The unwelcome return to the use of petitio principii in public policy

Given that one of us wrote a standard work on the use and abuse of logical fallacies it’s worth our pointing at the return of one such to the public realm. As that source says about petitio principii:

The fallacy of petitio principii, otherwise known as “begging the question”, occurs whenever use is made in the argument of something which the conclusion seeks to establish…(,,,),,,It might seem to the novice that the petitio is not a fallacy to take for a long walk; it seems to fragile to take for any distance. Yet a short look at the world of political discourse reveals petitios in profusion,…

Indeed so and here’s a glory of an example:

The Institute of Race Relations thinktank said it would be hard to have confidence in the commission’s outcomes.

“Any enquiry into inequality has to acknowledge structural and systemic factors. Munira Mirza’s previous comments describe a ‘grievance culture’ within the anti-racist field and she has previously argued that institutional racism is ‘a perception more than a reality’,” a spokesperson said. “It is difficult to have any confidence in policy recommendations from someone who denies the existence of the very structures that produce the social inequalities experienced by black communities.”

The Labour MP Diane Abbott, a former shadow home secretary, said: “A new race equalities commission led by Munira Mirza is dead on arrival. She has never believed in institutional racism.”

The question we’d like an answer to is how much is racial inequality to do with institutional and or structural racism and how much to do with demographics (the BAME population is rather younger than the non-BAME), status as recent immigrants, the terrors of inner city educational systems, any cultural factors anyone wants to throw in the pot and so on? We’d like to know what is going on and why.

The insistence here is that anyone who does not already leap to the conclusion that it’s entirely structural and institutional racism may not be allowed to even run the investigation. That is, no one not committing the logical error of petitio principii is allowed to ask the question - only those who beg it can be included.

Demanding that an inquiry into what we agree is an important question start with a logical fallacy doesn’t seem like quite the way to run a country to us. Perhaps it’s us that’s out of kilter though, presumably because we have actually read - and one of us written - that book on logical fallacies and are therefore informed upon the matter.

Happy Birthday Adam Smith (maybe)!

Possibly. We know when his birth was registered, and normally that would be a couple of days after the event itself. The registration was in early June 1723, but since the calendar changed in 1750, you have to add a few days, so 16 June seems close enough.

His childhood in Kirkcaldy, a small working port on Scotland’s east coast, was largely uneventful, except for briefly being kidnapped by vagrants. But the local school did give him a good education—a school system which he later praised. It was good enough for him to win a scholarship to Balliol College, Oxford—which he later definitely did not praise. Indeed, he found that the professors there had “given up even the pretence of teaching” because they got paid whether they taught or not. 

On his return—the journey took a month each way, on horseback—a family friend arranged for him to do some public lectures in Edinburgh, after which Smith secured a teaching position at the University of Glasgow. There, he wrote a book on ethics, The Theory of Moral Sentiments (1759), which brought him instant fame. Enlightenment thinkers sought a firmer foundation for ethics than the dogma of clerics and commands of kings. Some sought ‘rational’ alternatives. Smith, however, identified morality as a feature of human social psychology. We have a natural sympathy for others. Their pleasure or pain affects us; and we like to please them:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

That natural sympathy binds and benefits the whole human species.

On the strength of Theory of Moral Sentiments, the Duke of Buccleuch’s stepfather hired Smith, on a £300 pension for life, to tutor Duke, aged only 12. Taking him on the Grand Tour of Europe, Smith picked up endless facts about different systems of commerce and regulation. He started writing The Wealth of Nations, weaving current and original ideas into a new, systematic, modern approach to economics.

The Wealth of Nations was both an economic treatise and a polemic. It debunked mercantilism, the prevailing system by which countries tried to boost their cash resources by selling as much as possible to others, but buying as little as possible from them. So, they subsidised exports and raised resisted imports. 

But both sides benefit from trade, said Smith, not just sellers. The sellers get cash, but the buyers get goods that they value more than the price. What makes a country rich is not the gold in its vaults, but its vibrant trade and commerce. Wealth came from liberating commerce, not restricting it.

