Perhaps the coronavirus really does change everything

While we were entirely happy with most aspects of society BC - Before Coronavirus - we are aware of the clamour insisting that everything must be different after it:

California Gov. Gavin Newsom says 170 ventilators shipped to Los Angeles by the federal government to deal with the coronavirus crisis were “not working.” The Los Angeles Times reports that the life-saving machines from the national stockpile are now being fixed by a Silicon Valley company Newsom visited on Saturday.

We are aware of the point that some things simply are not possible without government. But perhaps one of the things that will become clearer AC is that government just isn’t very good at any of the things it tries to do.

The logical conclusion from that being that where we’ve alternative methods we should use those rather than government. Saving the enforced collectivism for those moments and actions where There Is No Alternative.

When we add the already known point that there are many things that government - that enforced collectivism - cannot do at all then we’ll end up with very much less government than we have now. Which would be a useful silver lining, wouldn’t it?

We've moved the clocks forward, let's keep it that way

Now we have put the clocks forward, we will have longer, lighter evenings.

Lets’ leave it that way. Changing the clocks on everything is a hassle, and there is no scientific basis for it. In Britain, it started in 1916, based on the belief that lighter evenings would save energy during the First World War. In the Second World War we added yet another hour, with Double Summer Time.

But changing the clocks does not save energy. Several US states and cities straddle time zones, and there’s no difference in their energy use.

We’re told that farmers like it. They don’t: animals waiting to be fed don’t care what the clocks are saying. And farmers are only 1.5% of the workforce anyway.

My Scottish relatives complain that if the clocks didn’t go back in winter, children would be going to school in the dark and there would be more accidents. That’s wrong. Most road accidents happen in the evening—when people are tired after a day’s work and rushing to get home. Winter darkness just compounds the risk.

These arguments aren’t new. Boris Johnson rehearsed them in a newspaper article several years ago. Come October, he has the opportunity to do something about it—to improve our evenings and save us all a lot of hassle.

This is not the dawn of a new progressive age

We around here insist that we’re progressives. We’re also liberals and radical. However, where we differ from those who more usually call themselves radical, progressive, liberals is that while we agree that the power of the state is hugely important in being both liberal and radical we do have this niggling insistence that often enough it is less state which creates the radical liberalism. For example, unilateral free trade would be both radical and liberal yet it’s not exactly an extension of the activities or powers of the government now, is it?

However, put that aside and use progressive in its more usual meaning, someone who is insistent that we need more government to solve whatever ails society. Because there isn’t any money left to extend that power of government:

Spectre of soaring debt will haunt governments for years to come

Nations are borrowing hand over fist to battle the economic fallout of coronavirus, putting severe strain on their balance sheets

In general we don’t agree that every problem can be solved by throwing more tax money at it. But, as is obvious, that’s what is being done right now. And that means that there simply isn’t the fiscal room to be doing any more of that for the next few years, decades - generations if that’s how long it takes to pay off the spree - and therefore there is no room left for politics to be that conventionally progressive.

In which, of course, there is more than a glimmer of hope. We entirely agree that we should have a more radically liberal society and we’ve that antipathy to government being the vehicle for it. Antipathy based upon both preference and the logical objection that more government doesn’t actually work. The inability to finance more state intrusion will mean that all radical liberals are going to have to use other methods - markets, liberty perhaps, possibly even a culling of current state power - to gain that better world.

We really are where Liam Byrne said we were. The money has run out. Which is, actually, excellent, for now we’re constrained to solutions that actually work.

To show the terrors of cost benefit analysis we must perform a cost benefit analysis

There could be a reason why this gentleman is a Media Studies professor, not one of economics or logic:

In the late 18th century, Malthus warned that the poor would breed at a rate that would outpace the resources necessary to sustain a growing population, resulting in famine and misery. His predictions failed but were still deployed for decades to limit public amelioration of poverty.

Well, no, Malthus showed that they had and up to the point he wrote he was right too. It was capitalism and the Industrial Revolution that changed that historic truth. But leave facts aside and consider the logic here:

In the late 18th and early 19th centuries, Bentham promoted the idea that public moral decisions should be made to foster the greatest good for the greatest number, forging the calculus that has pushed policymakers and economists to invoke simplified “cost-benefit analyses” to decide if a measure is worthy of consideration.

