If only Owen Jones understood the merest smidgeon of economics
Yes, of course Owen Jones is going to complain about a public sector pay freeze. It would, however, be useful if he had even the merest, slightest, knowledge of economics to back up his indignation.
Reports suggest the chancellor, Rishi Sunak, will resuscitate divide-and-rule arguments, pointing out that private-sector workers have been worse hit than their public-service counterparts. Instead of aiming anger at the government for causing another lockdown and disruption to those working in retail or hospitality, we’re being asked to direct our venom at our neighbours who’ve been required to go into work every day to keep our schools, councils and social services running. If Britain had a rational political culture, the debate would centre on driving up the wages of private and public-sector workers alike, ensuring everyone has a decent day’s pay for a decent day’s work. Instead we are left with a race to the bottom.
Well, we could start with the actual numbers, which is that public sector wages have been rising recently, as private sector fall. Mutter something about fair shares of the burden and all that.
But Young Owen’s making a larger mistake here. GDP is about 10% below where it was. Therefore all incomes, in aggregate, need to fall by 10%.
Now it’s entirely true that GDP isn’t everything that’s good in this life and it’s not the only societal target we should have. However, GDP is indeed all value added in the society as measured at market prices. By construction it is also all consumption at those same market prices and also it’s equal to all incomes in the country.
This is simply the definition. OK, we might quibble a bit about GNI instead of GDP, but for the UK that is a quibble. That number which is now 10% lower is all incomes in the country in aggregate. That is, all incomes in the country must, in aggregate, be 10% lower.
How should we divide this pain? We could have 10% unemployment and so 10% of the people have no income. Although given the existence of the welfare state, which provides an income to those without a job, we’d need unemployment to be much higher than that. Perhaps we could wipe out all those corporate profits? Except, once we account for the labour share of the economy, subsidies and taxes on production and consumption, self-employed income, we find that capital share is about 20%, half of which is depreciation. So, we’d need to wipe out all profits from all investment. At which point we’d have no investment moving forward, something that would significantly lower the incomes of those who come after us, or ourselves in the future.
The logical and civil - even just and fair - manner of dealing with this is that all incomes fall a bit. Rather than some incomes disappear entirely.
Sure, we can shout that the economy, and thus all incomes aggregated, shouldn’t have fallen. Even, that we’ve a plan we’ve not told anyone as yet which would have prevented it. But we are where we are. GDP is 10% smaller, all incomes aggregated are 10% smaller. Now, who gets the pain?
It’s not, to put it mildly, obvious that those who work for the state shouldn’t have to carry any of that burden, is it? Especially since public sector compensations - so including terms and conditions, job security, pensions and the rest as well as wages - are significantly higher than private sector already. Isn’t it progressive to insist that the richer among us should carry rather more than in proportion of society’s burdens?
We've been telling the Fawcett Society for over a decade now
The Fawcett Society is, again, using the wrong numbers to describe the gender pay gap. Something we’ve been pointing out to them for over a decade now. Our doing so is even in the references to their Wikipedia page so you’d think they would grasp it by now. Apparently not though:
According to the Office for National Statistics, the mean gender pay gap for all employees is 14.6% this year, down from 16.3% last year. Fawcett calculates Equal Pay Day by using the full-time mean average gender pay gap – which this year is 11.5%, down from 13.1% in 2019.
That’s the wrong number to be using. As we, and the ONS, and the Statistics Authority, possibly Uncle Tom Cobbleigh ‘n’all, have been pointing out for more than that decade it must be the median used, not the mean. For wage distributions are hugely biased by there being a bottom limit of zero (while it’s possible to have a negative income we don’t measure them as such) and no obvious upper limit as footballers’ salaries show.
The thing is that the people making this mistake are aware of it. They must be for our same criticism has led them to abandon their earlier, even more misleading, comparison of part time to full time wages. They are, that is, actually numerate. This makes their behaviour worse of course. They know what they’re doing.
Until and unless they start using the correct numbers - and as we insist, they do know what they are - we can and should all ignore them. There are enough problems out there to be dealing with without taking note of those being, in our opinion, deliberately misleading about them.
