Increasing productivity in the NHS

It’s a standard assumption within British politics that the NHS budget must rise in real terms each year. Polly Toynbee is fond of pointing out that it needs 4% more each year - something that means that in some distant future the entire economy of the UK is only and just the NHS.

There’s a certain truth to this from the Baumol Effect. Services do become more expensive relative to manufactures as incomes and productivity in general rise - because increasing productivity in services is more difficult than in manufactures. But it is not impossible to increase services productivity, just more difficult.

So, we desire a system that increases that NHS productivity to offset that Baumol Effect. The method is to mechanise what were previously services. An example is that aspirin replaces the comely maiden gently cooling fevered brows. Another:

It takes around five or six people and a considerable amount of effort to turn an intubated patient in a hospital bed. For patients in an artificial coma, this procedure is performed at least twice a day in order to improve patients' breathing and prevent bedsores. And now that intensive care units are filling up as a result of the pandemic, the problem is getting worse. A team comprising scientific assistants and a student, headed by Prof. Charles Baur at EPFL's Instant-Lab in Neuchâtel, have developed a simple system that allows just three people to turn a patient with little effort. It was tested by doctors and nurses at the La Source Clinic simulated hospital in Lausanne and the Geneva University Hospital (HUG) intensive care unit, and everyone involved was enthusiastic about the new device. It has been patented and is now ready for large-scale production.

Effectively - and too simplistically - a set of clips that allow the use of the sheets and the already extant patient lift to do the turning rather than the heft and grunt of humans. We have just automated, mechanised, a previously purely human labour task. We’ve improved the productivity of the use of labour that is.

Our desire is that we have more of this sort of thing. At which point we’ve got to note what sort of system increases the amount of this sort of thing. Centrally planned economies don;t do it well - it’s a standard observation that the Soviet Union managed no increase in total factor productivity in its entire 70 year lifespan. It’s also a standard observation that markets and competition increase the amount of such productivity increases.

No, we cannot plan our way out of this as this example shows. This wasn’t the result of some central decision by a beneficient state or management. It was a bottom up observation and experimentation from the shop floor.

Thus the introduction of markets and competition into the NHS even as government remains the financier. So that we have that system that increases productivity over time.

Fifth time the charm for Scottish Labour?

The Scottish Labour Leadership election this February will mark the party’s 5th leader since the Independence Referendum in 2014. 

To paraphrase Oscar Wilde: to lose one leader might be considered unfortunate, to lose two looks like carelessness, but five looks like a descent into insanity. 

Once you start changing your leader as often as you do your clothes, voters stop noticing. Partly because they can’t keep up, and partly because they think that if you can’t make your mind up about the measure of a leader then why should they? 

The latest leader is a prime example. Richard Leonard is not a household name, and his recent resignation follows a long line of ineffective leaders more competent at dividing their party than uniting it. Their struggle to retain control of their party is only matched by their party’s struggle to retain any influence in Scotland. The former powerhouse that was Scottish Labour has greatly diminished since the 2010’s and if the party wishes to regain any of its former influence within Scottish politics, they will first need a strong and dynamic leader. 

So who are the hopeful prospects? 

In the red corner, we have Anas “frontrunner” Sarwar : MSP for the Glasgow Region since 2016 and Scottish Labour spokesperson for the Constitution. This will be his second leadership attempt since narrowly losing to Richard Leonard in 2017 . Unlike in 2017, however, this time Sarwar is the favourite to win, having secured 26 of the 47 nominating CLPs, 90 of the 126 nominating councillors, 9 of 16 nominating unions and affiliates, and 16 of the 21 nominating MSPs. 

His popularity is well deserved: he is an experienced and high profile politician in both Holyrood and Westminster (MP for Glasgow Central 2011-2015). He has also previously held leadership positions within his party as deputy leader of Scottish Labour (2011-2014) and even acting leader for a brief few months. 