The division of labour made free commerce even more productive. Specialist producers can be thousands of times more productive than amateurs. They can produce more than they need, selling their surpluses to buy capital equipment that makes them more productive still. They do this for their own ends, but their actions benefit everyone:

Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

This commerce automatically steers resources to where they are needed. Where things are scarce, consumers will pay more, so suppliers produce more. When there is a glut, prices fall and producers switch their effort into more profitable lines. So, without any regulation and planning:

[T]he obvious and simple system of natural liberty establishes itself of its own accord. Every man...is left perfectly free to pursue his own interest in his own way.... The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.

This liberal system benefits the poor most. Smith hated merchants using their political influence to win monopolies, tax preferences, controls and other privileges that distort markets in their favour—today’s crony capitalism. Instead, government must be limited to its core functions of providing the defence, justice and infrastructure that enables commerce to succeed. Leave people free, and the results will amaze you. 

Which seems a good message for today. Happy birthday, Adam Smith!

Well, if you don't understand how markets work......

….then you’re not going to be all that good at designing structures to correct what you see as the failures of current markets. This being something the Social Market Foundation is guilty of in its latest report.

Their analysis is that there’s that plethora of lovely infrastructure projects that can usefully be done. They might even be correct there although we’ve our doubts. They then say that pensions money should be mobilised to fund those projects. Long term savings funding long term projects doesn’t seem to be a problem.

But, they muse, large projects are large, so pensions funds should be large so that they can fund large projects:

Urgent pension reforms should be undertaken to give Britain fewer and larger pension funds

with the scale required to make major infrastructure investments. Learning from Australia and

Canada, the UK should pursue a strategy of creating large “superfunds” able to invest in large

illiquid assets. Pension scheme charging rules should be reformed to allow funds of sufficient

size to pay management fees for infrastructure investments.

No, that’s nonsense.

For a start it’s terrible investment policy, to concentrate the risk of a large project into the one pension fund. For diversification is our friend here. Assuming that we desire pensions savings to fund these large projects we want many different pensions funds to each fund a slice of each different project. On exactly the same grounds that we have pensions funds to fund pensions in the first place, we have diversified investments. This is what the idea of the fund does, we agglomerate the savings pool then allocate it in small slices so that all potential pensioners gain access to that diversification they can’t get individually.

It’s also remarkably unobservant. London is home to the world’s deepest and widest financial markets. Where it’s possible to invest in stocks and bonds doing near anything. And to float stocks and bonds to fund near anything. The stocks and bonds performing that function of allowing the funding of large projects while also still offering diversification to each investor.

That is, the SMF’s proposal is wrong in theory and entirely ignores the fact that we’ve already solved the problem anyway. Not a great recommendation of the proposal really.

Are the LEPrechauns spending our money wisely?

A leprechaun is the Irish for a small body not entirely engaged with our world, rather like, as will become clear, a Local Enterprise Partnership (LEP). 39 (now 38) LEPs were created in 2011, linked to local government, to devolve the simulation of economic growth across England.  So far, they have spent about £7.6bn, but much more is in the pipeline, including the previous UK contribution to the EU for local enterprise support. The Ministry of Housing, Communities & Local Government (MHCLG) is responsible for supervision and funding.

The National Audit Office reviewed LEPs in May 2019 and was less than complimentary (para.13): “the Department [i.e. MHCLG] has made no effort to evaluate the value for money of nearly £12 billion in public funding, nor does it have robust plans to do so. The Department needs a grip on how effectively these funds are used. It needs to act if it wants to have any hope of learning the lessons of what works locally for future interventions in local growth, including the new UK Shared Prosperity Fund.”  This will replace the €16.4bn. the UK received annually from the EU split equally across three funds: regional, agricultural and social, i.e. not enterprise. The government intends to use these funds to “reduce inequalities between communities”. Consultation is, or was, due during 2020.

Whitehall introduced no less than 54 local investment schemes between 1978 and 2016.  The LEP Network Operations Plan 2017-2018 gives no indication of costs, objectives or achievements.  The “plan” is simply that LEPs should communicate with one another. The “Local Growth Fund” has been the subject of continual tinkering since inception in 2013.  And “Growth Hubs” which “are different to LEPs in that they are focused on the tangible delivery of business support within each region. Growth Hubs provide face-to-face professional advice to businesses and signpost them to the best resources from both the public and private sector within the area.”

