Well, yes, OK, emergency, pandemic, ventilators etc

The coronavirus did rather blindside civilisation and no one was going to get all reactions to it quite right:

UK spent £569m on 20,900 ventilators for Covid care but most remain unused

Government was right to prioritise speed over cost, says National Audit Office

Many of those made cost some 50% more than those bought in less stressful - or lower demand - times and that’s to be expected. Demand changes, prices do, this is how the universe works.

We can also muse on whether having 90% of those extra made remain unused is a good allocation of resources but clearly being blindsided by that reality out there excuses quite a lot of mistakes. As with military stores in 1946 - some of which were still being used by cadet forces 30 years later - an excess of stock following an emergency may be undesirable but it’s hardly a hanging offence. Actually, to our certain and personal knowledge, some CCFs were still using 1918 stock in the 1970s.

However, this evidence of the efficiency of political allocation should not be dismissed even as it is accepted as being just one of those things. If this is the outcome of using politicians and bureaucracies to order and direct the economy then we clearly need to minimise the use of politics and bureaucrats to order the economy.

That is, it’s the very performance in an emergency which insists that we only use the system in emergency. Given what and how they plan when they do planning is something for us to use as rarely as possible.

It is possible to argue that if only it had been other people being stampeded by groupthink then things would have been different but really, can we at least try to keep the debate within the bounds of possibility?

We disagree, significantly, with the IFS here

UK total managed expenditure is, in total real terms, higher than it has ever been. Per capita it’s just a shade off that peak. As a percentage of GDP it is about where it was when Gordon Brown became Prime Minister - yes, higher than during his spending spree as Chancellor - and higher than at any time between 1985 and 2008.

This is described as:

In addition, the Spending Review will come on the back of the longest sustained squeeze in public spending on record, with pressure for austerity to be brought to a decisive end.

We simply do not, cannot, describe this as austerity. Public spending as a portion of everything we have - GDP - is well above long term average. That’s not being austere with our money and taxes. We rather think “spendthrift” is the word that comes to mind.

To describe it otherwise is to fall foul of the Keynesian ratchet. We’re not sure we do agree with blowing out the budget in a recession but let’s assume this is the correct policy. That blowing out is justified by the recession, once normality is re-achieved then the spending should decline again to the more normal to GDP ratio. Except that’s not what does happen, every attempt to re-achieve that normality is derided as cuts - as austerity. Which acts as that ratchet, every recessionary increase becomes the new baseline from which the future is then judged.

If as and when that total managed spend is around the 35% of GDP that it was in the late 1980s, or late 1990s, and then there is still talk of cutting further then yes, we’ll agree that that is austerity. We’ll almost certainly still argue for it too. But while government is still disposing of some £100 billion more than that it simply ain’t austerity, quite the opposite.

Economic growth protects the environment

Yes, yes, we know, this isn’t what we’re all normally told but it’s true all the same. As even The Guardian points out here:

How Tunisia’s shrinking economy and fish stocks put shark on the menu

Poorer people scrabble rather harder for whatever there is to eat. Time horizons shorten as the imperative is to survive rather than optimise the future world. So, yes, a shrinking economy does indeed increase pressure on those irreplaceable natural resources.

With Tunisia’s economy battered by the coronavirus pandemic and generally expected to undergo its greatest contraction since gaining independence in 1956, it is unclear where protecting its native marine species sits within the government’s priorities

Somewhere between nowhere and a long, long, way down the list would seem likely.

And yes, this does all work the other way around. Richer places have more resources to devote to not eating everything in sight, to protecting those desirable parts of the environment. That’s why, to give a different example, the air in London is cleaner these days that it has been since perhaps 1300 and the introduction of Newcastle’s sea coal to the capital.

Richer people protect the environment more - therefore, logically, environmentalists should be urging us all to become richer. Odd that it doesn’t quite work that way but then there we are, nowt so queer as folk.

One of those grand lessons from economics

The second great lesson of economics insists that there are always opportunity costs. A corollary of this is that because everything, but everything, has costs there is no such thing as a solution. There are merely trade offs and the best we can do is to get to the optimal set of them.

This is true of everything:

Green roads risk delaying ambulances, say parents of dead boy

Gareth and Candace Edwards want the Government to ensure council-backed road closures don't slow down 999 emergency services

It’s entirely delightful, we agree, to have pedestrian areas, cycling lanes, speed bumps, slow traffic and all the rest. It is also useful - at times at least - to be able to navigate the urban environment at some speed. Too much of the one - either way - limits our ability to have the other.

