Is it capital income or labour income?

That people should become rich - richer - by deploying their capital doesn’t seem all that bad to us. The system is, after all, called capitalism. There are those who disagree of course. With that disagreement though comes the question of, well, are these people actually becoming rich through their deployment of capital, or through their labour?

The answer seeming to be that in many to most cases it’s labour:

Rising capital income has raised the possibility that the financial-capital rich may now dominate the ranks of America’s highest earners instead of the human-capital rich, but testing this has been challenging due to data issues around the classification of top-end business income. This paper analyzes deidentified administrative tax data, and estimates that for the typical top business owner about three-quarters of pass-through profits are returns to owner human capital rather than financial capital. The typical top earner, it seems, is still human-capital rich.

Is Jeff Bezos rich because Amazon always was going to conquer all merely by existing or has Amazon conquered because of Jeff Bezos? Given the number of people who have tried to conquer the retail world we have to assume that Bezos and his labour have at least something to do with it.

This, of course, having substantial impacts upon what tax policy should be. We don’t want to insist, through high tax rates, that these very productive people can’t be bothered to go to work after all. A world in which it is the entrepreneurs who are piling up the pilf and gelt is substantially different from one in which the capitalists are that is.

Well, yes, this is rather the point

Clearly there would be whining but this is rather the point of the exercise:

Health secretary Matt Hancock was under mounting pressure last night to say who will take responsibility for the national fight against obesity after his controversial decision to close down Public Health England caused dismay among experts.

Today shadow health secretary Jonathan Ashworth is writing to Hancock to demand answers, amid fury from campaigners and officials, who point out that it is less than a month since Boris Johnson, the prime minister, launched a national anti-obesity strategy, claiming it was crucial to the fight against Covid-19 and the nation’s health.

But last week Hancock pulled the plug on Public Health England, the body that has been responsible for fighting obesity, and announced that it would be replaced by the National Institute for Health Protection that would focus on external threats to the UK, pandemics and infectious diseases, but not inherit the public health protection roles of PHE.

The justification for government action - whether that be in limiting the freedoms of those being directed, or the spending of those taxed to pay for it - is third party effects. What individuals do which affects only those individuals is no damn business of government in a liberal and free polity.

Yes, this does indeed mean that those who wish to eat themselves into a pile of blubber get to do so.

Public Health England has rather missed this base and basic point. Which is one of the reasons for doing away with it. It is not just that is has been provably incompetent when there actually was a pandemic, it’s that it’s been poking its nose in where public health has no business.

Do please note that, as we’ve been saying for well over a decade now, obesity does not in fact cost the NHS money - the third party justification oft used. As the obese die younger in a lifetime health care system this means they save, not cost, the NHS money.

The aim of having a new organisation is to be able to get around having to slice off, excise, those overweening parts. Instead it’s possible to only pluck out the needed parts - pandemics etc - and tell the rest to go hang.Perhaps more politely than we would but that is the point and aim.

That there won’t be a national obesity strategy, nor a bureaucracy in charge of it, is the very point.

It is of course possible that we’re mistaken in this but if we are then someone’s missed a damn good trick.

Just imagine how ecologically pure and poor we all can be

It appears that the ecological footprint of humanity has shrunk this year:

According to research conducted by Global Footprint Network, an international research organisation, coronavirus-induced lockdowns led to a 9.3% reduction in humanity’s ecological footprint compared with the same period last year. However, in order to keep consuming ecological resources at our current rate we would still need the equivalent of 1.6 Earths.

As all should know the Global Footprint Network is less than rigorous in its analysis. Starting in a not very good PhD thesis it measures nuclear power plants as having the same emissions a a coal plant - ludicrous. Further, it insists that land, its unit of measurement, can only be used for one thing. If food is being grown on it then it cannot be used to absorb CO2 from other activities. Although, of course, the CO2 absorbed by the plants we eat is indeed absorbed from all the varied activities. It’s thus a gross overestimate. Finally, the only actual resource it’s measuring as being in excessive use is that ability of the carbon cycle to absorb more emissions. Yes, we know that, we can see atmospheric CO2 rising. It’s not, in short, worth the electrons used to propagate it despite that PhD having been transformed into a nice little earner.