In fact Growth Hubs are LEP subsidiaries and provide both advice and money. The Hertfordshire Growth Hub aims to be the best in the country. In 2018/19 it provided £570K to over 200 businesses, £300K being from the EU and £270K from the MHCLG. Advice is free from eight full time professionals, a consultancy firm and the local university but there is no indication of the cost of the Hub nor value for money. It is linked with the local chamber of commerce.

The question is whether LEPs contribute, on net, to the economy. Their title indicates that to be the intention: “Enterprise is another word for a for-profit business or company, but it is most often associated with entrepreneurial ventures.” The quarterly performance figures LEPs report to MHCLG, however, are only loosely connected with that word (NAO 2.26): “financial spend; jobs created; number of apprenticeships created; number of new homes completed; and flood risk prevention.” Job creation is most definitely not a measure of economic growth, particularly for a country seeking increased productivity.

42% of Growth Fund (LEP) expenditure goes on transport projects, 20% on “skills” (presumably apprenticeships), 17% on “economic development”, 9% on site development (mostly housing) and 12% on (unexplained) “other” (NAO Table 11). Economic development includes “broadband infrastructure, regeneration and business support”. In short, very little goes on enterprise.

Important as they are, housing, flood defence and infrastructure are public expenditure, i.e. matters for national and local government. Government should not pretend to be stimulating private enterprise when the money is really going on public projects.  To confuse matters further, local government does spend on economic development alongside LEPs though this declined from £1bn. in 2010/11 to about £400M in 2012/3 and thereafter.

The LEP Network sees the future as creating vague “strategies”. The New Anglia LEP strategy, for example, notes three regional strengths (clean energy, agri-food and ICT digital creative), and the developments taking place in those sectors, but says not a word about actions to be taken, expected outcomes or the contribution the LEP will make.  The local pictures are pretty enough but this is motherhood.

LEPs and the other local quangos are a maze of good intentions leading to muddle and confusion.  Early stage entrepreneurs simply do not have the time to explore the myriad schemes available, still less go through all the application processes. There should be one simple and long-lasting scheme. What should be done?  Let us start with some positives.  Devolving economic stimulus from Whitehall to local is good and allows, as now happens, funds to be weighted towards the regions that need them most, notably the north. Some SMEs and start-ups need both money and advice, others one or the other.

Recommendations:

• Growth Hubs should be retained but limited to face-to-face advice under the direction of local chambers of commerce which understand business better than local government. Advice should remain free to clients but costs, effectiveness and efficiency should be monitored professionally and performance compared across all Hubs in England.

• Apart from those needed by Hubs, LEPs should be closed with public expenditure responsibilities being returned to local government, private sector advice to Hubs and private sector funding to a focused non-quango scheme. The Dragons’ Den provides a possible model.  The taxpayer should have more faith in the judgment of a private investor keen to put his or her own money into a project than that of a small body of people not needed in the office.  One possibility is the business angel top up scheme but just one simple scheme should be adopted.  As with Hubs, the very little administration would best be conducted by the local chamber of commerce.

• These recommendations, if adopted, should be piloted and revised before being rolled out nationally.

Measuring the costs of regulation

We’re entirely willing to believe that the net result of regulation is positive. Well, of some regulation at least, just as we’d be likely to insist that the net result of some other regulation is negative. However, the thing we would insist upon is that it’s the net price which is the important thing. That is, that regulation does have a cost as well as a benefit and it’s the balance between the two that is the justification.

This particular example is about fentanyl but the point stands more generally:

Wuhan’s lockdown represented a profitable “business opportunity” opportunity for others, say analysts. “Criminal enterprises shift and adapt much quicker than legitimate business or governments,” said Adrian Cheek, a British cyber-threat intelligence analyst and former police investigator who tracks online drugs trafficking. “Lockdown has been an opportunity for many.”

The cost there of regulation is that slowness in shift and adaptation. Which really is a cost, given that the world changes all the time and a slowness in adapting to such change is a price that is paid for the regulatory structure.

To move to a less controversial example than opiates. Recently the entire commercial feeding structure of the country closed down. Office canteens, restaurants, caffs providing the Full English, shut overnight. That significant portion of the nation’s consumption of calories had to be provided through the retail path of supermarkets. All things considered that switch was done blindingly well.

