The bizarre way that governments spend money
A current commitment from the government is that fibre broadband should reach every house:
UK Budget Speech reaffirms £5bn commitment to full-fibre broadband
But also:
The OneWeb satellite broadband company is back launching again, putting up 36 new satellites on Friday from the Vostochny Cosmodrome in Eastern Russia.
The spacecraft are to join the 74 already in orbit.
OneWeb is now owned principally by the Indian conglomerate Bharti Global and the UK government after they bought the enterprise out of bankruptcy this year.
Fifteen more launches of satellites must follow Friday's deployment to complete the internet delivery service.
The government is also spending pots of money on satellite internet delivery. The industry itself is spending billions upon 5G, something which can produce broadband speeds over spectrum rather than fibre. All of which is what makes that fibre broadband pledge such a weird thing to be insisting upon.
It’s possible to argue that all dwellings should, in theory at least, be able to access high speed internet. We don’t agree, as we’ve pointed out before. If individuals living in the boonies don’t think it worth paying the costs to get connected then that means the costs of getting connected aren’t worth it. This is true whether it’s those consumers or us all more generally through tax and government doing the paying.
But put that aside for a moment. We’re in the middle of a vast technological change. What we will be able to do in just two or three years is hugely different from what we can do now. And yet government is insisting upon delivery of the goal using the old technology.
That is, even if the insistence is to be “everyone’s connected at high speed” we shouldn’t be insisting upon fibre being the method just as these new possible methods all come online.
Government picking the method by which something is done is even worse than the mistake of insisting that the thing must be done.
Patents on drugs seem to be working rather well
We all know the spiel - but, but, the capitalists are making money out of drugs! Therefore abolish capitalism and all the rest. This always failing rather as the entire point of drug patents is to gain the private sector’s energy in creating public goods. It costs $ a billion and more to create, test and get licenced a new drug. If everyone can copy it on day one no profit can be made and therefore the $ billion and change will not be spent.
Therefore no new drugs.
It often is worth looking at a question from the other end of the societal telescope though. What do the capitalists think about this? From a stock market note on Astra Zeneca:
Rare diseases are, by definition, uncommon. In the past spending millions, perhaps billions, on researching a drug to treat a few tens of thousands of patients worldwide didn't make financial sense. Instead attention focused on treatments for common diseases, like asthma, with patients stretching into the tens of millions. As a result, only around 5% of designated rare diseases have approved treatments.
More recently that attitude has shifted. While major diseases may have large markets, they also attract lots of competition. That means individual drugs companies can end up with a relatively small slice of a large pie. Competition in rare diseases is far lower - a drug company which develops a treatment for a previously unaddressed illness will likely end up serving the entire market and can probably attach a hefty price tag to boot. It's also unlikely a competitor will develop a more effective alternative, since competition is so much lower. Increased interest in the sector means the global rare disease market is forecasted to grow by a low double-digit percentage.
The patent system is producing drugs for common conditions. It’s also producing competition for such drugs which tempers the price - and thus profits to be made - that can be charged for those more common diseases. This is pushing the capital, the effort, out into cures for less common diseases.
We appear to have a system which produces the desired end result. Those vast productive powers of the capitalist, greed incentivised, system producing more treatments for the things that ail us.
Of course, it’s entirely possible to still criticise the system. But any critique really does have to start from the observation that the current system is actually working.
Because the Federal Drug Administration likes killing people, that's why
A piece in The Guardian asks an interesting and important question:
An app could catch 98.5% of all Covid-19 infections. Why isn't it available?
Adrienne Matei
These inventions could help our coronavirus crisis now. But delays mean they may not be adopted until the worst of the pandemic is behind us
So why these delays? One technology is that cough into your phone idea. Another is a sterilizable and thus reusable N95 mask. The article actually gives us the answer too:
According to Adam Wentworth, a research engineer working on the mask, they are still fundraising to create the final prototype. Whenever the fundraising is complete – there is no fixed deadline – they would have to submit it for approval by the Food and Drug Administration and the National Institute for Occupational Safety and Health. This is a process that could take around six months, even with emergency prioritization.
