we cannot say anything about the “network” effect of a whole community being involved with UBI.
The income tax system was not changed to accommodate for the UBI system.
Many UBI-recipients were still eligible to apply for various conditional unemployment and other benefits; and most of them did. This means that most UBI recipients were still subject to similar conditions as the people in the control group (which goes against the notion that UBI automatically liberates people from the constraints of conditional bureaucratic controls).
That’s a lot of problems with the Finnish UBI experiment. But, at least from the narrow perspective of employment prospects and work incentives, and based on all the accumulated evidence, it seems that UBI stands roughly shoulder to shoulder with workfare programs and conditional unemployment benefits – neither better nor worse. Similar results were found in the Canadian and United States experiments half a century ago. And from the point of view of intangible benefits – such as psychological wellbeing, freedom, and dignity – UBI seems to perform better than its competitors. Therefore, given that there is no evidence of a looming incentive catastrophe – such as an epidemic of laziness – it seems to me that the experimental evidence allays many of the common fears about UBI.
However, the current fascination with randomized control trials (RCTs) and evidence-based policy (EBP) is a double-edged sword. Ideally, it can be used to stress test controversial policies. In practice, however, it contributes to a misunderstanding of both politics and science, because it obscures a) the biases and heuristics that drive actual government policy and b) the inherent uncertainty in the scientific data. Furthermore, a small-scale experiment can only give a glimpse of the behavioural responses that can be expected in a wider-scale implementation. An excessive use of experimental data may therefore lend a thin layer of scientific credibility to technocratic policy making – a credibility that it desperately craves but rarely deserves.
It is a little bit ironic that UBI is being tested by such a technocratic tool as an RCT experiment, since UBI supporters often express a healthy scepticism about the capacities of technocratic governance. UBI would constitute a paradigm shift that transfers powers away from the meddlesome, convoluted bureaucracies that characterize the existing benefit system. It could hopefully give poor people an increased sense of freedom, security, and dignity. But UBI is not a perfect system, and it comes with many potential dangers. Firstly, it needs to be set on a sound fiscal footing and constrained by institutional checks and balances. Secondly, it should be implemented as part of a broader range of liberalisation reforms in labour markets, entrepreneurship, and technologies. (For a broader discussion of the design parameters of an ideal UBI system, see my research paper for the Adam Smith Institute.)
Overall, these kinds of experiments are a Rorschach test for the reader: one is liable to see what one wants to see. The lack of an employment effect, for example, can equally be given a positive or negative spin. The power of narrative shapes the political discourse as analysts from all sides are liable to interpret the same incomplete and inchoate data as definitive proof of their own biased predisposition. Drawing overconfident and unwarranted conclusions from the partial and incoherent data makes for exciting headlines for zealous newspaper editors, but it does not constitute good science nor good governance. In order to avoid diluting the scientific value of these experiments, it will be necessary to educate both the public and the politicians about the dangers of over interpreting experimental data; and to show them that the welfare of the poor is not amenable to scientific micromanagement. UBI will not kill us – but technocratic hubris might.