He is, perhaps, best known for his efforts to tackle Islamophobia within Glasgow and his dedication to improving the NHS. As a former NHS dentist, he is truly passionate about health and led the successful parliamentary campaign to end the NHS pay cap. Indeed, health is so important to him that he cited winning the public inquiry into the failings at the Queen Elizabeth Hospital (Scotland’s largest hospital), as the biggest single achievement in his political career. 

Sarwar is a centrist and a strong Unionist hoping to block Independence for at least the next five years. As he says, “It would be a big mistake to go from the trauma of Covid straight into a divisive independence referendum campaign. I don’t think that’s in the national interest – it might be in the nationalist interest, but it’s not in the national interest.”

Instead he hopes that a post-pandemic Scotland will focus on “how we protect and create new jobs, how we need to fight against the climate emergency, how we have an education system that is a global beacon once again, and how we build an NHS that never again has to choose between treating a virus or treating cancer. “                            

It may seem like classic political rhetoric but at least it is forward facing and acutely focused on the issues at hand which is more than can be said for certain SNP politicians. It is not surprising that politics runs through his blood. In 1997, his father Mohammed Sarwar became Britain's first Muslim MP; if Anas Sarwar is elected he will be making history himself as both the first Muslim and BAME leader of a major British political party. 

In the other red corner we have Monica “underdog” Lennon: MSP for the Central Scotland Area since 2016 and Scottish Labour’s Shadow Cabinet Secretary for Health and Sport. She joined the contest late in the game and has only been backed by four other MSPs as well as herself, 21 nominating CLPs, 36 nominating councillors and seven affiliated organisations.

Although her political CV may not be quite as lengthy as Sarwar’s, she should certainly not be underestimated as a contender in this match. Indeed, she was named by Vogue as one of the top 12 women leaders who changed the world in 2020, after her “Period Poverty Campaign” led to Scotland becoming the first country in the world (under the “Period Products (Free Provision) (Scotland) Act”) to subsidise fully and give universal access to menstrual hygiene products. Labour has lost huge numbers of female voters in the past decade, while the SNP outbid and outspent them on various issues, so her issue winning out is a sign she’d take that on. 

Unlike her fellow competitor, Lennon is not adamantly opposed to a second referendum and even defied her party whip by abstaining against the vote on the Government’s Referendum Bill in 2019. She believes if the people support a referendum, the Labour Party should not block this process. It is important to note she is not an Independence supporter herself, rather she states "I don't think the only option in town is between independence led by the SNP and the status quo led by the Tories. I believe in devolution and think we need more powers in Scotland and to do better using the powers we have." 

Thankfully, an alternative devomax or even Indyref2 are not her top priorities whilst the pandemic continues. Instead she states that “getting Scotland vaccinated is our immediate priority. We need to eliminate the virus and recover from the devastation caused by the pandemic''. After that, like Sarwar she is unsurprisingly focused on addressing the inequalities made apparent from the pandemic with a particular focus on child poverty, something she believes can be eradicated within the next 10 years. 

It’s worth remembering that Health is the issue of the moment and likely to stay that way. It is refreshing to see two potential leaders in Scottish Politics who are fully aware and committed to this fact.  

It may be a tough fight between the two, but it appears it will not be a bloody one. Both candidates have been running positive campaigns, calling for party unity over further division. This unity will be essential if Scottish Labour hope to regain support and crucially seats. Ultimately, it is far less important who wins on the 27th of February and far more important what they can actually accomplish once they do. The Scottish elections will be held in May and one cannot be a leader of a party if there is no party in parliament to lead. 

Whoever wins will have the unenviable task of rebuilding Scottish labour from its foundations up and transforming it’s image in the public’s eyes … in just 4 months. If they are successful in this task then they must ensure that they scrutinise the SNP and hold them accountable for their actions.  With Joanna Cherry’s dismissal another crack in the already fracturing SNP unity, the Party is providing the Tories and Labour plenty of opportunity for effective opposition. They must use it.  In our post-pandemic society, we cannot afford further uncertainty, Scottish Labour must work to prevent decisions that will only negatively impact and divide Scots for generations to come. 