Overall, this approach is a stark example of a troubling ideology that grips too many of those with power and influence in the world. Economism is a belief system that leads people to believe that everything can be simplified to models and curves, and that it’s possible to count and maximize utility in every circumstance. What economism misses includes complexity, historical contingency and the profound, uncountable power of human emotion.

To set up a false choice between driving the economy into the ground while saving millions of lives or reviving the economy while sacrificing millions of lives ignores a core fact: the global economic depression unleashed by the deaths of millions in the United States, millions in Europe, millions in Asia, millions in India, millions in Mexico and millions in Brazil would be beyond our experience or imagination.

No one would trade with anyone for years. Trade would grind to a halt because of mourning, fear of infection, society-wide trauma and social unrest.

Those last three sentences detail the costs of allowing the pandemic to rip through the population. We don’t agree with that analysis of what would happen for Spanish ‘Flu did exactly that, killing those numbers and more, and the 1920s were a great flowering of trade and economic growth. No, we would not justify Spanish ‘Flu on those grounds.

But look again at the logic there. We must not use cost benefit analysis, economism, to inform our decision making. For here is a cost that is very large, which outweighs the benefits of the decision being taken.

That is, we’ve just performed a cost benefit analysis to claim that we must not perform cost benefit analyses.

To retreat to economism once again, Adam Smith’s division and specialisation of labour. We might be better served if journalism on particular subjects were done by those who understood particular subjects rather than by those who understand journalism.

Only a thought.

You get what you pay for - well, you should at least

It’s not exactly a surprise that we’ll disagree with something said by John McDonnell. Yet it does still need to be said:

First, the self-employed and dependent contractors (those who are self-employed but provide a service as part of someone else’s business, such as Uber drivers) are not covered by the scheme’s guarantee of up to 80% of their wages. The self-employed are a diverse group, including cabbies and child-minders, plumbers and actors. The Federation of Small Businesses has been calling for the self-employed to be valued and protected. We agree.

It’s true that there is some variation in what self-employed people are paid. But the same job retention-scheme cap of £2,500 can apply to the self-employed. Recent average earnings can be used to estimate their income. Any inaccurate reporting can be picked up in tax returns filed for 2019-20. The self-employed deserve the same support as everyone else.

No, the self-employed do not deserve the same support as everyone else. For the self-employed have not been paying in to the system of social insurance in the same manner, or to the same amount, as everyone else.

National insurance really is what it says on the tin, a national system of insurance against the vicissitudes of life. Against happenstance, economic cycles and all that may ail employment prospects. The self-employed pay into this system at different and markedly lower rates than the employed. As a result they have fewer rights to payments from that national insurance scheme.

This is as it should be, you get what you pay for. The statement that people should - as McDonnell suggests - gain what they have not paid for strikes us as being wrong, simply and purely incorrect.

That something might be done is true, that it should be could be and that it will strikes us as likely. But this insistence that people should gain the insurance cover they’ve not paid for we still regard as wrong.

Just for the avoidance of doubt this particular piece comes from someone who is:

a) self-employed

b) unlikely to be offered anything under any scheme

c) not going to apply for or accept if they are.

For we around here think that conjunction between the walk and the talk to be important.

COVID-19 and Game Theory

As the UK faces increasingly severe lockdown measures, it is ironic that we are stuck in a very real prisoner’s dilemma.

For those uninitiated with game theory, the prisoner’s dilemma is a situation in which we have an incentive to make a choice that does not produce the optimal result for the group. 

In the classic case of the prisoner’s dilemma, two members of a criminal gang are arrested and imprisoned. They cannot communicate. The authorities cannot convict them on the main charge, but they can on a minor charge. If they both stay silent they get they both get the lesser charge, the optimal result between the two of them. 

But, if one speaks out then they are released, and the other person is put away for years. The incentive is for both to betray the other, in the hope of getting a reduced sentence, but which results in them both getting a medium sentence. The implication of the game is that two individuals acting in their own interest reach a suboptimal outcome.

