The impossibility of a planned economy

We have the advice of Hayek, that the centre can never have sufficient information, in anything like real time, to be able to manage let alone plan an economy. But we also have a more empirical proof from Phillip Inman at The Observer:

Britain isn’t ‘recovering’, whatever the Bank may suggest

Phillip Inman

Threadneedle Street’s forecasting has been faulty. But it must still play its central role in protecting jobs and the economy

The insistence is that those who we employ to do that management, that planning, for us are deluded as to the reality they are supposed to be managing, planning. Which does, of course, mean that they’re not going to do the managing, or planning, very well.

We seem to have hit one of Sir Pterry’s imp arses in our attempts to manage, or plan, the economy therefore.

It’s difficult to see what to do about this as well. The secondary claim here is that there are those who do know, who have the knowledge and the foresight to undertake such management on our behalf. But how do we pull those enlightened from their more important, better paid and more raucously enjoyable, current employment of scribbling for the Sundays into the bureaucracy? Do we have to shame them into sacrificing on our behalf? Conscript them, what?

Until we solve the problem of how to get those who really do know how to do it into the job of doing it we cannot have a managed, or planned, economy, can we?

Much of what has been spent fighting climate change has been wasted

As we’ve pointed out before if solar power really does become cheaper than fossil fuel powered electricity then we’ll all quite naturally switch and climate change will be dealt with. there is, after all, plenty of insolation out there to power an industrial society. Yes, problems with intermittency and all that but it’s all manageable if there’s enough cheap electricity to start with.

This being a point that Bjorn Lomborg was making 20 years ago of course. Solar then had been declining by 20% a year in price for some decades. That price reduction has continued these past two decades. It looks like it will continue again:

An Oxford-based solar technology firm hopes by the end of the year to begin manufacturing the world’s most efficient solar panels, and become the first to sell them to the public within the next year.

Oxford PV claims that the next-generation solar panels will be able to generate almost a third more electricity than traditional silicon-based solar panels by coating the panels with a thin layer of a crystal material called perovskite.

Start by agreeing to believe, for the same of argument, the climate change claims. There’s a problem, we’re causing it, something must be done and that something is non-fossil fuel energy generation. OK.

So, what do we want to do? Enforce the installation, at significant scale, of technologies we know are inefficient and expensive compared to next year’s? Oh, and make ourselves and everyone else poorer at the same time through having to pay the subsidies. Or rather wait until the effective and efficient technology is available and then gawp in wonder as everyone voluntarily installs it?

To frame the question that way - correctly - is to show that all that money spent on expanding solar installations, rather than research, has been wasted so far. But then some of us have been saying this for some time now.

Just a little point about the US social safety net and welfare state

It is commonly assumed and often stated that the United States has a very much smaller social safety net than most other countries. This is not actually so. It is also said that the US has a smaller welfare state and this is also not quite so.

As Timothy Taylor reminds us here:

Second, America is commonly perceived to spend much less on social welfare than many European countries. This perception arises because most comparisons focus on gross public social welfare spending. In fact, after taking into account taxation, public mandates, and private spending, the United States in the late twentieth century spent a higher share on combined private and net public social welfare relative to GDP than did most advanced economies. Americans just did it differently because the governments operated a safety net system that relied to a much greater extent on private insurance and pensions and taxed lower income people less heavily.

This ties into the manner in which the US Federal taxation system is much more progressive than that in most other countries. For it near entirely depends upon the progressive income tax and does not even contain that possibly regressive VAT.

The truth being that the US has a social safety net as do all other rich countries. It’s just that they do it differently. Much more private provision, much more of the government provision being in-kind and through the tax system and through taxing the poorer rather less to start with.

It’s possible to argue that this is a better or a worse way of doing it. But the usual assumption that it isn’t being done just isn’t true.

The more you like government the more you want a V shaped recovery

A little bit of plain mathematics for those who think we should both have more government and also a smaller economy. Less of that horrible consumerism that so blights the environment and so on. There’s a mathematical problem with this.

To estimate numbers a bit - they’re close enough to reality to illustrate the point.

Before, in February, UK GDP was about £2 trillion a year and the tax take of that was some 35%. Now, with the GDP plunge, it is some £1.6 trillion a year. If the tax take remains at 35% then that means significant real term cuts in everything government does.

Alternatively, to keep the amount of government we have the tax take needs to rise to about 44% - rather more than we’ve managed to raise in modern Britain.

Further, note what happens if we increase the government portion of the economy from around the OECD average to high up in the distribution. We don’t gain any extra government at all. We only get to pay for the amount we already have.

The only way out of this is that the economy grows again.

Thus, the more that you desire more government programs to do such lovely things then the more you have to be arguing for swift economic growth from where we are now.

Our view is, of course, that as we gain that lovely economic growth then there are fewer problems that government need spend money upon. But that doesn’t change the simple maths above.