It is the FDA that is causing the delays. As Alex Tabbarok has been pointing out with ever increasing volume. Not preparing paperwork in advance. Not bringing forward a scheduled meeting - no, really, in the middle of a pandemic the FDA would not, until really shouted at, bring forward a scheduled vaccine approval meeting - and even banning a home testing kit because, umm, because.
The problem is bureaucracy. Well, it’s either just that or the FDA has, as an institution, a predeliction for killing people. The solution, whichever the cause, being the evisceration of said bureaucracy of course. We’d even chip in for the necessary - metaphorical, of course - gralloching knife.
As we’ve been known to point out sometimes the problem really is too much government.
Time for the annual moan
Well, given the propensity of humans to moan about absolutely anything - like living high on the hog in one of the richest societies ever - perhaps we’d better be specific about which moan this is. Today it’s not gender, racism, hyper-consumerism or any of those more usual ones. Today it’s that other people spend their money as they wish:
Unions have described companies who pay their chief executives huge multiples of their workers average salary as obscene, and called on ministers and shareholders to act to end the “runaway train” of inequality in corporate Britain.
A report by the High Pay Centre thinktank on Tuesday revealed that Ocado, the online supermarket, had the biggest pay gap between those at the top and those on the shop floor.
How fearfully dreadful it is that shareholders should be generous to those they employ, eh?
For this is shareholders’ money. It does not belong to the High Pay Centre, for them to determine its distribution. It does not belong to the society more generally either. It is private property - it belongs to the people who own the company. The very definition of private property being that the owner gets to decide on what is done with it.
Having dealt with the moral issue here there’s also the empirical:
Despite excelling in technologies, organisational management, and human resource management, Japanese firms seem to have lower earning power because CEOs, who are responsible for corporate management, do not prioritise profit maximisation. Such tendency leads to a loss of shareholders’ equity and inefficient usage of firm resources, causing a major negative macroeconomic impact.
Places - like Japan - which have much lower CEO multiples and near no share or options component to pay do very much worse by their shareholders than those with that more Anglo Saxon pay structure.
It’s shareholders’ money and they seem to be spending it rationally, in their own interest. Why are people moaning about it?
Powering Our Zero Future
Santa’s reindeer delivered the long-delayed energy white paper on December 14th. It is full of good cheer: zero carbon, more jobs, more prosperity, cheaper greener energy for all. As Alok Sharma concludes his introduction, “The UK is leading from the front in the transition to clean energy, while ensuring that we leave no one behind”. (p.3) The 170 pages include no executive summary but plenty of tubs are thumped. The first question, though, is whether this is a white paper at all. According to Parliament, “White papers are policy documents produced by the Government that set out their proposals for future legislation.”
In this case the proposals for future legislation are skimpy and refers to only two proposals. Using coal for electricity generation is already due to cease by 2025; Sharma is making the bold decision to cease by 2024. (p.41) Secondly, when the government legislated in 2017 to allow electricity storage. they forgot to define the word “storage”. “We will legislate when Parliamentary time allows to define electricity storage in law”. (p.73) This leads into a rather confused discussion of networks. We should be proud, it seems, of our 284,000 kilometres of gas pipelines and open up electricity networks to competition but whether this refers to operating sections of the national grid or running parallel power cables down gas pipelines or digging up our road to create new networks is not clear. Apparently “competition in network assets is key to reducing network costs” (p.76) and legislation will be required for that. If that means a vast expenditure on competing networks, I hope you will forgive an old accountant for being sceptical.
The “key commitments”, which should have begun the paper, appear on page 87 and summarise these legislative promises as well as other visions and areas for consultation. The “digital infrastructure” will be, like Test & Trace, “world-beating”. “Transport is an important aspect of our everyday lives and fundamental in connecting us together” and “the Department for Transport will publish its plan to decarbonise the UK’s entire transport system in spring 2021.” (p.88) Decarbonising the entire transport system in spring 2021, is indeed a challenging target.
In substance, this is not a white paper, but this government does not care for green ones as they only encourage backbench MPs, not to mention the plebs, to contribute their ideas and challenge those of the government. This paper undoubtedly includes great ideas, but it does not translate those into credible quantified forecasts. The section on modelling merely states that they are going to learn how to do that and would welcome some help. (pp.60-63). The only forecast chart, intriguingly, shows that all sources of carbon emissions will be above zero by 2050 but their total will be zero (Figure 4.1, p.61). Maybe, carbon capture from the atmosphere might account for that but that is not mentioned nor has it been commercially attempted.
