If only Owen Jones could understand
Of course this is the usual reaction to any statement from Owen Jones but still, the point is particularly stark here. We’re asked why climate change is being treated quite as urgently as coronavirus:
Coronavirus poses many challenges and threats, but few opportunities. A judicious response to global heating would provide affordable transport, well-insulated homes, skilled green jobs and clean air. Urgent action to prevent a pandemic is of course necessary and pressing. But the climate crisis represents a far graver and deadlier existential threat, and yet the same sense of urgency is absent. Coronavirus shows it can be done – but it needs determination and willpower, which, when it comes to the future of our planet, are desperately lacking.
The answer being that climate change isn’t an urgent problem like coronavirus.
Staying within that IPCC scientific consensus that Owen thinks we should all sign up to climate change is a chronic problem which will take decades to deal with and which we’ve got decades to deal with. Therefore there’s a certain difference in the urgency with which we deal with it as opposed to something that might put entire percentage points of the population into hospital beds in the next week or three.* It’s differently urgent which is why we’re dealing with it with a different urgency.
We do assume that logic exists somewhere in OwenWorld it’s just that we’ve not seen all that much evidence of it.
*Yes, alarmist and over sensational but absurdist rhetoric….
Socialism, worse than a pandemic
Reports from Australia of the country running out of toilet paper. At which point a newspaper publishes a special edition with some blank pages to be fundamentally comforting. We can think of a few columnists they could have reprinted to the same effect but all the same, a jolly jape.
One point we might take from this being that the bathroom cupboards of the nation have more storage space in them than the warehouses and supermarkets of the supply chain. That’s why filling up the one entirely empties and more the other. This also being generally true - it’s a standard observation that the petrol tanks of the nation’s vehicles have greater capacity than the entire supply chain. If everyone wholly tops off their tanks then the petrol stations run dry.
Even, that one of the advantages of this market and capitalism idea is that our larders no longer contain months of supplies, we’ve contracted that out.
It’s also possible to make a more forceful point. Venezuela famously ran out of toilet paper. Not for a few days, propelled by worries over disease, but for years, from nothing more nor less than bad economic policy.
Newspapers couldn’t fill the gap as there wasn’t the newsprint. The only paper there was an abundance of was the currency, that being in pieces too small to be put to the most practical of uses. Which gives us a useful conclusion.
Socialism is worse in its effects than a pandemic which might kill the odd 100 million of us*. Which sounds a little harsh until we recall that last century’s attempts to impose socialism also killed 100 million as well. Thus we really do have to say that it’s worse than a pandemic, don’t we?
*Spanish ‘Flu did.
Why we do not need a riches line
A recent article in the New Statesman by Anoosh Chakelian was titled ‘To match the poverty line, experts are now drawing a ‘riches line’ for too much wealth.’ Thankfully the article was not as bad as the title may suggest (which again serves as a healthy reminder to those who love to dive into the comment section on Twitter). It certainly was not as bad as George Monbiot’s incredibly misguided article asking for wealth limits.
Ms Chakelian was mainly discussing this report which outlined public perceptions of different levels of prosperity. The majority of society is split into 5 bands, ranging from A - ‘The minimum income standard’ to E - ‘The Super Rich.’ It goes without saying that we should obviously be trying to move people up these bands (and prioritising the ascent of those closer to the bottom) rather than trying to move people down or restricting access into higher bands because they have already reached what we have deemed a satisfactory amount.
Thus it was heartening to see that ‘only at or above Level D that any negative aspects of being rich were expressed’ and that ‘focus groups’ responses suggested there is “no appetite for defining a threshold above which riches are problematic.’” However, this should be no surprise when considering the rejection of the politics of envy in the last three elections.
Although we should be desperately seeking to raise those currently in Bands A and B out of them, it is worth considering that things such as a mobile phone, a holiday away, as well as ability to eat out at very specifically described ‘restaurants with £15-£20 main courses’ were things unavailable to many until fairly recently (and still shamefully unavailable to a small few currently) and also would be regarded as luxuries by many around the world.
The poverty line is an incredibly useful tool. It helps focus minds to help those below it and clearly demonstrates the remarkable progress made over the years. Indeed it would be nice to look back in 50 years time and see some of the aspects of Bands D and E such as five holidays a year, yachts and pedigree pets become much more normalised and enjoyed by all or at least many.