The government declares that gas boilers are better than heat pumps
The government has just announced that gas boilers, that old technology, are better than heat pumps, that new, green and wondrous technology. That’s what is actually meant by the newly announced ban:
Gas boilers will be banned in all newly built homes within three years under the government’s plan to tackle climate change.
If the heat pump option was in fact better for consumers then there would be no need for the ban. Everyone would naturally gravitate to the better solution because that’s how us humans work. It’s also how technological advance works. We observe, ooooh, that looks good, we adopt and that’s how change happens.
The very insistence that the older technology many not be used is an admission, a declaration even, that the newer is not better.
Blinding us with Nonscience
The government decides, from time to time, that it needs to justify its intended course of action with science. But is that science or “nonscience”, selective statistics dressed up to look like science? Yes, we should reduce air pollution from vehicles and discourage excessive alcohol consumption; policies of this nature do not need spurious justification by bogus science. The SAGE committee has provided statistical extrapolations of their guesses of people’s reactions in hitherto unknown circumstances. This is known as “behavioural science” even though, because the conventions of science (theory – test – revise theory etc.) are not followed, it is not science at all.
This week saw the announcement that the sale of petrol and diesel motor vehicles will be banned from 2030. Fair enough. However it is based on nonscience published by Public Health England (PHE) in 2018. The authors are anonymous but the source is “the UK Health Forum (UKHF), in collaboration with Imperial College (the School of Public Health and the Business School), [which has] built on the UKHF’s existing flexible microsimulation model.” Perhaps unfairly, UKHF has been described as “a slush fund for 'public health' activists to lobby for the usual assortment of paternalistic anti-market interventions in lifestyle choices.” PHE seems to have come to the same conclusion because it withdrew funding from UKHF in the year following their document. UKHF then closed down.
PHE and the Department for Health have long commissioned work from the Centre for Social Marketing at the University of Stirling which, coincidentally, endorsed whatever PHE wanted to do. The Centre is headed by Professor Gerard Hastings who “also conducts critical marketing research into the impact of potentially damaging marketing, such as alcohol, tobacco and fast food promotion.” He authored “Europe’s only social marketing textbook: Social Marketing: Why Should the Devil have all the Best Tunes?”
The extent to which he who paid the piper called the tune should always be taken into account in assessing the credibility of academic research. Volkwagen notoriously fiddled the research they gave regulators. Imperial College has a strong relationship with the Department of Health and Social Care and there is nothing wrong with that. The funding for its School of Public Health research is not apparent from its annual report but, overall, government and health authorities are its third largest source.
In terms of provenance, the Imperial Environmental Research Group (ERG) under Professor Kelly is indeed impressive. The 2018 study would have been more convincing, however, if it had simply come from named ERG authors in the conventional way, and, better still, been published after peer review in a leading academic journal. As it is, we only have a mongrel.
Three areas are taken: Lambeth (high pollution), South Lakeland (low pollution) and England as a whole. South Lakeland is the area around Kendal, South Cumbria, with life expectancies about the national average. Life expectancy in Lambeth is much the same: 78.4 for men and 83.5 for women. It has been rising steadily, possibly due to air pollution.
The baselines in the PHE research were the years 2010 and 2015. Curiously, background pollution in South Lakeland seems to have declined over the five years but that was not commented upon. Fine particulates are treated as being 100% in the low category for South Lakeland with zero in the high category. Vice versa for Lambeth and one third in each of the three (high, medium and low) categories for England. Nitrogen dioxide variation was less extreme for South Lakeland. No discussion of these odd findings and assumptions.
The basic, and undeniable, thesis is that air pollution causes related diseases and consequential premature deaths. Table 7 makes some heroic estimates of the costs of primary, secondary and social care and medication.
Their conclusion (p.49) is:
“Between 2017 and 2025, the total cost to the NHS and Social Care of air pollution in England is estimated to be £1.60 billion for PM2.5[fine particulates] and NO2 [nitrogen dioxide] combined (£1.54 billion for PM2.5 and £60.81 million for NO2) where there is robust evidence for an association between exposure and disease. If we include the costs for diseases where there is less robust evidence for an association, then the estimate is increased to an overall total of £2.81 billion for PM2.5 and £2.75 billion for NO2 in England between 2017 and 2025.”