The truly important thing to note though is that UK GDP fell by 20% in order to gain this 10% reduction in resource usage. According to that 1.6 Earth measure we need to reduce consumption by 40%. Which would seem to mean that we need to wipe out our economic activity entirely. This being something we’re not going to do and we wouldn’t survive at all if we did.

It’s not just a flawed measure it’s one leading to an idiot conclusion.

Welcome to running a business

The Guardian tells us of the perils of being a touring pop musician:

“It’s possible to make money over a festival season, but with touring, most people I know are really lucky if they break even,” says Alexandra Denton, better known as Shura. After she released her second album, Forevher, in August 2019, her planned promotional campaign around a run of 2020 festivals “evaporated overnight”. With paltry royalties from streaming, touring is now seen as musicians’ primary income. But from the 30 tour dates Shura performed before lockdown, she estimates her overall profit at £2,300 – after takings had been chipped away by the expense of a live band, accommodation and staging, all paid at a fixed rate. “Genuinely, if you can finish a tour and say: ‘We didn’t lose any money’, it’s a real win,” she says. “But for 30 shows, as a single-entity musician, I’m making less than anyone else working on the tour.”

This being precisely and exactly how every business in the world is run. The entrepreneur faces those costs determined by others - the market prices for labour, premises, equipment - and it’s the bit left over, if there is any, which is their income. Or, as we also call it, the profit of the enterprise.

We can go further, this is also how all capitalism works. Here the capital is the human capital of the lead singer/musician. The income to capital is what is left after everyone else has got paid at those market prices. If there is no value added then there ain’t no money for the capitalist nor the entrepreneur.

The rest of the piece is about how we’ve got to work out some manner of shovelling more money to these capitalists. Which really is an odd thing for The Guardian to be recommending really, even though we do agree that if the capitalists don’t make money then things provided by capitalists won’t be provided. You know, that larger lesson that the newspaper will never agree applies.

Policy evaluation isn't possible without considering trade offs

This is one of those things, as with the French Revolution, where it’s too early to say:

Countries led by women fared “systematically and significantly better” in the battle against coronavirus, locking down earlier and suffering half as many deaths as those led by men, according to a new study of country-by-country responses.

The analysis of 194 countries confirms the early anecdotal observations that female leaders appeared to be doing a better job at containing the pandemic than their male counterparts, crediting the difference to “the proactive and co-ordinated policy responses” favoured by the women.

This is entirely possible, of course it is. We would make just a little point if it is, which is that if women are indeed different in their approach to political decisions then the fact that they are women has to be taken into account when voting for them. Which we do think is rather the opposite of what is the generally fashionable insistence.

However, it is the evaluation itself that needs to be considered here. As economics tells us, everything is always a trade off. As Bastiat insisted, we must consider the unseen as well as the obvious. So, what is the effect of having beaten off the virus then?

Long-term economic success or failure is still too early to be gauged.

Ah, we don’t know. So it’s too early to jump to that conclusion then, isn’t it?

This could go either way of course. Lockdown itself caused damage. But so also did the change in behaviour for fear of the virus without lockdown. It’s possible that swift and effective lockdown caused less damage than the fear would have done unchecked. It’s also possible - and we strongly suspect this to be true of the UK currently - that the lockdown has done more damage than either the virus or the fear. But the point here is that we don’t know - because it’s too early to say.

If Zhou Enlai can manage to grasp such an economic point then surely we can too?

A small observation on algorithmic marking

We’ve been told, vociferously, that the use of a central system to measure and adjust exam grades is entirely the wrong thing to be doing. Instead those with the local knowledge, the teachers, should pass on what they know to the rest of us.

The insistence upon this largely coming from those who insist that those with the local knowledge of the economy, those who participate in it, cannot be allowed to pass on what they know to the rest of us through the price system. That must be centrally directed even, possibly, by algorithm.