What would be a tragedy though is if this future was sacrificed so that everyone could just sit stationary in bands B or C. Maybe it’s good that ‘people identify with the wealthy as their imagined or aspirational selves’ because they are not prepared to vote for policies that would make society settle for less. Maybe this aspiration helps drive entrepreneurship, technological development and many other features that help create value for society. And just maybe we should encourage this aspiration, while also appreciating that increased wealth creation helps provide the government revenue to help those who need a hand up out of homeless or aid those struggling at the minimum income standard who may need assistance.
Most people understand prosperity is not a zero sum game. So let’s get back to the conversation about helping those who are struggling, rather than deliberately pulling down those at the top.
More evidence that politics isn't the way to run things
Sure, there needs to be a decision making process. But politics isn’t it:
Rising and falling with the tides of the Humber Estuary, two giant mechanical arms work non-stop to empty the red cargo ships that have sailed across the Atlantic and through the North Sea to Immingham.
Wood chips from the forests of Louisiana and Mississippi are unloaded at 2,300 tons per hour to be whisked by train to Drax power station in Selby, and burned to create electricity for millions of homes.
At a time when the Government wants to plant millions of trees each year to suck carbon out of the atmosphere and is banning the use of wet wood in stoves, burning wood to power homes feels more counter-intuitive than ever.
Yet the use of low-carbon bio-energy –such as crops for vehicle fuel or wood chips for boilers – has been growing in a shift from fossil fuels. The Renewable Energy Association says bio-energy accounts for 7.4pc of the UK’s energy consumption....
Shipping American wood chips to the UK is generally found to have higher emissions than just burning coal in the first place.
The government is set to introduce E10 fuel containing 10% ethanol as a new form of “cleaner” petrol aimed at cutting carbon dioxide emissions.
Once all the emissions from growing the crops are added in bioethanol is generally found to have higher such than just using petrol in the first place.
It is true that the Stern Review claimed climate change to be the largest market failure yet identified. But as ever, we need to remember that just because market processes aren’t perfect there is no reason to believe that political determination will produce a better result.
For, as here, allowing the politicians to be subject to political pressures is entirely capable of leading to a worse outcome than doing nothing at all. Nothing - even an absence of political direction - therefore being a viable solution to more than just the one problem.
If monetary policy won't work then let's try Keynes
We have to agree to a number of provisos, accept for the sake of argument a number of assumptions, for this to be true. But let us do so - monetary policy is exhausted and therefore cannot deal with the economic effects of the coronavirus or other such matters. Therefore we should go back to Keynes:
Today, central banks in Japan, the UK and the US vowed to help stabilise financial markets by promising to ease the economic impact, causing stock markets to rebound. However, following the financial crash, central banks have few tools at their disposal to soften economic shocks. Interest rates are close to their floor and central bank balance sheets are still swollen by post-crisis quantitative easing, and it is not clear whether further asset purchases would be effective or politically possible. The burden of responding to the macroeconomic effects of the virus is therefore going to have to fall mainly on governments, using tax and spending tools, and not on central banks. Politics impeded the response of fiscal policy to the 2008 crisis in the US, the euro area and the UK; we have to hope that politics does not prove to be such an obstacle now.
Fair enough. As assumptions that is. So, given those assumptions, what’s the answer?
Well, it’s not spending more money. Obama wandered the country with $800 billion for two years, hunting for shovel ready projects - and found not a single one. We’re all still thinking about HS2 over here and that’s been going on for an entire business cycle already with less than 10% of the money spent as yet. Whatever we might think about infrastructure investing we have proven that it’s not a useful response to immediate variances in aggregate demand.
Any other form of government spending is either just the start of a permanent program or a simple distribution to the populace.
At which point we should do what Keynes himself advised:
You are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times.
Cut both employers’ and employees’ national insurance contributions - while still piling up the rights derived from them - when that boost to aggregate demand is required. One benefit is that it’s immediate, it flows through into pay packets within the month. A second is that the spending is not subject to politics, it’s what the people themselves want that gets bought.
A possible objection is Ricardian Equivalence, that people will simply save in order to pay the obvious future higher taxes to make up for everything. Yet this has been tested. The Bush Administration reacted in 2007/8 in two ways. Cutting checks for a few hundred dollars and sending them to everyone - these were largely saved, the equivalence held. The smaller in each payment once a fortnight (yes, American wages are largely fortnightly) but cumulatively similar cuts in FICA taxation were largely spent - equivalence did not hold.