Curiously, the extension to 2035 comes earlier (p.29):
“From 2017 to 2035 it is predicted that 3,242 cumulative incidence cases per 100,000 population will be attributable to PM2.5 exposure in Lambeth, compared with 861 cases per 100,000 population in South Lakeland and 2,248 per 100,000 population in England. This represents a total NHS and social care cost of £9.41 billion, £80.26 million and £7.45 million per population for England, Lambeth, and South Lakeland respectively.”
One would expect the cost attributed to pollution would be the England level minus the South Lakeland (low) level but this subtraction does not seem to have been made.
Reviewing this paper was hard work as the authors seem to have immersed themselves in detail and failed to address three big picture questions:
The scenarios needed to be compared with a careful consideration of what would have happened without the pollution. People do die of the same diseases, e.g. heart attacks, when pollution is not a factor. And people do die prematurely, notably in the poorer areas of Lambeth, due to relative deprivation. Waiting in winter for London buses is a major health risk.
No attempt was made to disentangle causation from correlation.
It is hard to verify data extrapolated 20 years and no attempt was made to do so.
In short, when government says it is merely following the science: it may be blinding itself or they may just be trying to blind us with nonscience.
It's rare to see things so explicitly stated
Owen Hatherley tells us of that exciting future when there’s more council and social housing:
We have long known what to do about a crisis of housing affordability: have local authorities build housing at social rents. The pandemic hit at a time when council housing had started to have a modest revival, including in Bristol, where several councillors are members of Acorn renters union. It’s possible that a mixture of council housing programmes, co-operatives and councillor support for tenants’ organisations could presage a future for the Labour left among those who rent their homes.
That seems odd - why would people vote left to gain stuff if they’re already gaining the stuff to be gained by voting left? The answer:
Whether you own or rent your home is a surer indication of voting preferences than your age: a tenant in their 60s is no more likely to vote Conservative than one in their 30s.
We tend to think this is a bad idea. Designing the housing system of the country around who gets to be an MP as a result doesn’t meet our own desire for said housing system.
Which is that people gain the housing they desire and thus housing becomes an entirely non-political issue. This does apply to tilting the system one way through ownership and the other through rental tenancies. This also means solving that affordability problem and we’ve pointed out how to do that often enough. Issue enough planning permissions that a planning permission has no value. A house will therefore approach in value the marginal cost of production - something like £100,000 to £120,000 for a nice little three bedder on a reasonable garden plot. For that is the land and construction cost when shorn of the price of the artificial scarcity of that permission to build a house.
This rather highlighting one of the difficulties with politics as a manner of dealing with matters. If problems actually get solved then there’s no ability to use the existence of the problem as a route to gaining political power. Which is, we aver, why so many solvable problems don’t get solved by the political process.
You first mateys, you first
The insistence that we should all go do something that the proposers, themselves, are not willing to do can make sense at times. Then again, it can at times be evidence of more than usually woolly thinking. We’re in that second part of the logical diagram here:
Politicians from the UK, Germany and Spain have written a letter to Boris Johnson, calling for a four-day week to be implemented “now” so countries can begin the process of combatting the economic consequences of Covid-19.
As the article itself refers to, in a point we’ve made before, there’s a problem here. Shorter working hours are something we do when we’re richer, leisure being a luxury good. Covid has made us poorer, this isn’t an obvious time to be considering working less.
However:
“For the advancement of civilisation and the good society, now is the moment to seize the opportunity and move towards shorter working hours with no loss of pay.”
Hmm, well.
The coalition that sent the letter includes: John McDonnell, former shadow chancellor of the exchequer in the UK; Katja Kipping, the chair of Die Linke party in Germany; Íñigo Errejón, an MP in Spain’s Más País party; Green party MP Caroline Lucas; and Len McCluskey, general secretary of the Unite union.