Stuck in isolation, we have no idea as to how our fellow city-dwellers will act, and many choose to act in self-interested manner since they can assume others will as well. Let’s take the case of supermarket stockpiling. The media might have us believe that the virus has led to a plague of ‘covidiots’; revellers and hoarders hell bent on and single-handedly clearing out supermarket shelves. 

But are people acting irrationally? At a collective level, it is leading to shortages of goods. But in a direct sense, people are acting rationally. It becomes optimal rather than suboptimal to start stockpiling if everyone else does because their stockpiling creates the very supply problem they are trying to avoid in the first place.

No one particularly wants to hoard hand sanitiser, but will do so if they think others are doing so. The stockpiling of toilet roll doesn’t even have the same disease-preventing benefits of grabbing extra soap, but no one wants to be caught out without any loo roll if all their neighbours raid the local store shelves.

This perspective does not seem to be one entirely shared by supermarkets or the government, with the suggestion today that supermarkets will be advised to allow only 10 people in at a time, alongside the already implemented two or three items per person rules to stave off induced shortages. These policies are based on a cynical intuition that the majority of shoppers are irrational hoarders, that they will purchase these items whatever the price, and consequently that price rises are an equally cynical attempt at profiteering during an emergency. 

The item limit policies function as a blunt tool to prevent overbuying, but it comes with costs. It disproportionately endangers those who might need more like families and vulnerable members of society who will be forced to go into the shops more regularly to adequately supply themselves. This is likely to become increasingly difficult as further measures are taken to discourage time spent in public spaces. 

By increasing prices on certain goods like toilet paper, those who don’t want to be caught without it could opt to buy in smaller volumes, leaving more stock on the shelf and increasing buyer confidence that stock isn’t dwindling. In the case of meat and dairy, this has the added benefit of displacing demand onto cheaper vegetables of which there is a greater supply. As buyer confidence in the supply chain is restored, prices could be returned to standard levels. Government is rightly increasing welfare payments to compensate the least-well off for these short-term hikes. 

While perhaps counter-intuitive, raising prices in our current context is not a cynical cash grab, but an effective means of restoring consumer confidence and ensuring we can all access the goods we need during these strange and difficult times. While purely anecdotal, the supermarkets near me haven’t had eggs for days, but the corner-shop has plenty after raising prices to 40p an egg, and for that, I am glad. 

The broader experience of this pandemic might also point to other economic insights, like that of the tragedy of the commons, in which people overuse a shared resource. The classic case being overgrazing by farmers of a shared field of grass.

When the PM announced that pubs, clubs, bars and gyms should close down, he inadvertently created an incentive to flock towards public parks and holiday homes as the last vestiges of unrestricted leisure. What better time for a breath of fresh air than when your compatriots are cooped up inside?

Somewhat predictably, the media has us staring at images of parks heaving with joggers and tube stations chock-full of commuters (only worsened by the Mayor’s decision to reduce services at a time when people need to socially distance).

If everyone believes it is optimal for themselves to go to the park, it quickly becomes sub-optimal because the park becomes unpleasantly full, increasingly hazardous and precipitates further government lockdown. Social distancing is enforced either through individual inference or law enforcement. As per the tragedy of the commons, our own self interest has created a suboptimal state of affairs for everyone in jeopardizing public health, and incurring increasingly necessary restrictions on personal freedom. 

However, if YouGov is to be believed, 93% of us back protocols recommended by the Government, with those who do not forming a hyper-visible minority. Corroborated by recent observations that footfall in public spaces is dropping, we can conclude that as society adapts to this new normal, most of us will make mutually beneficial decisions.

Learning the lessons of the end of World War II

The Allies won a remarkable victory in World War II. Although among the victors, the UK was bankrupt and exhausted, its economy was in poor shape, and its infrastructure - roads, rail and telecommunications - was out-of-date and worn out. Its economy needed a reboot to refresh and renew itself to deal with the postwar world.