This should be obvious of course, we’re all adults and we all know this. It’s just that political management of whatever it is always has a very hard time understanding the point. If some is good then more is better - a rule in politics as it isn’t in life.

The British Retail Consortium is right about tariffs here

The BRC tells us that prices will have to rise upon Brexit given the current situation upon tariffs:

Supermarkets and their customers face £3.1 billion a year of tariffs on food and drink unless a free trade deal is reached between the UK and the European Union.

They do indeed get this right, unlike so many others:

In May, the UK published its new tariff schedule, which will apply from 1st January 2021 if a deal is not agreed. Under the schedule, 85% of foods imported from the EU will face tariffs of more than 5%. The average tariff on food imported from the EU would be over 20%. This includes 48% on beef mince, 16% on cucumbers, 10% on lettuce, and 57% on cheddar cheese.

They even get the solution correct:

The British Retail Consortium (BRC) has long been calling for a zero-tariff zero-quota trade deal between the UK and EU

Well, almost. Because they are calling for a deal. A deal would mean that goods flow between the UK and the remnant EU duty and tariff free. Which would be good, of course, as free trade is good. But a deal would also mean that the current tariffs against imports from the rest of the world would still be both possible and in place.

Meaning that we should be hoping for no deal. At which point we’re not going to do something as blindingly stupid as impose £3 billion of taxation upon our own wallets just because we like foreign food. So, we would go to zero tariffs. The absence of the deal meaning that we would then have to offer said tariff free access to the UK market to all comers. Or, alternatively, we’d not be taxing ourselves for buying foreign food from anywhere.

Or, to put it yet another way, we would adopt the only economically and logically correct form of trade management, unilateral free trade. As we did in 1846.

Having tariff free Danish bacon would also mean having tariff free Argentine beef. And? The problem with this is what?

The ganging aft agley of those plans

A nice real world example of why those grand plans for society never do quite work:

Fewer than one in five people experiencing symptoms of coronavirus between May and August self-isolated for the required seven day period, research suggests.

A team from King’s College London, University College London (UCL) and Public Health England (PHE) surveyed more than 30,000 people to find out if they were adhering to the test, trace and isolate system.

They discovered that although seven in 10 people said they intended to follow government rules, just 18 per cent of people had actually stayed at home.

In the face of a pandemic - you know, something that might actually kill - fewer than one in five follow the government plan. Which is why, of course, so many of those government plans gang at agley. Because we humans out here don’t follow them.

It might even be true that the effects of the pandemic would be lesser if those plans had been followed - for the purpose of this argument we are agnostic on the point. The point itself being that the same is true of oh so many other bright plans. That we should all be more communitarian and less individualistic. Eat organic not cheap. Shop locally not pluck from the produce of the globe. Expend out efforts for the good of the nation, the society, rather than merely ourselves and family.

Perhaps - again we are agnostic - these all would result in a better world. Even if government has to really, really, insist that we do these things. The thing being that we don’t do these things. At which point all those bright plans fall apart. Not because the outcome is undesirable, necessarily, but because the insistences are being applied to the wrong species.

Humans don’t do what they’re told. Therefore plans which assume they will are doomed to failure. This is true of economic plans, social ones, plans about pandemics and health care and concerning society in general. Humans are often biddable but not controllable.

There's nothing quite so conservative as a lefty

The Guardian treats us to a long read from an Adrian Daub on the subject of that Silicon Valley buzzword, disruption. The attempt is to discuss capitalism, creative disruption and how this all works. The attempt working about as well as we might expect given the source:

Adrian Daub is a professor of comparative literature and German studies at Stanford University, and director of the Michelle R Clayman Institute for Gender Studies

Yes, well. It’s not impossible for that academic background and those specialties to provide insights into the economy but we’d not say that it’s obviously a good starting point. There are some good quotes from Schumpeter and so on but the underlying argument has a fatal flaw in it.

For that argument complains about capitalism undermining the settled order and so on. Which isn’t the point at issue at all. Free market capitalism is a good way of gaining the thing which undermines the settled order, that’s true, but it is not the thing itself. The thing itself being technological change.