All of those people employ people. Most gain access to generous public funds to employ staff. There are budgets that they may not exceed, of course. So, given that this is such a good idea they can offer their staff those four day weeks - with no loss of pay - and we’ll see how it works out, shall we?
After all, they are insisting this is what we all should - must - do. So there’ll be no shyness about proving the wondrousness of it first, will there?
We await their report with interest.
To return to the costs of bureaucracy
Yesterday we noted that excessive health and safety bureaucracy leads to a reduction in health and safety. Today there is an international example of the same thing:
A new polio vaccine has now been created to deal with these cases. It also uses a weakened live virus, but it has been genetically engineered to prevent it from mutating and becoming harmful. This new vaccine is now being tested, with funds provided by the Bill and Melinda Gates Foundation and others.
However, the vaccine is not yet licensed. Not surprisingly, this is causing frustration as vaccine-derived polio cases rise alarmingly. As a result, many doctors and scientists are now urging the World Health Organization to use its emergency-use listing process to give them the go-ahead to use the vaccine now.
We have the new and necessary vaccine. We even know it works. But the bureaucracy hasn’t jotted and tittled as yet and therefore there are those extra costs. Bureaucratic regulation has costs, here, as with rail safety, in terms of lives.
It’s also possible for bureaucracy to entirely negate the aim:
The government’s plan to insulate England’s draughty homes is faltering because builders and installers are failing to sign up, leaving thousands of households unable to access the £3bn green home grants.
No, they’re entirely able to access the grants. They just can’t spend them:
According to government data, only 1,174 installers have signed up to the scheme, which started on 30 September, while more than 36,000 householders have applied for the grants, which will be available until March.
So why the shortage of providers?
Andrew McCausland, the director of Wirral Property Group, spent about £6,000 and an estimated 160 hours of unpaid work to get his team accredited. He felt the process was worthwhile given the size of his business, but said smaller firms could find it more of a challenge.
“It has taken me many days to work through the requirements of the various certifying and accrediting bodies and arrange suitable insurance cover – the whole process has been very time-consuming for me to navigate,” he said. “I would advise other builders to only get involved if they have dedicated administrative support on the payroll.”
All rather come and see the bureaucracy inherent in the system, isn’t it?
At some point this urge to enforce box ticking becomes counterproductive. Those who could actually be doing things either won’t, because of the paperwork, or can’t, because of the paperwork. The sadness of the current system seems to be that we have passed that point of it all being counterproductive. A bonfire of the regulations is therefore necessary. Even if we’ve missed that November 5th chance for a bonfire of the regulators. For this year….
It's possible to have entirely too much safety
On that Hayekian basis that knowledge is local, an example from the frontlines of rail safety:
Network Rail has in place a scheme for managing track safety training and assessment. This is overseen by an outside body contracted by Network Rail – the National Skills Academy for Rail Engineering.
On the face of it, this is a sensible scheme as the whole thing is designed to prevent fraudulent access to the track. Yes, back in the bad old days, track safety tickets were being bought and sold in the local pub, so something had to happen, hence the Sentinel scheme.
The problem, however, is that eventually a system can become too top heavy. There then becomes a conflict between getting the job done and the onerous requirements for a safe system of work with its plethora of paperwork. I recall having a ream of paperwork just to do a track safety walkout during training activities, most of which was entirely useless to me. I even had to do a task brief. This consisted of “we are going for a walk to look at the track and show you what’s what.” Yes, really.
As a track safety trainer and assessor, I frequently came across track workers who told me that the requirements simply didn’t happen as laid out by Network Rail because they got in the way of getting the job done and that if they complained they would be out of work.
Yes, of course everyone wants rail staff to be safe. But regulations and procedures that aren’t followed, because they’re too intrusive, don’t do that.
The above being in relation to an accident that killed two such workers. And follows some 44 reports of the regs being that too intrusive to actually add to safety.
At the very least this should - but probably won’t - engender some humility among the bureaucrats that infest our lives. There is a limit to the power of paper wielding to make our lives better, almost certainly one we’ve already blown through. So perhaps we can have less of it all? To, you know, make people safer, stop them dying?