One wonder is why this is so, another is that none of those insisting upon both would even acknowledge, let alone understand, the observation.

Entirely missing the point

There most certainly will be changes in working habits, in society, as a result of Covid-19. Many to most of them will be changes that would have happened - like remote working - over time but will now be accelerated. All of this is obviously true.

Then we get to the error:

City centres will struggle in the short term with the effects of the pandemic, and a great number of service workers will be unemployed. This is a tragedy, but it’s also an incentive to plan for medium- and long-term solutions.

We don’t actually know what the new equilibrium is going to be. Therefore, logically, we cannot plan for it. We must instead find out what that new settlement is going to turn out to be. This requires the complete opposite of planning.

We need to free the environment from the current restrictions - we can limit ourselves to freeing the urban one if we wish - so that market experimentation can take place into what is the best manner of dealing with this brave new world. For we don’t in fact know what it is possible to do with the new technologies, nor do we know what it is that people want done out of the new range of possibilities. The best - the only useful - method we’ve got of exploring where one meets t’other is to allow all to try out whatever. The things that can both be done and meet desires will be copied and thus we find out what that new settlement is.

It is precisely and exactly at the moment that everything is changing that we do not desire to plan. Instead we have to leave it to market processes for what will be that new settlement will be emergent from voluntary interaction. We’re not trying, if we’re sensible about it, to tell the future what it must be, rather ambitious to find out what it will be.

Dear Polly - Please, do try to catch up

Polly Toynbee tells us that this world of ours is just so unequal:

Covid-19 has blown the doors off the way we live. The virus has been responsible for exposing – and increasing – levels of inequality, and that’s undeniable, politically. Families crammed into rabbit-hutch dwellings suffered proportionally many times the number of infections of those with airy gardens.

Recessions reduce inequality, they always do. It is profits that fall furthest and fastest and it is the richer among us who gain more of their income from profits. The poorest among us are hardly even in the market economy with respect to incomes, gaining such from benefits - there is no problem with this, it is simply an observation - and those don’t fall in a recession. Income inequality therefore reduces in a recession.

As to small dwellings, we agree. We have been shouting about how Britain builds the smallest new housing in Europe for decades now. The necessary solution being to blow up the planning system, that one that insists upon over 30 dwellings per hectare of land. You know, that reform that is happening and which you so oppose.

As the pages in which Polly writes point out, comment is free but facts are sacred. Perhaps a little more attention to the latter could be of use over there?

Don’t Blame Public Health England

There’s nothing like a good old testament scapegoat for placating public opinion but that is not necessarily fair to the goat.  Right at the start of the pandemic, Matt Hancock should have known the poor bewildered beast he had tethered in his back yard. Public Health England (PHE) has staff numbering 5,500, 43% being scientists, and last year cost £287M (net).    

As an executive agency of the Department of Health and Social Care (DHSC), it is duty bound to publish annually its performance versus pre-set targets. The last annual plan has a long list of achievements but no overall performance metrics, nor targets nor explanation of how PHE achieved those targets.

“Keeping the Public Safe” is the top priority and five achievements were reported under that heading. Disease outbreaks are, and were, dealt with by the NHS; and the extent to which the world should be PHE’s oyster is open to question.  The only protection for the UK public was the delivery of the routine annual flu vaccine and there is no mention of how efficacious that was versus prior years. 

The analysis of expenditure is revealing. £87M of the expenditure (30%, 2,093 staff) went on “National centres, regional network and capability to identify infectious disease, surveillance and management of outbreaks”.  That is pretty much all bureaucracy since, as noted above, since the NHS that dealt with these outbreaks. The next largest, £73M (25%, 1,027 staff) went on “Supporting local government, clinical commissioning groups and the local NHS”. One suspects the local medical staff could have made better use of the cash. 

£65M (644 staff) was spent on admin and £32M (79 staff) on “Helping people to take control of their own health”.  I am sure we all feel better for that. The most exciting development is the new 40 acre site in Harlow to which PHE plans to move most of the scientists and half of the staff in total. Few people would recognise Harlow New Town as a world science centre.  The Gilbey’s Gin distillery was the closest Harlow has ever previously been to science. Co-locating most of its staff near London makes sense but 40 acres seems excessive.  