Scotland was once a place where “if you pinned a Labour rosette on a donkey it would have a reasonable chance of being elected as an MP”. This is no longer the case. The last decade saw Scottish Labour’s fall from power and this decade will see its struggle to return as a key player.

Personally, my money is on Anas Sarwar for this match but I will wait a few more months before placing my bet on the larger fight ahead ; the fight for Scottish Labour’s survival.

The White Paper could crash the National Grid

Driving down a motorway while looking only through the rear window is generally considered risky. The December energy White Paper considers the provision of electricity as a whole but gives no consideration to the key problem of the volatility of renewables which amplifies as the reliance on renewables grows. Since hydrogen is a user, not a source, of electricity, the main other zero carbon source is nuclear, backward to the traditional large pressured water reactors (PWRs).  That is using old technology to solve new problems.  The two new PWRs at Hinkley Point and Sizewell apart, the White Paper is talk rather than the commissioning action we need now. Of our eight large PWRs, seven need to be decommissioned, and their contribution replaced, within this decade.    

Before returning to nuclear supply, we should consider the renewables volatility problem.  This is currently addressed by the “Capacity Market”, described in the White Paper as “our primary policy mechanism for delivering security of electricity supply. It provides generators and flexibility providers with a payment for firm (reliable) capacity to ensure they deliver electricity generation or demand reduction, when required.” (p.148) It operates in parallel with the main “Energy Market”, the combination being the “Balancing Services Market.”

With renewables (wind and solar) contributing about 23% of our needs on a typical winter day and fluctuating between 15% and 31%, the Capacity Market manages, although there are times, as Energy and Climate noted in January, when it only just copes: “So far this winter, National Grid has issued more notices that power margins are tight than for any year since 2008”.                   

The risk with the Capacity Market, not addressed in the White Paper, is scale. It is one thing to have a patchwork of imports and fossil fuel, biomass and waste generators standing by to meet the current relatively small volatility in renewables supply.  It is quite another matter to have unused generators standing by to cover the vast majority of the total UK demand. BEIS forecasts that, by 2050, the electricity market will be far higher as other energy sources are shut down, and 85.4% of it could be coming from renewables (figure 11). 

When most of the supply suddenly stops, what do you do?  It is quite likely the clouds extend beyond Calais and batteries are prohibitively expensive at the scale required: back up for 100GW of wind capacity for a shortish period of time would need over 3,000GWh of battery capacity costing £1,190 billion. Perhaps there could be enough natural gas supply, with carbon capture and storage (CCS) still around ,but the White Paper does not refer to that in the context of the Capacity Market. The National Grid would probably crash in the middle of winter. 

The talk but no action on commissioning new nuclear plants has a long history. The House of Lords considered all this back in 2011, and concluded that the government had little idea whether nuclear would continue to contribute its then current 12 GW or rise to, perhaps, 48 GW or what. The Secretary of State “said that the Government were adopting a "portfolio approach" to meeting the UK's future energy needs. He also confirmed that nuclear energy would continue to play an important part in this portfolio.” The main further unknown was the extent to which continuing with natural gas, or shale gas (with CCS), was practicable. Nine years on, we are not much wiser. 

BEIS will not even start to consider introducing new nuclear, starting with the Rolls Royce small PWRs, before the 2030s. A decade later they might start to consider the small advanced modular reactors (AMRs) such as molten salt and even the wholly unproven fusion.  On this time-scale, the UK will only have significant non-PWR nuclear generation after 2050.  

PWRs are essentially base load generators; in practice, they have to produce steadily all the time. They cannot be turned up or down. Rolls Royce see their new small PWRs, however, as off-line generators, perhaps contributing to the Capacity Market and perhaps via storage. Whilst they cannot be immediately adjusted, being small, individual reactors can be phased in and out. 