Yet there were costs here, costs which prevented it being done even better. The packaging for that commercial distribution network - more specifically, the food labels upon it - meant that it could not be simply shifted over to the retail channel. Supermarkets were, for a time at least, bereft of baked beans while catering packs of exactly the same product could not be sold in their place.

Food labels might even be a net plus to society but that does not mean they are costless. The same is true of any and every regulation which is why we need to be so suspicious of the imposition of more of them.

The Waitrose vs Lidl divide

Apparently there is now a divide in the Tory Party, one characterised by an adherence to the Waitrose, or Lidl, principles. We think this an excellent manner of describing the rift and one reason we do so is that it makes the answer so obvious:

There’s a new divide in the Conservative party: Waitrose or Lidl? But it’s not about which supermarket you shop at. It’s how you view a potential trade deal with the US.

As talks get under way across the pond, the cabinet is split between those who wish to prioritise British farmers and those who want their constituents to benefit from cheaper produce on the supermarket shelf.

This isn’t a rehash of remain v leave. Instead it’s about which part of the Tory voter coalition gets priority treatment: traditionally Tory rural constituencies or the post-industrial, “red wall” seats that the party won for the first time last December.

For those not entirely up with the details of the British class divide Waitrose is somewhere along the spectrum to Whole Foods in an organic, cruelty free and nicely fashionable sense, Lidl toward Dollar General and the pile it high and cheap form of retailing.

Or, as it is being used here, Waitrose is nice and kind to producers - in that fashionable sense - at cost to consumers, Lidl prioritises the interests of consumers. And that is the central question over the subject under discussion. Free trade puts the consumer first and protectionism pampers the producer by making everything more expensive to buy, consume or eat.

Now that we’ve got it laid out this way the answer is, as we say, obvious. For we have the example before us of the British retail scene - both Waitrose and Lidl thrive and survive. Those willing to hand over the money to boost their ethical concerns get to do so and do do so in their millions. Those who don’t don’t and also don’t in their millions. The only people unhappy with this outcome are those who would impose their own preferences on others but given that they’re anti-liberty we, as liberals, can ignore their desires.

That is, the solution to this dilemma over free trade is that there is no dilemma. For free trade allows both groups to do as they wish and not free trade does not. Therefore free trade it is then.

Establishment economics turns out to be wrong. Again

When one of the leader writers for The Times gives us his considered views on matters economic we can - and should - assume that this is the establishment talking to us. This is what those who, in general, run the country actually believe. That it’s wrong is somewhat disconcerting although it does aid in explaining why we’ve such problems with the way the place is run.

So it is with Oliver Kamm and his views on the minimum wage:

Finally, minimum wage legislation in Britain, where the price of labour has a floor, is widely regarded as a success, as labour markets are far from perfectly competitive. Big employers have a degree of market influence that enables them to pay wages below the equilibrium price. They can afford to pay higher wages without increasing unemployment.

This is the monopsony argument. And, if it were true, it’s a reasonable argument in favour of a minimum wage. It is widely believed, in that establishment, that it is true. But it ain’t. We have good evidence that it ain’t too:

The first rule of economics, of course, says that if you raise the price of something, you’ll reduce demand. And this means shorter hours and job losses for some of the low paid.

The Low Pay Commission pretends this won’t happen. Its chairman Adair Turner says: “Our analysis suggests that previous upratings [to the minimum wage] have largely been absorbed without adverse effects.”

Can I give Mr Turner some advice? Try reading your own report matey.

In particular, appendix 3, which starts on page 213 of this pdf. It contains a survey of employers who were affected by the rise in the minimum wage in 2003. It shows that: 37 per cent of them cut staffing levels, whilst only 4 per cent raised them; 31 per cent cut basic hours worked whilst 3 per cent raised them; 28 per cent cut overtime hours; 81 per cent said their profits fell; and 63 per cent said they raised prices.

This, of course, is exactly what basic economics would predict. It corroborates this research, which shows that where the minimum wage bites hard – for example in care homes – it does reduce labour demand.

Which raises the question: how could anyone ever have thought otherwise?

The general view - among the people who matter, that establishment - about the minimum wage is that it does not harm employment prospects, that there is no cost to it. This general, establishment, view is wrong.