Unless, and until, we realise that these other things - capitalism, markets, creative destruction, disruption - are proxies for that technological change, or possibly methods of gaining it, we’re not going to get to the heart of the matter under discussion. If we desire technological stasis then yes, abolishing free market capitalism is a great way of preventing the creative destruction and disruption, by banning the system that best encourages that technological change.

But who actually desires that? Well, William Buckley told us:

A conservative is someone who stands athwart history, yelling Stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it.

Again, the tag, the name, we generally put upon it is just the proxy. The argument against disruption is one in favour of technological stasis. The argument against that free market capitalism, because creative destruction, is the intensely conservative one that technological change should not happen, we should cease to use the best manner of gaining it. Which isn’t a very good economic nor social argument, is it?

Power to the People

The National Grid looks likely to come under increasing strain due to the conflicting government policies on nuclear, renewables, zero carbon and funding.  As fossil fuels are phased out, and electricity becomes our only source of power, its sufficiency should be the top priority for the Department for Business, Energy and Industrial Strategy (BEIS). Yet the UK commissions nuclear power plants like Cheshire Cats: Anglesey Wylfa, Moorside and Oldbury have all been cancelled.  Nuclear running costs are competitive with fossil fuels but the capital costs and development time, both exacerbated by overruns (and tendered to an oligopoly), e.g. Hinkley Point C, are not. 

In a net zero scenario, the continuing use of fossil fuels for electricity generation is only really possible with carbon capture usage and storage (CCUS) which is mainly done by scrubbing the CO2 out of the coal and gas fired power station emissions and then storing it (usually by injecting it back into the layers of rock that had held oil or gas or into old salt mines). “Around 98 percent of the injected CO2 remains permanently trapped in the sub-surface.”

There are over 40 CCUS plants around the world but none in the UK. Nearly two years ago BEIS announced (28 November 2018) the UK would become “a global leader in CCUS” by following this “Action Plan”: “Commissioning of the first CCUS facility from the mid-2020s would help the UK to meet our ambition of having the option to deploy CCUS at scale during the 2030s, subject to costs coming down sufficiently.”

Despite the progress made in energy production in the last century, fossil fuels (handicapped by sometime CCUS), renewables and nuclear will not be enough: we need new sources.  

BEIS, in its published “Areas of Research Interest 2019 to 2020” mentioned the word “electricity” only eight times in 49 pages. They mostly concern storage, e.g. 16 references to hydrogen. but none have to do with generating the stuff. 

My favourite BEIS hydrogen “research interests” are “What are the costs and barriers to producing and storing large volumes of low-carbon and zero-carbon hydrogen?” (p.33) and “What is the fate of hydrogen in the environment, and its effect on climate and the ozone layer?” (p.36). Of course, hydrogen was the first element in the universe and will probably be the last. We do not need to worry about its fate. And I am pretty sure hydrogen does not contain any carbon. Has anyone in BEIS got a GCSE in chemistry? 

The document acknowledges “BEIS has committed to achieving net zero greenhouse gas emissions and ending our contribution to global warming by 2050” but, extraordinarily, gives no estimate of what the demand for green electricity will then be nor how that demand will be met. The latest BEIS “Updated Energy and Emissions Projections 2018” only gives projections to 2035 by source (coal, gas, imported, oil, renewables) but not in total. 

The much vaunted hydrogen can be produced by burning gas (termed “blue”) or splitting H2O molecules by electrolysis (termed “green”). Both are hugely expensive and inefficient because they need more energy to produce the hydrogen than it delivers, i.e. it is a net negative in electricity generation terms. Blue hydrogen would require a massive increase in oil imports, which is why Shell and BP are lobbying for it, and CCUS plants. Electrolysis is not mentioned at all in the BEIS Areas of Research Interest. 

If the UK were to have a major surfeit of electricity generation, hydrogen could be helpful as a non-pollutant fuel for motor vehicles, and therefore an alternative to electricity, and as a way of, in effect, storing electricity. BEIS projects only as far as 2035 but, by then, there will be a continuing deficit of about one quarter, i.e. net imports. In a letter to The Times (24th September 2020), Cambridge’s Professor Cebon concludes “There seems to be no way to reconcile the prime minister’s enthusiasm for hydrogen, except to conclude that he and his advisers have been misled by the fossil fuel lobby.”