Whilst we should have a bureaucracy devoted to commissioning new electricity generation, instead we have a brilliant system for preventing it. New nuclear plants have to go through two types of approval: plant safety (design) and site acceptability. The former is regulated by the independent Office for Nuclear Regulation (ONR) whose 70 page guidelines make no international reference.  The design could have been approved as safe in every other country in the world but the ONR has to ignore that and follow the 1965 Act, suitable for that era but not for an age where AMRs and small PWRs are manufactured in factories and transported to sites.  

One can argue that we should be proud that the ONR enforces the strictest approach to nuclear safety in the world but countries such as Canada can hardly be described as cavalier. Alternative, streamlined, approaches should at least be considered. The UK did well with approving Covid vaccines. The involvement of the Environment Agency, mostly known for its failure to prevent flooding, provides little reassurance. 

Site approval involves all levels, and many departments, of government. And then, of course, HM Treasury wades in.  What is approved, reluctantly at first, is likely to be disapproved as delays and re-budgeting set in. Clearances when finally given, e.g. Wylfa and Oldbury, are withdrawn. The whole system is geared to large PWRs with no account being taken of the new small PWRs or AMRs. Oklo, a 1MW district nuclear power plant, is going through US regulatory approvals relevant for smaller plants 8 and USNC will probably obtain Canadian approval in 2022 for its initial small plant.  

In short: back in 1990, government rightly decided it did not have the skills to manage the generation and supply of UK electricity. They privatised it. Then, unable to resist the desire to interfere, government over-loaded the market with regulations and interventions.  

In his 2017 Cost of Energy Review, commissioned by BEIS, Professor Sir Dieter Helm laid out the obstacles government had by then created to the operation of a free market. “The scale of the multiple interventions in the electricity market is now so great that few if any could even list them all, and their interactions are poorly understood. Complexity is itself a major cause of rising costs, and tinkering with policies and regulations is unlikely to reduce costs. Indeed, each successive intervention layers on new costs and unintended consequences. It should be a central aim of government to radically simplify the interventions, and to get government back out of many of its current detailed roles.” (p.viii)

His recommendations were largely ignored. 

Then the government announced Carbon Zero 2050, pretty much terminating the main sources of electricity, namely coal and gas, without intelligent analysis of how to replace them, solar and wind. apart 

A free market would fill the gap with AMRs capable of meeting renewable shortfalls but the government has blocked any new nuclear consideration until it will be too late.   

So fossil fuel generation only with CCS, a belief that hydrogen magically makes itself without the use of electricity or gas, and a reliance on a Capacity Market that looks unlikely to be man enough for that job without the availability of AMRs. That is how to crash the National Grid.  

On loose and tight societies

An observation that some societies are “loose” in that they’re more tolerant of rule breaking - or as we can also put it, deviation from the norm - than “tight” societies. This matters in a pandemic when strict rules about what may be done unto others through personal behaviours do actually make a difference.

It turns out Covid’s deadliness depends on something simpler and more profound: cultural differences in our willingness to follow rules.

All cultures have social norms, or unwritten rules for social behaviour. We adhere to standards of dress, discipline our kids, and don’t elbow our way through crowded subways not because these are legislative codes but because they help our society function. Psychologists have shown that some cultures abide by social norms quite strictly; they’re tight. Others are loose – with a more relaxed attitude toward rule-breakers.

As is observed this is not one sided:

The virus has been especially effective at turning some societies’ propensity for rule breaking against them. Americans exemplify this spirit. It’s why the United States boasts a great deal of creativity and innovation. It’s also a major liability during times of threat. Such maverick behaviour is supposed to subside in emergencies. Yet countless US citizens continue holding parties, shopping maskless and generally scoffing at the virus. When the fear reflex is triggered, it’s often in a perverse way: fearing lockdowns and mask mandates more than the virus itself.

Given that the majority of the time we are not in an extraordinary crisis - that “extra-” there being the proof that we’re not in ordinary times - we can go on to point out that the extra creativity and innovation derived from the greater cultural freedoms are worth it.

At least, worth it from the point of view of us inhabitants of a looser culture which values that liberty toward rule breaking which fosters that innovation and creativity.