Which is, of course, why that minimum wage is driven ever higher as the people who make that decision have convinced themselves that there is no cost to doing so. There is a cost, it’s carried by ethnic minorities, the young, the untrained. But as none of them are part of the establishment perhaps that wouldn’t change the policy even if our rulers knew about it. It’s left to liberals like ourselves to point out the error.

Cher M. Barnier - that's not for you to decide Matey

Michel Barnier, the European Union’s chief negotiator on matters Brexit, has declared that Britain should not remain the wholesale financial market for Europe after that Brexit:

London should lose its status as a European centre for financial and legal services after Brexit, Michel Barnier has said.

This is a fundamental misunderstanding of why markets exist, who determines that they do and the role of politicians in where they are.

As you can see the statement is that an unelected bureaucrat should decide where people transact. Or, to give a slightly less objectionable reading, that those doing the ruling should decide upon who may transact where. Which isn’t in fact how these things do work.

Markets arise where the people doing the transacting desire them to be. The reason the wholesale financial markets are in London is some mixture of historical happenstance, clustering, the use of the Common Law as the basis of commercial practice, language and however many other things you want to point at. Rulers shouting that it shouldn’t be so won’t have much effect on that.

We’ve also tried this twice now - there have been two great episodes of economic globalisation, up to 1914 and up to today. In both Germany seemed to end up doing the heavy industry and London the financing. Two out of two isn’t a proof but it is indicative of it being more than just happenstance alone.

The important thing here being that where a financial - just as with any other - market is isn’t in fact something that’s decided by anyone, bureaucrat, politician or ruler. It’s something emergent from the decisions of millions and tens of million of people all doing their own thing. Demanding this and that doesn’t work, isn’t a decision for any individual to take.

Money alone won’t get us far with sorting out social care

Most contributions on the social care debate in Britain focus on how the sector needs more money. That is not wrong. The care of elderly people, and younger people with physical disabilities or mental health and learning difficulties, has long been regarded as the poor relation to the National Health Service. 

But in our new report, Fixing Social Care, we argue that money alone won’t get us far, because the whole social care delivery system is broken. Spending more money is like pouring more fuel into an engine that has already seized up.

There are 400,000 people in residential homes—more than twice the number in hospital—and thousands more who get care services delivered to their own doors. Most homes are independent, though some of their clients are funded by the local authorities, who also maintain some residential homes of their own. 

But most homes to which local authority clients are sent are outdated and substandard. Some are converted hotels, with narrow corridors, stairs and poky rooms without ensuite bathrooms. Meanwhile, the ageing population continues to grow. Plainly, a massive building programme is needed. 

Likewise, the services that local authorities deliver to people’s homes are patchy and poor. Families often hire their own carers to fill the gaps. But few of those have any worthwhile qualifications or training.

People have talked about rolling social care into the National Health Service. That would create an unmanageably vast monopoly. We need exactly the opposite—new partnerships with the private sector and the public to rebuild our crumbling homes, make social care insurance affordable, and to create a sustainable system that actually works.

Read Dr Eamonn Butler and Paul Saper’s paper via the link below:

A strange little note on Nigerian health care financing

The Guardian tells us - with the usual shock! horror! - that only 5% of the Nigerian federal budget is allocated to health care:

Nigeria currently spends less than 5% of its federal budget on health.

Compare and contrast to where the British government spends some 8 or 9 % of everything - of GDP not just the budget - on the NHS. Which is to miss the meaning of a rather important word there, that “federal”.

The Nigerian system allocates functions to different levels of government. As we do of course, local authorities here don’t run the Army and do run social care, it’s the same idea even if the distribution is different. If this is to be believed then in that Nigerian system the federal government is responsible for teaching hospitals and teaching hospitals only. The rest of the health care system is handled at lower levels and, presumably, lower level budgets.

You know, like Denmark where it’s regional and communal (ie, of the commune) taxation that deals with health care, or Sweden, where it’s largely the county.

We are not, just to be clear, defending the Nigerian government, its practices nor its budget. Rather, we’re pointing out that foreign countries are like the past, they do things differently there. We cannot, let alone should not, understand what Johnny Foreigner is doing simply by referring to our own methods of achieving the same task or goal. This about Nigerian health care spend is only a trivial exemplar - the point stands and is of hugely wider application.