Excellent, we have our Keynesian cure to monetary policy being at that zero lower bound. Cut social security taxation and watch the economy bounce back.
Fortunately, the current PM was recommending this very course of action back when he was just Boris. So there’s even a possibility that politics will get around to doing the right thing. Eventually, only 70 years after Keynes first pointed it out.
The aim is, of course, to not be self-sufficient in food
We do not desire, in the least, to be self-sufficient in food:
Extreme rainfall which has left parts of Britain underwater may push up food prices and pile pressure on farmers’ finances as crops are washed out, agriculture experts have warned.
Prolonged downpours have left land waterlogged and may cause shortages of homegrown produce as farmers are unable to sow. Time is running out for farms to save the harvest with spring planting, says the Agriculture and Horticulture Development Board (AHDB), which represents farmers.
There was a time when this sort of thing meant people dying of starvation. Lifeless bodies littering the ditches where they’d been trying to scrape some nourishment from whatever weeds had survived.
What changed was transport - the ability to bring in food, in bulk, from places not subject to the same weather effects. The solution today will be the same, these fields won’t be producing food, fine, we’ll bring it in from others which will.
Self-sufficiency would be a return to that earlier scenario though. All very local and low in food miles until that year there’s nothing to eat at all. The secret to food sufficiency is to have many suppliers across many geographies and weather systems. That is, sufficiency is guaranteed by dropping the self part.
Or, you know, trade - which makes it difficult to understand why people want to put our very lives at risk by reducing the international trade in food.
Who will pay for your care when you’re old?
Government would like individuals to finance as much of their own social care, in home and residential, as possible. But with care homes costing anything from £30,000 to £75,000 a year, few can cover that for long. It is widely agreed that having to sell family homes to meet care costs is unfair. The flawed 2011 Dilnot Commission’s first recommendation was “capping the lifetime contribution to adult social care costs that any individual needs to make at between £25,000 and £50,000. We think that £35,000 is an appropriate and fair figure.” But this excluded the “hotel” costs of residential care. The Dilnot recommendation 5 stated “People should contribute a standard amount to cover their general living costs, such as food and accommodation, in residential care. We believe a figure in the range of £7,000 to £10,000 a year is appropriate.” This was wholly unrealistic, being only about 10% of market rates. The government would pick up the tab thereafter. Their report makes no mention of international comparisons in general nor France in particular. Their report was first accepted and then rejected. No Green Paper or political consensus has since emerged.
Schools, the NHS, prisons and other public services claim to be underfunded but none lay as strong a claim as adult care. Between 2010 and 2013 adult care spending fell by 10% although by 2019 that shortfall had dropped by half (not allowing for inflation or increased demand, of course). Due to ring-fencing, the 34% of local authorities’ spending on public services in 2009/10 had risen to 41% in 2017/18, 40% of that on working-age adults, and 60% on the elderly.
Little, if any, thought has been given to how elderly care could be delivered more cost effectively. Home carers spend as much time (usually unpaid) driving between clients as they do with them. Even though dual worker households have increased, “the number of unpaid carers in England appears to have increased from 4.9 million in 2001 to 5.4 million in 2011” and probably more since. Yet informal carers’ allowances amounted (in 2018) to a maximum of £1.77 per hour. England spends more per capita on adult care than France and yet it has proportionately fewer aged over 80. The private and voluntary sector picks up 33% of the tab, more than France, Germany, Japan, Spain or Italy. [1]
“Germany’s long-term care system is delivered primarily through public health insurance. While mandatory for all working people, individuals can opt out of the government programme and take private health insurance instead. Germany’s long-term health insurance is designed to cover only basic needs and not the full cost of care. Users are expected to pay some of the costs – particularly for institutional accommodation – through private funds, private insurance schemes or, if required, means-tested welfare payments.” [2]
The French Allocation Personnalisée d’Autonomie (APA) mandatory state insurance “covers between 0 and 90% of the cost of a person’s home care package with residential care paid for from their own contributions (often using private insurance). The requirement for high levels of co-payment from those with the highest incomes has resulted in [France having] the largest private insurance market of [France, Germany, Japan, Italy, and Spain].” [3] According to the OECD, “in 2010, the equivalent of 15 per cent of the population aged over 40 years had private LTC [Long Term Care] coverage, compared to about 5 per cent in the United States…Indemnity policies are the prominent model of private coverage arrangements in France, under which an individual typically pays annual premiums in exchange for a determined future stream of income (rente) once the individuals is deemed to have become dependent.” Yet the UK has none at all beyond private health insurance covering post-hospital care as part of the treatment.