The extensive chapter on the oil and gas industry (pp.132-147) says very little but indicates that this important industry has been lobbying hard. It reads like the 19th century horse and buggy industry lobbying for protection from automobiles. The most key commitment is “We will support the UK oil and gas sector to repurpose its existing infrastructure in support of clean energy technologies.” (p.147) Whilst it does not say so, that probably accounts for at least part of the Business Department’s (BEIS) enthusiasm for hydrogen which Big Oil can make out from natural gas and bury the carbon in its disused oil wells. But at what cost to the taxpayer?
In contrast with the attention given to the redundant need for oil and gas, minimal attention is given to nuclear. France derives 75% of its electricity from nuclear and Hungary 49%. The most positive support quoted from the Prime Minister’s ten point plan “Nuclear power provides a reliable source of low-carbon electricity. We are pursuing large-scale nuclear, whilst also looking to the future of nuclear power in the UK through further investment in Small Modular Reactors and Advanced Modular Reactors.” (p.12). BEIS has received briefings from one of the most cost efficient new technologies, due to be operating in Canada by the end of the decade, namely molten salt reactors but elected not to mention them at all. Figure 3.4 (p.44) forecasts nuclear to grow by two or three times by 2050.
Perhaps the greatest surprise in the paper is its expectation that electricity will provide less than half of our energy needs in 2050. (p.73) According to Figure 1.4 (p.7) hydrogen and biomass/fossil fuels, with carbon capture and storage (CCS), will provide about 25% each and a small amount from removing carbon from the atmosphere although how that delivers electricity stumps me. The Figure makes no mention of nuclear or renewables, presumably because their energy is delivered by electricity, but in that case why is the biomass/fossil fuel energy not included in electricity? How else could it be delivered? Presumably all the miles of gas piping will be converted to hydrogen for home heating and hot water fuel cells although this is not stated nor does the paper mention hydrogen fuels cells at all.
The paper’s magic bullets are hydrogen and CCS. The latter enables natural gas and biomass (wood or other material of biological origin) to be used in electricity generation if the carbon dioxide is captured and stored somewhere
The trouble with hydrogen, be it produced from natural gas (blue) or water electrolysis (green), is that it takes more electricity to produce than it replaces. A report for the IEA in 2018 stated “Producing all of today’s dedicated hydrogen output [70 million tonnes] from electricity would result in an electricity demand of 3,600 TWh, more than the total annual electricity generation of the European Union.” On that basis the above target for hydrogen would be unrealistic although it has been suggested that the UK import the hydrogen leaving the CCS problem with the producing countries. But that would be more like 19th century imperialism than leading the world towards net zero carbon.
On the other hand, the renewables sector has an affinity with the production of green hydrogen in that renewable electricity is generated in peaks and troughs; the surplus electricity at peak production could generate hydrogen for storage for later use. Its use for storage is a big plus for hydrogen.
Unfortunately, the white paper does not explore these issues or the comparative costs of the various methods of generating energy and electricity. This cavalier approach to the economic realities makes it all the odder that the paper can predict the detailed effects on consumers (favourable of course), not to mention jobs, exports and economic growth. But then it is Christmas.
Owen Jones and statistics
It’s not entirely obvious that Owen Jones manages to understand the numbers he uses to support his prejudices:
Not only is the private rented sector chronically lacking in security, it is a rip-off: if they’re on gross median pay in London, young people can expect to hand over nearly half of their pre-tax earnings to a landlord.
Well, no, not really:
In every London borough the average rent for a one-bedroom house or flat on the private market is at least 30% of median pre-tax pay in London. The average across the capital is that a one-bedroom dwelling cost the equivalent of almost half (46.4%) the gross-median pay in London.
It is the median household that pays such a portion of the median individual income. The average (mean, median or mode) household size is greater than one person. This before we even start to think about several people doing a flat- or house- share on a larger property.
We’d also be hard put to think of any time in the past when a one bedroomed dwelling has been an expected part - for single and sole occupancy - of the young Londoner’s experience. It never was true of even those heady days of council housing as the single and lone individual never did gain access to such - not without subletting they didn’t.