But by far the most interesting part of this we think is the insistence that this is a cultural phenomenon. Another way of putting this is that it is a bottom up attitude, not one imposed from the top down. Which does rather lead to the supposition that attempting to organise a loose society by the strict measures doesn’t work. On the grounds that even if they exist, those measures, few will stand by them.

Just to pluck an example from the current headlines ruling methods from the mentioned China, or Austria (and we’d include Germany and France there), aren’t going to work when applied to looser societies such as the UK or Italy. Which does rather pose a problem for that unified European state idea if the method and standard of governance just won’t work across different cultures.

Or perhaps Polly Toynbee’s perennial “We must be more like Sweden!” But if we’re not Swedes and don’t have Swedish culture then it’s not going to work, is it?

This is not to go all Flanders and Swann on the point but if inbuilt culture determines what form of governance works then forms of governance are not - not entirely so - replicable across cultures, are they?

Protectionism: The infant industries argument

One of the most common justifications for trade barriers is to enable developing countries to diversify and grow new industries to a size where they can benefit from large-scale production and compete against established competitors abroad. 

That is important to countries that need to diversify, such as those who are largely dependent on a single mineral or crop. And people fear that, since it is hard for individual governments to regulate multinationals, they can accumulate and use monopoly power to squeeze out competitors.

But there are problems with the infant industry argument. For example, which new ‘infant’ industries should be grown? The choice may be made for political purposes more than any real prospect of economic success. 

And unfortunately, the infant industries never grow up. Precisely because they are protected from competition, they become inefficient and slow to mature. And you can be sure that the industries themselves will campaign hard to keep their protections.

Like all protectionism, this policy benefits a few producers while leaving consumers facing higher prices, poorer quality and less choice. There may be plausible arguments for trade barriers, but the infant industry argument is not one of them.

Johan Norberg and open societies

Johan Norberg’s latest book is entitled “Open - The Story of Human Progress” (Atlantic Books, London). It’s a very apt title because it makes the case that it is open societies that have led progress in history. This uses “open” in the Popperian sense to mean open to the movement of goods, ideas, and people.

The book is an instant classic, a complex and wide-ranging series of insights into what has led some societies to succeed and some to fail. “Succeed” here means giving their citizens the chance to lead decent and improving lives. Trade, Norberg shows, has been a key factor. Merchants take back and forth not only goods but ideas and innovations that can be copied. Open, trading societies learn from each other, whereas societies that close their borders to foreign goods in order to protect their own producers are denying their citizens access not only to goods from outside, but also to ideas that can improve their lives.

Open societies that allowed movement of goods, people and ideas have prospered. Their openness has bred tolerance and welcomed diversity. Ancient open cultures have progressed in arts and science, in manufactures, agriculture and in ideas, as well as in wealth. People copy successful innovation.

Open societies are ones that do not require adherence to one set of beliefs and practices, but which allow different groups within them to follow differing values. They tolerate nonconformity, and are prepare to see new ideas develop and spread. All previous open societies have reverted to authority and imposed conformity. Some, Norberg points out, have succumbed to external shock such as conquest or plague. Others have seen innovation and tolerance repressed as traditional ruling élites and those benefitting from established powers have fought back to restore their advantage.

There has been one exception - the one that fostered the Industrial Revolution in Britain and which has provided an economic template as the source of the modern world. It survived, Norberg suggests, because no-one had the power to shut it down as they had done elsewhere. Power in Britain was dispersed and multi-faceted, and neither crown, aristocracy, church or guilds had enough power to impose their will to silence the ideas or to stop the innovations. Norberg lists the Glorious Revolution of 1689 as a pivotal event in this, channeling monarchical power into constitutional government.

Norberg is particularly good on explaining how the tribal instincts developed by hunter gatherers, can reassert themselves in modern, open societies when people feel threatened by developments and events. Prospering societies tend to toleration and openness; it is in economic shocks and downturns that some are inclined to close borders, put up shutters, and blame outsiders and dissidents for their misfortunes. In place of the liberal and democratic institutions and practices they think have failed them, they are tempted, says Norberg, to turn to strong leaders who can assert authority to restore what they see as former glories. Traditionalism fosters protectionism, and when societies close borders for self-sufficiency, they become poorer materially and intellectually.