Instead, the UK government, a major recipient of Marshall Aid (far more than West Germany), and having negotiated a huge loan from the United States, squandered the money on building up an expensive welfare state, nationalizing industry, and trying to maintain the costly illusion that it was still a superpower. The sad story is documented in detail by Corelli Barnett in “The Lost Victory” (Macmillan 1995). 

The result was that while Germany and Japan saw reinvestment and renewal, the UK went into an economic decline that lasted for decades. Instead of abandoning the wartime restrictions and regulations, as other countries did, they lingered in the UK, hindering the country’s economic development and the process of renewal. The UK became the sick man of Europe.

There is an obvious lesson to be learned. Although extreme measures were needed to defeat the threat from Nazi Germany and Imperial Japan, they should have been temporary, as they were in other countries. Instead the UK retained many of the restrictions, to its long-term cost. 

To cope with the threat of the coronavirus, extraordinary measures have been adopted. An unprecedented economic stimulus has thrown away the rule-book, and restrictions on civil liberties have been introduced that are unprecedented in peacetime. The lesson to be learned from postwar Britain is that if these are needed to defeat the threat, they must be temporary. We must not continue to suffer under the burdens they impose to our economic well-being and our way of life once the threat is over.

Of course, there will be those who want to keep these measures in place in case they might be needed again in the future. The reply to this argument is that if they are needed in future, they can be re-imposed in future. But it is important to get rid of their burden until such a time, so that we might meanwhile prosper in freedom.

What we should now do is prepare a programme for the systematic removal of the emergency measures, both the economic ones and those that pertain to civil liberties, once the threat has receded. Even more than that, we should go further, going beyond the status quo that prevailed before the emergency, and removing some of the restrictions that held back our adaptation to the new economy. And we should undo the nanny state restrictions that thwarted our right to make our own lifestyle decisions concerning what we eat and drink and choose to live. After winning the war, this time we must win the peace.

Colin Hines still hasn't grasped the basics here

Colin Hines has spent the last decade telling us that if we can print billions, nay trillions, to save the banks then we can print billions, nay trillions, to spend on his Green New Deal.

Which means that Colin Hines has spent the last decade not grasping the basics:

Central bankers used “bankers’ QE” to help tackle the 2008 financial crisis and are now turning to “coronavirus QE”. While working to bring this latest threat to human health under some degree of control, it is time to also plan for “green QE” to fund a global green new deal to transform the health of the planet. In the UK this would involve the Bank of England e-printing hundreds of billions of pounds. A new national investment bank would issue bonds that would be bought using QE and the money used to fund a green and decentralised infrastructure programme. This could include a decades-long, multi-skilled initiative involving energy refits of all 30 million UK buildings, a shift to localised renewable energy and food production, and the building of local transport and flood defence systems. The last war led to the NHS; this one must result in a green new deal.

Colin Hines

Convener, UK Green New Deal Group

The entire point of QE is that you don’t actually spend the new money on anything. It is prestidigitation to lower long term interest rates, that’s all. The moment the money is spent on real and actual services and products out there in the economy it becomes not-QE, it becomes the monetisation of fiscal policy. Just printing money to go spend, rather than the manipulation of the money supply.

This second is what happened in Weimar Germany, is what John Law performed with his Mississippi scheme, a large part of what has brought both Zimbabwe and Venezuela to their knees and so on.

Far from being the “new economics” which will solve problems this is old, tried and discarded economics which creates problems.

As to why, all this printing more money can change the price of money - that interest rate being the price of the use of money over time - and it can change the value of the money itself, through inflation. What printing more money cannot do is create more resources within the economy to devote to this or that or any other problem we might like to solve.

Or as we might put it, sure there’s a magic money tree and it works only with money, not with anything real and important.

We’d rather hoped that Hines and others would have learned something over this past decade as many have indeed been stating this obvious truth. But apparently not.

Answering the wrong question but it's good propaganda all the same

We’re told, in The Guardian, that electric vehicles are the saviour of Gaia:

Electric vehicles produce less carbon dioxide than petrol cars across the vast majority of the globe – contrary to the claims of some detractors, who have alleged that the CO2 emitted in the production of electricity and their manufacture outweighs the benefits.