It also symbolises PHE’s empire building but inward-looking orientation which was probably the largest single reason for its failure to deal with the Covid pandemic. Whereas Germany involved its national industrial base in testing and PPE supply, PHE refused to delegate and ignored offers of help.  The blame game is now well underway.  The Times (17th August) reports: “Duncan Selbie, the organisation’s chief executive, said: ‘This criticism of PHE’s response to testing is based on a misunderstanding about our role.” Well, of course, strategy may not have been but preparedness certainly was and so was organising mass testing. The response is typically narrow. 

The last PHE annual report uses the word “pandemic” 10 times but it is not until p.110 (of 168) that we reach any substantial mention: “Pandemic influenza continues to be one of the top risks in the National Risk Register of Civil Emergencies. We continue to maintain an appropriate stockpile of antivirals for pandemic flu preparedness in line with DHSC policy for continuing to be prepared for a more severe influenza pandemic. Future stockpile decisions, will, as they have done in the past, take account of the latest scientific evidence and international comparisons. Any future changes in pandemic flu policy and the impact on stockpiles will be agreed through the governance arrangements in place with DHSC.” 

In other words, they are justifying getting rid of their PPE stockpile and if the UK is struck by any pandemic other than good old-fashioned influenza, PHE will not be to blame. 

PHE should not be priding itself on having world-beating scientists even if they are.  Governments are supposed to govern, not play with test tubes.  Certainly government should commission the research we need but not do it themselves.  Take that away and the second guessing of the NHS (£73M), the admin (£65M) and telling us to take more exercise (£32M) and there is not enough left to make an executive agency. The case for terminating it was made two years ago. His department has plenty of people to do the key tasks that should be retained, namely planning for future emergencies and ensuring that the relevant resources will be available, health strategy and directing campaigns.  We are talking of 100 people, not the 3,000 non-scientists in PHE.   Saying goodbye would not bring a tear to the eye. 

Sadly, Matt Hancock has a worse plan: reshuffling the cards with NHS Improvement, another redundant quango, but keeping them all in play with a little rebadging to look like progress. The Secretary of State has his public scapegoat but is only pretending to butcher it. Plus ça change.  

We entirely and wholly support Selfridges' policy change

We do this not as a commercial endorsement you understand - we suspect that any such from us would have little value anyway - but to make the important policy point that it is revealed preferences that matter, not expressed.

Selfridges must embrace changes in shopping habits that have pushed ethical and environmental concerns to the front of the queue, according to the department store’s boss.

The upmarket store group, which recently cut 450 jobs after a tough year, is introducing clothing rental, a second-hand fashion shop, beauty pack recycling and a “concierge” to help organise product repairs as part of a five-year sustainability plan intended to adapt to new ways of living.

“I think the pandemic has changed everybody’s thinking forever,” said Anne Pitcher managing director of Selfridges as she launched the department store’s Project Earth five-year sustainability plan.

We hear much about how consumer tastes have changed. Which may well be true and if they have then we hope, fervently, that they are met. We are less happy with the insistence that since consumer tastes are claimed to have changed therefore every retailer, perhaps the entire economy, must be changed. For that second smacks more than a little of projection of their own views, by those who hold those views, upon everyone.

Now that Selfridges is offering these claimed to be desired things we can find out whether they are actually so desired and in what quantity, with what fervour. If they’re a profitable success then others will no doubt copy them and there will be no need for legal or regulatory insistences. If they’re not then we’ll have tried it and found out that this isn’t in fact what some sufficient number of people desire.

All of which shows that great glory of a market based economic system. By offering alternatives to suit every taste we find out what it is that people actually do want rather than what current fashion has them parroting what they think they should want. That is, a market system insists upon people walking the walk rather than merely talking.

“This is now available, how many want it?” is the great testing method of that market economy. There’s also no other manner of finding out what it is that people really do desire.