Clearly we need new technology and fast. Generating electricity from methane is no more than a gleam in scientists’ eyes. BEIS does not seem to be paying enough attention to molten salt reactors. They were successfully tested in the late 1960s and yet were not even mentioned in the BEIS Areas of Research Interest. They would make electricity cheaper than gas-powered generation. As they operate at low pressures with the risk of explosive dispersal of radioactive material eliminated, they are safer and produce less radioactivity per kWh. Small modular reactors can be factory-built and delivered by road. Because of their size, simple design and low pressure, full regulatory approval should not be a major issue, with construction possible less than four years later.

Ensuring electricity adequacy is the most important role of BEIS and especially as we move toward zero-carbon.  It is irresponsible to commit to zero carbon 2050 without, it would appear, estimating the then demand for green electricity nor how it will be sourced.  The government needs to think more clearly how UK electricity supplies should be secured. 

We don't think the definition of recession works this way

The Guardian tells us that there’s an interesting definition of not being in recession:

Britain’s economy entered the deepest recession since records began after shrinking by more than in any other major nation in the second quarter. GDP fell by 20.4% after a decline of 2.2% in the first quarter. Economists consider two consecutive quarters of shrinking GDP as the technical definition of a recession.

Growth rapidly recovered after the lifting of lockdown restrictions over the summer, helped in August by the government’s “eat out to help out” restaurant discount scheme, putting the UK on track for the fastest growth in the G7 in the three months to September.

However, analysts said the recovery would probably stop as restrictions are reintroduced and infections climb, ensuring that the country remains in recession until at least next year. Two quarters of positive growth are required to confirm a technical exit from recession.

The deepest recession among others part we’ve already dealt with. ONS has, uniquely among statistical agencies, included the loss of output from the government health care and education systems.

However, it’s that two quarters of positive growth required to not be in recession that we think to be wrong. That’s certainly not the definition that was used in the recent past when there were worries, 5 and 10 years ago, about double dip recessions and all that. One quarter of positive growth was all that was deemed necessary for us not to be in recession.

There is also the point that if we accept this two quarter definition then every recession must last at least a year - two quarters of negative growth to be one, then another two quarters of positive growth before we can declare we’re out of it. And no, recessions are not all of 12 month minimum length.

Finally, there is the point that if this is true then the recession is going to last until next year anyway. The second quarter had negative growth, like the first, and under this two quarter definition whatever happens to growth in the third and fourth we’d still be in recession at the beginning of next year. That is, if it is the true definition then what The Guardian is telling is not news it’s simply a logical certainty.

Finally, finally, there’s the point that we generally regard this whole thing as being binary - most unfashionable though that is concerning social matters these days. We are either in recession or not. If our definition of recession is declining growth for two quarters in a row - which it is - then one quarter of positive growth must be non-recession. For it isn’t meeting that definition of two of negative. We also don’t have the third word, the third state, somewhere inbetween recession and not-recession.

We really do think this definition of recession being used is incorrect.

A ban always does mean people want the thing being banned

A ban on the taking of narcotics does, quite obviously, mean that those proposing the ban think some would like to take narcotics. A ban on booze sales after midnight equally means those banning think that in the absence of the ban booze sales after midnight would take place as part of voluntary interactions.

It is with this in mind that we can evaluate the ban on petrol or diesel cars by 2030. The government is insisting that the electric, hydrogen, whatever, cars on offer by then will be worse:

The UK is poised to bring forward its ban on new fossil fuel vehicles from 2040 to 2030 to help speed up the rollout of electric vehicles across British roads.

Boris Johnson is expected to accelerate the shift to electric vehicles this autumn with the announcement, one of a string of new clean energy policies to help trigger a green economic recovery from the coronavirus pandemic.

If these new technologies are going to be better - in price, comfort, range, general utility, whatever - then we do not need to be banned from buying the alternative. Because no one will voluntarily buy said worse alternative, that’s not how we humans work.

This is all akin to the point we’ve been making for a couple of decades now about solar and other non-fossil energy sources. Once - if - they are actually cheaper then no planning, subsidy, taxation or regulation is required. Everyone will entirely naturally move to the cheaper energy source.

This point also working in reverse, as with the cars. The very insistence upon a ban, upon regulation or punitive taxation, is all the proof required to show that those proposing the ban - regulation, punitive taxation - themselves insist that the new alternative is worse.

That the government is thinking of banning the sale of new internal combustion engines by 2030 is all the proof we need that the electric, hydrogen, alternatives are still going to be terrible by then.