Clearly the whole UK population cannot afford private care insurance but the private option should be considered, just as in health insurance, for those who want security, prompt availability and premium care. One way or another, general provision has to come from taxes however they are labelled.
There have been talks about creating this market but the main concern is that the general population, being unaware of their financial risk, will not buy policies, i.e. there is no demand. But people often do not realise their demand for a product until it is actually put before them and they see it working. Research almost always concludes that there is “no demand” for any new category. There was no demand for television before there was television. We found no demand for cream liqueurs when my company researched it in the 1970s. We launched Baileys anyway and it is now the largest liqueur brand in the world.
That said, the Government should incentivise private insurance because individuals, or their families, should be responsible for themselves, and because it saves the state money when they are. What does the government need to do to help a UK version of the French model thrive? Corporate care home operators would obviously like to have more, if they can do so at a profit, and local authorities would like the corresponding reduction.
A few suggestions:
Insurers need to cap their risk. Those able and willing to do so, should be able to build insurance “pots” covering, say, 6 years of residential or home care or the cash equivalent (about £300,000). Thereafter the local authority would assess, with the individual’s consent, the appropriate care package and extent, if any, of co-payments. One would expect those to be graded according to affordability. In other countries, individuals are expected to cover their accommodation whilst government covers nursing and other care costs. In France “for home care, recipients in the highest income bracket are required to pay 90% co-payment, while those in the lowest bracket are not required to share costs.” [4]
One option would be to have individuals start paying the insurance premia when they reach state pension age, i.e. when they stop paying national insurance. Joining earlier or later should be possible but, obviously, at a lower or higher annual cost. Assuming residential care is not required until the pensioner is in his or her late 80s, the “pot” would build up over 20 years or so. With less than one third [5] of those aged 65 or more needing residential home care at some stage, premia should be widely affordable. According to the 2011 England and Wales census, the number of residents in care homes remained steady at about 290K over the previous ten years despite an 11% increase in that age-group’s population. This was probably due to finance cuts hiding pent-up demand.
Given the low level of need for residential care, home-care only packages should be available as an alternative up to, say, £100,000 (Dilnot + inflation).
The pots should be held by not-for-profit charity subsidiaries of the insurers to allay objections to privatisation. The insurers should accept this “doing something for nothing” as it would not cost them anything but would increase the numbers seeking entry to their care homes.
The premia by individuals would therefore be tax deductible charitable donations. HMRC would need to bend their rule against personally benefiting from charitable donations. This already applies to donations to hospice charities.
Finally, these policies (and health policies too come to that) should not pay Insurance Premium Tax which, in 2015, was doubled from 6% to 12%. It is daft to penalise people for acting responsibly and saving the state money. The tax on insurance is three times that on gambling.
In summary, I propose the same kind of two-tier, private and state, funding for care as exists already in France and for health and education in the UK. Private insurance reduces the cost of state provision and provides choice for those who can afford it. These proposals should not be confused with just having mandatory care “insurance” operated by the state. As HM Treasury would not agree to hypothecation, universal mandatory contributions would simply become general taxation as National Insurance is.
[1] Incisive Health, “An international comparison of long-term care funding and outcomes: insights for the social care green paper”, 2018, p.47
[2] Ibid, p.7.
[3] Ibid, p.39.
[4] Ibid, p.7.
[5] 291K (3%) of the 65+ population was in residential care at the last census. With life expectancy 85+ and average long term stay of 2 years, then those who make it to 65 have a 30% chance of needing residential care at some point.
Clearly we need to slash government back to 19th century levels
The logical action to take as a result of this finding is not what The Observer would have us conclude:
But what was the effect of Franklin D Roosevelt’s New Deal, which saw US federal spending rise from 4% of GDP in 1933, to more than 9% by the end of the decade? Most answers to that question focus on its impact on unemployment and the economy. But an imaginative study has examined its impact on Second World War patriotism.