Even then the statistic is nonsense as that very claim about median rents means that half the properties out there are cheaper than that. Oh, and when measuring affordability we should be using the - much higher - mean income anyway.
Still, how would it be possible to show that the UK’s neoliberal economy was such a failure if one had to rely upon truth and accuracy? Answer us that one.
Just to remind, the only fair trade is free trade
Given the arguments going on about the UK’s new relationship with the European Union a little reminder to everyone - the only fair trade is free trade:
The main stumbling block is measures to ensure that trade is fair. If Britain and the EU are to allow unfettered access to each other’s markets, then there must be mechanisms in place to prevent undercutting – whether it takes the form of a race to the bottom in stripping workers’ rights and environmental protections, or artificially lowering the costs of production with direct or indirect state subsidies.
This is to entirely miss the point. Imagine - go on, just imagine - that some people are willing to work for £100 a month to make t-shirts. Given the options available to them in the time and place they’re at this seems like a reasonable deal to them. So, given that this wage is below the minimum wage in the UK should we ban imports from them? The argument about no undercutting insists yes, we should ban.
That’s the end of third world garment production then and the return of tens of millions to penury.
If we in Britain - or them over there in the remnant EU of course - decide that we’re willing to go to work under this or that other set of rules then that’s up to us - or them.
But even that obviousness still doesn’t quite plumb the depths of the mistake being made here. For trade isn’t about access to someone else’s markets. It’s that consumers gain access to the production they desire. The argument for free trade isn’t that British cheese makers may sell in Berlin, or that German car makers may in Grimsby. It’s that Jam Donuts may buy their cheese from anyone, worldwide, so too that Codheads can drive the vehicles they desire, both free of bureaucratic restriction.
What the treaty should be is therefore obvious, as we’ve said before:
1) There will be no tariff or non-tariff barriers on imports into the UK.
2) Imports will be regulated in exactly the same manner as domestic production.
3) You can do what you like.
4) Err, that’s it.
The only fair trade is free trade.
If you start from the wrong facts you'll never reason yourself to a useful conclusion
Will Hutton tells us that:
The US and Britain in particular have created an economic system of organised plunder, resulting in widespread precarious livelihoods. Over the last generation we have witnessed the rise of rentier capitalism, supercharged by new technologies, to establish economic structures in which having and owning has been vastly privileged over doing, creating and risk-taking. The share of profits in national income has risen, the share of wages fallen while work has become organised around short-term contracts. The decline in the incentive to make and innovate has been accompanied by a weakening in the rate of productivity growth.
That doesn’t make logical sense. If the profit rate, or profit share, has risen then there will be ever more fighting among the capitalists to expropriate a greater share of that rising amount. Investment and thus productivity will soar that is.
Last week there were the first signs that change was afoot. As a last hurrah for the old order, the share price in Airbnb, a company founded on creating a digital platform on which a multitude of mini-landlords can offer stays in their home for VAT-free rents, doubled in the first day of trading.
To use Airbnb as an example of the claim is mindgarglingly stupid. Those apartments, before they were being rented out for short stays, were being either not used or used for lower valued uses. Thus the system either brings into use previously unused capital assets or moves them from lower to higher valued uses. This is a pure addition to the Solow Residual. This is unadorned economic growth and increased productivity. We have more output without having to add either more labour or more capital to the system. This is, by definition, productivity growth.
But what’s really wrong here is Hutton’s insistence that the profit share is rising. At least as far as the UK economy is concerned this isn’t true.
We've labour and capital shares. And then mixed income. This is essentially the earnings of the self-employed. We don't really know how much of this is labour income and how much capital. That self-employed roofer gets some of his income simply from his labour, but also some of it from his truck, his tools, the capital of his little business. Rather than trying to work it out we just count it as that mixed income. The final part is subsidies to production plus taxes on consumption. They're not things that either capital nor labour get so again we count them separately.