The finding is a boost to governments, including the UK, seeking to move to net zero carbon emissions, which will require a massive expansion of the electric car fleet.

That’s sorta true, dependent upon certain assumptions. This isn’t:

“The idea that electric vehicles or heat pumps could increase emissions is essentially a myth,” said Florian Knobloch of Nijmegen University in the Netherlands, the lead author of the study. “We’ve seen a lot of disinformation going around. Here is a definitive study that can dispel those myths.”

Jean-Francois Mercure, of Exeter University, a co-author of the study, added: “The answer is clear: to reduce carbon emissions, we should choose electric cars and household heat pumps over fossil fuel alternatives.”

The paper is here.

The crucial assumption is that the EV or ICE powered car is measured at doing 150,000 km over its lifetime. We already know from VW’s own advertising that the electric Golf only has lower emissions than the petrol one - over the lifetime - if the lifetime distance is more than 120,000 km.

OK, so, the embedded emissions from manufacture and disposal outweigh the fuel emission savings for cars heavily used. They do not for those lightly used.

This does not, therefore, mean that the manner of reducing emissions is to mandate, by law, that only EVs may take to the roads. What we actually desire is that the low usage and short distance fleet be ICE, the long distance be EV. Exactly the opposite of the current usage, which is the EV for the little trips around town and an ICE to trash on the long distance motorway journeys.

We come back, once again, to the point that the economy is complex. It is not possible to plan it, to mandate the optimal outcome through the law or regulations. Only the use of the price system can do this. For only that price system is capable of distinguishing correctly.

In this case, given that requirement for substantial distance covered before emissions are reduced the correct policy is to be taxing EVs heavily when they first take to the road, To account for those embedded emissions. Also to tax the fuel for the ICE - as we already do - to account for the emissions in use. That is, the tax system for EVs should be entirely the opposite of the one we have, where people are subsidised to take to the roads in 120,000 km of encapsulated emissions.

Taking both sets of emissions, equally, is the only thing that will give us the optimal outcome between the two forms of transport.

This is before we get to the important point here, that they’re answering the wrong question. They’ve shown, given their distance in use assumptions, that EVs have lower - but not no - emissions than ICE. Which isn’t what we want to know at all. Rather, the question we’d like answered is what form of transport - restricting ourselves to cars if we must - lowers emissions the most. Not just ICE v. EV, but those two versus fuel cell, hydrogen, algal oil, hybrid and on and on through the entire list of possible manners of propelling a tonne of steel on four wheels. Which is, obviously enough, an answer we don’t get if we ask only the question about EV v ICE.

But this will still be used as propaganda in favour of the EV, to the exclusion of all those other possible solutions. To the point that the law will be based on that binary choice instead of the entire universe of possible answers.

We have said that planning isn’t the way to deal with this problem, haven’t we?

No, don't close the stock markets, really, don't

There’s a bit of chatter floating around that possibly the stock markets will be closed over the coronavirus problems. No, don’t do this, really, don’t do it.

It’s entirely true that said markets are bouncing all over the place. But that’s because no one actually knows what is going to happen. We’re facing that uncertainty, not risk.

What needs to be remembered is the efficient markets hypothesis. Which doesn’t say that markets are the efficient manner of doing everything. It doesn’t even say that markets are the efficient method of allocating capital - although they largely are. Instead it says only that markets are efficient at processing information.

So, we face uncertainty. And at some point that uncertainty will collapse down into actual knowledge. Either because the thing(s) will have happened or because the knowledge in general of what will becomes available. We would like that knowledge, as it becomes available - that is, as information about infection rates, communicability, death rates and all that - to be processed. We’d even like to know, as best we can, what is the collective and aggregate opinion on what people and governments are trying to do about the current problems.

Markets are that information processing system. Closing them down just when we so desperately desire to use them for this process would be the utmost perversity.

Or, as we might put it, we can certainly dislike the messages brought to us by market prices, even rail against them, but they are reality as best we can work out what that is. Reality being rather what we’re supposed to take note of, the more extreme our situation the more this is so.