Norberg remains an optimist despite the alarming threats to openness posed by attempts to shut down debate and free speech, and by the rise of populism as a response to perceived exclusion from power and prosperity. There is nothing, he says, that ensures our still fairly open society will survive. But it could if we wanted it to. This is an excellent book, and I cannot recommend it more highly.

Greed is usually a good guide as to how high prices can go

We’ve been observing this shouting match over streaming royalties with some interest for there seems to be a deep misunderstanding of how prices are set buried in there:

The DCMS committee inquiry has heard testimony from an array of musicians, from Elbow frontman Guy Garvey to Mercury-nominated singer-songwriter Nadine Shah, which have highlighted the difficulties artists have making money from the small royalties artists receive from digital music services. Garvey, who told the committee that the next generation of bands are being lost because they cannot sustain their careers, has also said services such as Spotify and Apple Music are not charging customers enough. It can take more than 1 million streams for an artist to make £1,000.

£1,000 from a million people listening to a song doesn’t seem like much we agree. We would note that this appears to be about 5 times what a million people listening to the same song on the radio generates for the musicians. Sure, this is inaccurate but it’s close, songwriters and performers together make perhaps £200 from a Radio 1 play - to we’ll assume a million listeners - of a 3 minute song.

It is not obviously true that the streaming price is lower than the radio one. It is entirely possible to argue that the on demand nature of streaming, possibly the absence of the DJ, makes that a more valuable experience for the listener than the radio play. But this is where we come to price setting.

Spotify is at least attempting to be a profit maximising company. We’ll not have to work very hard to convince people that capitalists are greedy for other peoples’ money. Therefore the obvious assumption is that the streaming giant is charging listeners as much as they think they can possibly get away with. That’s the function of greed in setting prices, that greed meets the consumer willingness to pay and that’s where supply meets demand.

The other way of putting this being that Spotify cannot raise prices - we assume, of course - without reducing gross revenue. They’re extracting as much as is possible from the pockets of the listeners. This assumption could be wrong, of course it could. The answer to which is to launch a higher priced streaming service and see how it does. We believe people have done this too which is that markets testing the limits of greed thing again.

Understanding these basics leads to what might be an uncomfortable finding for Mr. Garvey and Ms. Shah. The people have spoken, their output is worth what is being paid for it simply because that is what people are willing to pay - that’s the only valuation that has any merit in a society containing humans.

Being in a popular beat combo doesn’t pay very much because consumers don’t value popular beat combos very much. Ah well.

Reasons for optimism - desalination

Technological advances make it highly likely that the world will soon have no shortage of water of potable quality in the places where it is needed. Although there have been disputes between countries over available supplies, the likelihood is that there will be enough for everyone. On the small scale much is being done to dig new wells and to adopt local water purification techniques that diminish the spread of water-borne diseases. The big advances, however, are being made in desalination.

The world is not short of water; it covers seven-tenths of its surface. The problem is one of removing the salts from it to render is usable for drinking and for agriculture. The most promising developing technology uses seawater reverse osmosis (SWRO desalination) to push seawater through membranes that admit pure H20 molecules, but prove impervious to the salt and other molecules dissolved in it.

It has had problems associated with it, notably the high energy inputs needed, and the high costs this brings, together with the environmental impact on the localized marine ecology, but these are being solved. It has been shown that the local impact can be mitigated by creating or restoring suitable habitats or by restocking with affected species. And the high costs associated with abundant energy use is being resolved as the costs of renewable energy sources decline. The current cost curve for solar and wind energy suggests that energy will become cheaper as time progresses, making osmotic desalination ever more attractive economically.