When I did look (given my technical skills, with a certain amount of help) at the UK figures the labour share had fallen, sure enough. But the capital share hadn't risen. What had risen was the mixed income share of the economy. And what had also risen was subsidies and taxes. Quite obviously, too, the VAT rate has doubled since its introduction and it now collects a considerable portion of GDP through taxation of consumption. Not quite 10% of GDP, but getting there. And subsidies have rather risen--all those feed in tariffs for renewable energy come in here.
What we found therefore was that yes, the labour share had fallen but not because the capital share had risen.
So, the facts are wrong, the observation is wrong and the logic fails anyway. This isn’t a good starting point from which to try to reach a useful conclusion. But then it is a Will Hutton column.
It's about power, it's always about power
Polly Toynbee tells us all that it’s pretty cool when rich people give away goodly portions of their wealth:
Because these are dark days in a bleak winter, Covid-stricken and Brexit-paralysed, let me introduce you to a couple who will raise your spirits. Frances Connolly and her husband, Patrick, were living in a rented terrace house in Moira, County Down when, on New Year’s Day 2019, they won the EuroMillions jackpot of £114.9m, one of the highest payouts ever. Since then they have engaged in one of the biggest lottery giveaways ever, according to Camelot, the lottery operator.
The Connollys are expending their resources in the manner they wish to. Nothing for us to complain about there. Polly does, however, have a complaint:
But as she knows, charity is not an answer to inequality. Bill Gates, Warren Buffett and George Soros do admirable good, but their philanthropy is no excuse for out-of-control mega-wealth that should be capped, taxed and spent on priorities set by democratic governments.
Polly insists that us people out here should not be allowed to dispose of our own resources as we wish. Instead, above some level of pocket money, all should be determined by the political process. You know, the one that Polly is a part of, Polly influences and the one where Polly would have power over where the money was directed.
That is, Ms. Toynbee prefers a system in which she gets to determine - in part - what happens to your property. Sure and we all desire to have power over others but it’s the duty of liberals to restrict that, not drool over such an imposition.
How fashionable opinion doth gyre and gimbal in the wind
A year ago fashionable opinion was that fast fashion is a very bad thing. We were all being ultra-consumerist by buying clothes that we wore a few times only. Why, it was almost as if the lumpenproletariat were able, like their upper bourgeoisie betters, to doll themselves up for a night out. Thus the end point of the argument, that we should all spend much more on each piece of clothing and have many fewer of them. Sumptuary laws imposed by intellectual fashion rather than the law - although you could see that argument coming down the pike too.
There was also a campaign to massively increase the wages of those in those sweatshops. That they were vastly better than any alternative available in that time and place was not an argument that made much headway. Instead factory workers should be making two and three times the median wages for those countries just because. It’s justice, innit?
Events have led to that fast fashion production line being interrupted:
In March, as the pandemic hit, the factory closed after foreign buyers pulled their business from the factory and thousands of workers lost their jobs. Last week, amid mounting desperation and despair, hundreds of them came together demanding they be paid months of outstanding wages and pension contributions, without which they say they will be unable to feed their children.
This turn in opinion at least has the benefit of being based upon truth. The absence of fast fashion does mean that some of the poorer in the world are distinctly less well off:
A year ago she was working as a machine operator at A-One (BD) Ltd and supporting her young family. Now she, along with thousands of others, is jobless and destitute.
Azad joined the protest because she didn’t know what else to do. She is the sole breadwinner for her family of six and is surviving on the charity of her neighbours.
So, what should be done about this?
Exactly what we have been saying for years. The best way to aid poor people in poor countries is by buying goods made by poor people in poor countries.
From which we can gain two policy prescriptions. The first and most obvious is that we should not charge tariffs upon our own purchases of these goods made by poor people in poor places. It’s of vastly more benefit to them that we buy than anything that is done with the official aid budget. Indeed, perhaps the best use of that aid budget would be to replace the tariff income to government that we’d not gain by declaring unilateral free trade.
The second is that all those whingeing about fast fashion can stop changing their opinions. Even if it is by chance that fashionable opinion is now that Bangladeshi workers being on the bread- and unemployment- line benefit from not being so. Thus, let us employ them and gain sparkly party clothes for ourselves by purchasing their output.
Next time you’re passing some outlet that retails sweatshop made clothes don’t just buy one, buy three. Anyone, and everyone, who wants to make Azad richer should, must, start by buying the product of her labour.