In Defence of Globalisation

Catch up on our latest webinar as Matt Kilcoyne speaks to Cato Intsitute’s Dan Ikenson; Bruno Macaes of Hudson Institute and author of Dawn of Eurasia, Belt and Road, and History has Begun; and Cindy Yu from the Spectator to discuss the era of globalisation, if has come to an end, and what that would mean for all of us.

You can catch up with all the webinars in our series via our webinar section of the website.

That really, really, strong desire to regulate Facebook no matter what

We have the latest entrant in the we must regulate Facebook stakes. Our working assumption is that the insistence upon regulating the site - as with Google and other Big Tech enterprises - is nothing actually to do with whether regulation is necessary or not. They’re simply big organisations and a certain mindset insists that bureaucracies and politics must regulate such. Despite, you know, the inability of bureaucracies and politics to ever create such. Either that or there are an awful lot of bored prodnoses around.

Today’s reason why the regulation is what would happen if the sites failed?

Like banks in the 2008 financial crisis, Facebook and other tech giants are “too big to fail”, according to research from Oxford University that calls for new regulations to protect users, and society, in the event of a possible collapse.

That’s to misunderstand what too big to fail actually means. Which isn’t that the organisation is big enough that we don;t want to see it fail therefore we’ll rescue it if that failure looks likely. Rather, failure would bring the rest of the system down with it which is why we’ll save such organisations. Losing Facebook - their example - would be somewhere between annoying and damaging but it wouldn’t cause the collapse of Google, or Apple, or other social media and certain not the web or the internet. Sure, it’s big and valuable but it’s not systemically important and therefore not too big to fail.

The other mistake in the analysis is this, from the actual paper:

Indeed, the closure of an online social network would not in itself be unprecedented. Over the last two decades, we have seen a number of social networks come and go — including Friendster, Yik Yak and, more recently, Google+ and Yahoo Groups. Others, such as MySpace, continue to languish in a state of decline. Although Facebook is arguably more resilient to the kind of user flight that brought down Friendster (Garcia et al., 2013; Seki and Nakamura, 2016; York and Turcotte, 2015) and MySpace (boyd, 2013), it is not immune to it. These precedents are important for understanding Facebook’s possible decline. Critically, they demonstrate that the closure of Facebook’s main platform does not depend on the exit of all users; Friendster, Google+ and others continued to have users when they were sold or shut down.

Furthermore, as we examine below, any user flight that precedes Facebook’s closure….

Their method of Facebook closing own is that most to all users have already left to go elsewhere. In which case it’s clearly not worth saving because the reason for the failure is that it’s not being used - is not worth saving.

Which rather neatly seems to skewer this justification for regulation of the platform. Not that that will stop people talking it up, For there really are a lot of bored prodnoses out there - or perhaps people who just cannot live with the idea that voluntary cooperation can be left to get on with itself without the oversight of bureaucracies or politicians.

Sir Michael Marmot is becoming a one hit wonder

Michael Marmot is here again to tell us all that it’s the rise in inequality which has caused the coronavirus deaths in the UK. There are a number of problems with his diagnosis:

The political mood of the decade from 2010 was one of the rolling back of the state, and a continuation of an apparent consensus that things were best left to the market. At times, this aversion to government action was made worse by a suspicion of expertise.

This rolling back of the state was seen clearly in a reduction in public spending from 42% of GDP in 2009-10 to 35% in 2018-19.

That’s actually so misleading as to be tantamount to casuistry. The rolling back of the state? Tax as a percentage of GDP was higher, at 33.5%, in 2018 than it was in 2007 - 33%. Public spending as a percentage of GDP was 40% in 2018 as against 39.6% in 2007. We are at least starting from before the Crash to after it, while Marmot is - deliberately we fear - starting from the Crash induced Keynesian expansion of public spending as a percentage of GDP. Largely driven by GDP falling, the entire place becoming poorer.

Oh, and inequality, measured by the Gini, is lower today (and in 2018) than in 2007. There hasn’t been a shrinkage in government as a portion of everything, there hasn’t been a rise in inequality. Which does rather leave the idea that we’re all dying like flies as a result of a reduction in government and an increase in inequality rather lacking empirical support.

Of course, it’s possible to put forward all sorts of ideas as to why the Covid-19 death rate is worse here. Possible ideas are the inadequacy of the government provided health care system. Or, possibly relevant to a disease known to be spread via droplets, the fact that Britain’s insane planning permission system leads to the smallest new houses in Europe. But those are mere ideas, we’d not try to insist upon either of them without actual evidence in favour of them - and a useful lack of evidence contradicting them.

But then we’re not professors of epidemiology so perhaps this insistence upon evidence isn’t quite the way to do it?

Can vaping reduce inequality?

Covid-19 has affected different groups in different ways and thrust the issue of health inequality into public debate. Whilst people are mistakenly concerned with inequality itself, there are good reasons to make it as easy as possible for those with worse health outcomes to lead healthier lives by expanding choice. This doesn’t have to come from top down state control or regulation, which is often unsuccessful, but can be driven by invention and the market.