As energy does become cheaper, it will be possible to move the desalinated water to the places where it is needed by pumping it long-distance though pipelines, much as oil is currently piped across thousands of miles. Lower energy costs will render this viable. The rapid development of desalination technology indicates that water shortage problems can be resolved. This will make it possible to cultivate in currently inhospitable areas. It will enable hydroponic farming to take place in areas lacking fertile soil, further reducing pressure on the land needed to produce food.

Far from facing shortages and possible conflict situations, the likelihood is that fresh, clean water will be both abundant and cheap in the future

Why should landlords have lower tax bills?

If the underlying truth to a matter is misunderstood then we’re going to end up with bad to terrible policy on that matter. Thus it is important that all understand who really pays, who carries the economic burden, of business rates:

Business rates, a tax levied on commercial property occupiers, have created an uneven playing field between bricks-and-mortar chains and their online competitors, helping to drive a slew of high street chains to the wall. Since the onset of the pandemic, Laura Ashley, Cath Kidston, Monsoon Accessorize, Paperchase and Edinburgh Woollen Mill empire have all fallen into administration. The collapse of Debenhams, often an anchor tenant in shopping centres, will damage the prospects of other businesses around it.

“It’s a double crime because we are letting online businesses like Asos and Boohoo out-compete rivals by not paying as much tax — and when they kill their competitors, the creditors, which includes HM Revenue & Customs, pick up the tab for that too,” said former Sainsbury’s chief executive Justin King, who now sits on the board of Marks & Spencer. “It would be funny if it wasn’t so serious.”

It is true that the occupier hands over the cheque for the rates. But the person who carries the economic burden is the landlord, they can charge a lower rent because of the existence of the tax. This is as close as our current tax system gets to a land value tax and is, in fact, a good tax. Good here meaning both efficient and equitable, rather than it being good to have to tax, that’s a cost given that we’ve got to pay for government somehow.

So, the current argument, the one being made against business rates, is that landlords should pay less tax and the shareholders, workers and possibly customers of online retailers should pay more.

It’s possible that that is true, not that we think so, but that is the argument that is being made and is the case that has to be proved.

So, before anyone signs up to this change in taxation methods there’s the big question that needs to be answered.

Why should landlords pay less tax?

GameStop and short selling

As ever, when there’s something interesting happening in the stock markets there are the claims that something must be banned. The GameStop story has certainly been interesting and it’s leading to the call that short selling be banned.

Ourselves, well, one calculation is that short sellers have just lost $20 billion. If short selling should be reduced then we’d consider that a pretty good incentive for short selling to reduce.

However, we are these days told that we must “follow the science”. On this particular point the science being Robert Shiller and his Nobel. His point is that the efficient markets hypothesis works only within certain caveats, one of which is that markets must be complete. If people can buy something then we get the views of those who think it will rise. If people can not buy something then we get the view of those who, perhaps, have no view. Only if people can go short can we gain the views of those who think the thing should or will fall in price.

Thus a market which does that market job of price discovery does so better in the presence of the ability to short sell. This is why his solution to the US housing frenzy of 2003 to 2006 being the creation of futures markets where more speculation can take place. That speculation on lower prices is possible tempers and reduces such frenzies.

The implication there - baldly stated by Shiller at times - is that having to short housing finance (those CDS and CDO things) rather than housing more directly delayed the pricking of that bubble.

A proper and decent financial market is one that deliberately creates the structures in which is it is possible to speculate upon falling prices, to sell short. At which point we’d probably not ban the very thing which creates that proper and decent financial market.

We can take a step further back too, to Galton’s Ox, that foundation of the idea of the wisdom of the crowds. The random mass is asked the weight of the dressed carcass and no individual gets it right. The average of the random mass does with startling accuracy. But, and here’s the essential caveat, it only does so when all views, however objectively silly they are, are included.

This is rather redoubled in a financial market where things are worth exactly and precisely what people think they are worth. Banning short selling excludes views from that price setting therefore the price that is set will be wrong in the absence of short selling. Not because there is some objective price that is correct, but because we’re excluding some of the views as to what that price should be.