It turns out that what your country was willing to do for you had a significant link to what you were willing to do for your country. People in the areas of the US that benefited most from the New Deal were much more likely to engage in “patriotic” acts, such as buying war bonds. They also put their lives, not just their cash, on the line, being more likely to volunteer to fight and to do the kind of brave/dangerous things in battle that get you a medal.
The paper is here:
The rise of mass armies coincided with the coming of the social welfare state. Since the late 19th century, governments have added old age pensions, health care, and education to their primary tasks. Some of this expansion took place during wartime: governments have often made lavish promises of creating "homes fit for heroes", by expanding the welfare state after victory. A recent theoretical literature argues that the need for motivated soldiers and more manpower led to the big expansion of the welfare state, together with massive attempts by governments to spread nationalist ideology…
OK, the squaddie is willing to storm the machine gun nest because he knows that Granny will still get her pension.
Given that we all do think that mass armies going to war is a bad idea the conclusion is obvious. We must slash the cost of national government back down to that 3% or so in order to remove the willingness of people to undertake the task. Perhaps a little hard on Granny’s pension but better that than her flesh and blood left on some foreign field.
Government so minarchist that it’s not possible to have a war seems a pleasing method of not having war no more.
Combining National Insurance and Income Tax is an excellent idea
Which is why we’ve recommended it more than once around here before. Of course, there will be problems with such a combination. The payment of national insurance - at those different rates dependent upon employment status - gives rise to different access to welfare benefits for example. We think all of those can be managed, or at least are worth it given one important effect:
The idea of combining national insurance, which dates back more than a century, with income tax has circulated for decades, prompting a succession of chancellors to toy with the prospect of a vast shake-up. Nigel Lawson considered a combination in the 1980s, and George Osborne launched a review in 2015. Four years ago the Office of Tax Simplification recommended closer alignment. The Treasury raises about £193 billion from income tax and £137 billion via national insurance contributions each year.
The grander point being if we combine employers’ and employees’ NI into income tax. This would not change the actual tax rate as all of those are incident upon wages - employers don’t carry any of that burden. It would though make clear what that burden on wages is - 40% and more from just over the personal allowance up to the mid 50s percent for top earners.
That is, Britain is not a low tax society. Further, it might well be one which should have a more progressive taxation system. We can’t - as we’re already at the Laffer Curve peak - increase top end taxation upon income as Diamond and Saez have shown. In a system with allowances, something that cannot be changed given that the ability to emigrate is just such an allowance, 54% or so is about tops. So, greater progressivity can only be achieved by lowering the tax burden on the lower paid.
We’re just fine with progressivity, as Smith himself was - that greater than in proportion part. That given our current tax system the only way to provide it is less taxation is to us just a bonus. And making this clear would be a significant benefit of that merger of national insurance and the income tax system.
So, yes, let’s do it.
We thought we were all in favour of devolving power these days?
Of course, we’ve always been in favour of devolving power. That’s what markets are, we as individuals deciding how we’re going to live our lives within the constraints reality imposes upon us. But putting that aside there’s a general agreement that power needs to be devolved downwards in Britain. From Whitehall to local areas, from national to regional and county/city, from the centre to the periphery.
At which point we get this complaint:
Since winning a majority of 80 in December’s snap election, Johnson has gone a little camera shy. When an Iranian general was assassinated, the prime minister sent his foreign secretary, Dominic Raab, to deal with the fallout while he finished his Caribbean break. When flooding hit areas across the country this month, rather than get out there with a mop as he had done during the general election campaign, Johnson chose to stay at one of his grace-and-favour residences and left the environment secretary, George Eustice, to take the lead instead.
The minister for dealing with Johnny Foreigner matters deals with a Johnny Foreigner matter, the minister for Hullo clouds, Hullo sky (chiz) matters deals with a Hullo clouds, Hullo sky matter. This seems appropriate to us, as with whoever deals with taxes doing so and so on. The idea that the one atop the pyramid must deal with - or at least emote over - everything strikes us as going against the very grain of the original insistence.
Of course this is politics so asking for either logic or consistency is a fool’s errand but then that’s why politics is such a bad way of dealing with things. And thus our original insistence that absolutely everything that can be be devolved down to the individual and thus escape politics altogether. The country where the Prime Minister has little to comment upon because the PM is responsible for little strikes us as a place which is at least heading toward being optimally free and liberal.