Lockdowns aren't all that effective
A central contention of those who rule is is that we must be told what to do. For we are not wise, nor omniscient, while they are. Or at least closer to such distinguished states than we are. This does rather grate with Hayek’s great point, that knowledge is local, not centralised. So, in times like these, times of grand management of society by those oh so knowledgeable rulers, we’d like the occasional empirical test of either side of the contention.
Which is just what we’ve got and the answer is that lockdowns - being told what to do with that firm thwack of central power - isn’t all that effective.
Our analysis indicates that older cohorts cut their expenditures on high-contact goods and services indeed by much more than younger cohorts in all epidemic months (see Figure 1). For example, when infections peaked in April, consumers in their seventies cut their expenditures on high-contact goods by 61.8% but only by 28.4% on low-contact goods. The corresponding cuts in expenditures for people younger than 49 are 26.0% and 19.2%, respectively. Older cohorts hence cut their expenditures on high-contact goods much more aggressively than younger cohorts in all of the epidemic months. These cuts are particularly pronounced in April.
The construction is that civil servants won’t have taken a hit to their incomes in the spring. Therefore changes in purchases will reflect changes in desires, not abilities, over consumption. We know, and knew then, that older age groups were much more at risk. We also know, and knew then, that infection - this being pretty obvious with an infectious disease - depended upon contact with others.
So, if older people - among those unconstrained by changes in income - reduced their exposure, measured by expenditures associated with social mixing, more than the younger we have evidence of behavioural change being driven by local knowledge, not central. If it was all about lockdowns (and one of us has been living through this Portuguese experience, directly) then the changes in expenditure would show no age difference.
Or, as we might put it - should perhaps - tell people there’s a danger they react to it. Rationally react to it too. More detailed management of activity is not, or perhaps less, needed.
There is a flip side to this too, which is that if economic behaviour changes because of the pandemic itself then the economic damage of the lockdown is less. For some to all of that change in economic activity is, as is the contention here itself, a result of reactions to the pandemic not to the lockdown.
Again as we might - or should - put it we’re all adults out here and advice to us is just great but we don’t need micro-management of our lives.
The importance of property rights
There’s something entirely true being said here:
However, free markets do not exist in a vacuum and need a legal framework that includes strong property rights and freedom from corruption
Quite so, quite so. Property rights meaning, in the end, the ability to dispose of said property as one wishes. If you can’t do that then it’s not really, fully, yours. If, for example, it requires the voted agreement of the workforce to be sold then in an important manner ownership is split with the workforce. If it requires the acquiescence of the government then ownership is split with whatever group of baby kissers happens to be in office.
This week, the Government introduced the National Security and Investment Bill (NSIB), which will allow it to block the takeover of companies in 17 key sectors, including data infrastructure, communications, quantum technology, advanced materials and computer hardware.
This is thus a reduction in those property rights.It also put limits on free markets – the core of the capitalist system that has generated our wealth.
However, free markets do not exist in a vacuum and need a legal framework that includes strong property rights and freedom from corruption – so restrictions such as those introduced by the NSIB fit into this framework.
This is thus something we should not be doing as it undermines those property rights which are the basis of the capitalist and free market system that has made us one of the richest societies ever to bestride the globe.
It is, clearly, possible to think that perhaps this sort of management should apply to the design of the latest super-tank or hypersonic drone. But:
One recent example of this was when a Chinese gaming firm bought dating app Grindr.
After being developed in Los Angeles, it was it was bought by Beijing Kunlun in 2016 for $93m (£71m). The deal was eventually examined by the Committee on Foreign Investment in the United States, which told the Beijing-based parent company that its ownership of Grindr constituted a national security threat.
The fear was that Chinese actors could use personal data collated by the app to compromise or influence individuals in Western countries. Following US pressure, Grindr was sold in March this year to US-based San Vicente Acquisition.
Which bloke is seeking which other bloke for a quickie is no longer - unlike in Turing’s time - such a matter of national security. But that is clearly how such laws are going to be used for they already are so used.
As so often this accrues power to the state the effect of which will be to make us all poorer.
Don’t do it.