In England those in the least deprived parts live, on average, 19 more years in good health than people in the most deprived areas. Some would jump for the easiest explanation, perhaps discrimination. However, the true causes are myriad and complex, but one thing that is clear is that those same groups with worse health outcomes are also more likely to smoke. ONS data suggests those earning below £10,000 per year smoke at double the rate to those earning above £40,000. Smoking is also expensive due to the high and regressive tax placed on the product. This further leads to a reduction in the money in the pocket of Britain's poorest: something confirmed by a 2019 University College London study which found that smokers could save around £780 a year by vaping instead. Vaping is therefore a win-win for both the health and income of Britain's poorest. 

Despite the huge efforts from public health lobbies and vast amounts of taxpayer funding spent on cessation services, the most successful method for stopping smoking is vaping. A recent study found that smokers were able to abstain from smoking using vaping at nearly double the rate of those that used nicotine patches.

Ultimately, Britain's poorest have the most to gain from the innovations that are taking place in the new world of nicotine. But across the world, the freedom of individuals to vape is coming under attack: from Australia where vaping is effectively banned, to the Netherlands where a counterproductive ban on flavours is planned for 2021. The liberty for individuals to choose to improve their health by vaping is being constricted. The European Union is even considering taxing the product. Britain has largely been a force for good in promoting a harm reduction approach, with much of the world looking on at our ever-reducing smoking population with envy. However, these changes have not come about because of government mandates, but instead due to vaping technology being developed and sold by entrepreneurs.

This wave of innovation is not over. Entrepreneurs and businesses have developed other lower-risk nicotine products which may entice those that haven't chosen to switch to vaping. Swedish Snus (which to the EU's shame was banned in the 1990s) continues to save lives in Sweden where they have the EU’s lowest cancer rate in men due to its use as a safer alternative to smoking. Perhaps now we have left the EU and are free to make our laws the Government may decide to legalise its sale. Already though inventors have circumvented the ban on snus and introduced tobacco-free alternatives called nicotine pouches. 

Inventors have also found ways to heat tobacco but avoid the dangerous combustion, therefore delivering nicotine to the user without many of the harmful health effects. One such product has recently been authorised by the U.S. Food and Drug Administration to be advertised in America as a modified risk product. The ability to inform the public about health risks is important because currently a large proportion of UK smokers and ex-smokers overestimate the relative harmfulness of e-cigarettes: misattributing smoking harms to nicotine rather than the combustion of cigarettes. A film to be released this year aims to try and combat these misconceptions. 

The British Government has set an ambitious plan to be smoke-free by 2030. But the truth is that unless the Government stops preventing firms and individuals spreading the message about these reduced risk nicotine products then we will miss the target by some margin. It is frankly not good enough for the Government to do nothing on this issue, it actually needs to get out of the way. 

Mark Oates is a Fellow at the Adam Smith Institute, as well as the Director of We Vape and the Snus Users Association.

This may or may not happen

The Financial Times tells us - well, the FT quotes someone as saying that - inflation might be a’comin’:

US faces inflation threat as money supply rockets

This is one of those things that may or may not happen - after all we’ve all been trying to create inflation this past decade and some countries have been more successful than others.

It is true though that M0, 1 and 2 are wildly expanded as a result of QE and Ms 3 and 4 not so much. If those latter two respond - or return to responding - as theory predicts they should to the first three then there is indeed a massive bolus of inflation in the system. They might, of course, not do so given that they haven’t in these recent years - this is just part of the economic circumstance in which we find ourselves.

All of which is going to be most interesting as it will test this Modern Monetary Theory to destruction. If massive money printing does lead to that inflation then there are only two solutions. One is to reverse QE - thus massive money printing isn’t something possible to continue. The other is to raise taxes which rather obviates the point of MMT itself. For it would mean a return to that dualism of high spending meaning, by necessity, high taxes. There is no free lunch that is.

What fun that an economic theory gains this real world test so soon after its formulation. The advantage being that we’ll be able to put it back to bed pretty soon - for we are really pretty certain that inflation is out there. Other episodes of the same thing by a different name - monetisation of fiscal policy - have tended to work out that way from Diocletian onwards.

We don't, in fact, care about the producers

On the subject of Spotify we’re told that:

I pay for Spotify, so I am part of the problem. I know that £9.99 a month for access to almost all music, ever, is a steal.

The problem apparently being that the pop stars, the ones producing the songs, aren’t now making country GDP sized incomes from having done so. This is not a problem.

Our aim in having an economy - a civilisation even - is that we, the people out here, consumers get more of whatever it is that we desire. So, the modern music industry is a steal for consumers, that’s the point of it all.

As far as producers are concerned we’re only interested in their incomes in so far as they’re still sufficient for them to continue to produce the item. If they do then they obviously think the deal is fair enough for if they didn’t they’d be off claiming their furlough payments from Starbucks.

All the music of the ages is now available for a pittance? To complain of this is like whingeing about how cheap printing has become allowing all to read as much as they wish. It’s also to miss the point of the system, that our aim is to do this to everything. To, as Marx insisted would happen, use capitalism to conquer the problem of economic scarcity. Only every other sector of the economy to do this to and true communism can finally arrive.