There is no reason to tax wealth in the UK
We might have mentioned this before, just the once or twice, but the reform that the UK needs is the abolition, the blowing up, of the Town and Country Planning Act 1947 and successors. This is the one reform that solves a number of problems, from how the young might afford a house, to lowering the equilibrium unemployment rate to dealing with that wealth inequality Mr. Piketty and others whine about so much.
It would even solve the problem the IFS is worrying about:
Rising house prices, growing wealth and stagnant earnings mean that inheritances are becoming ever more important in determining life chances and lifetime income. Relative to other sources of income, inheritances are likely to be about twice as important to the generation born in the 1980s as they were for those of us born in the 1960s. That trend looks set to continue.
It’s worth reminding ourselves what household wealth is actually composed of. 42% of it is pensions, a largely self-solving problem. Defined benefit pensions die with the recipients, defined contributions ones are largely consumed before death. The reason why this has grown so much as a portion of the national wealth is that we’re all living longer. That - welcome - move from a three year retirement to a 15 to 20 year one requires an increase in savings, in wealth, to pay for it. This explains a goodly chunk of Mr. Piketty’s concerns over the wealth to GDP ratio - what does he expect to happen if we do have decades long retirements?
Financial and physical wealth are about a quarter of the total (OK, 24%) and that’s entirely in line with historical numbers and portions of GDP. There isn’t a change here that requires consideration, let alone action.
Then there’s that property wealth that is 35% of the total. This is not actually in housing, as we know, it’s the value of the planning permissions attached to the piece of land that may be built upon. If we wish to reduce this inequality - we certainly want to reduce the price - then the answer is to reduce the value of those planning permissions. As no system of rationing nor allocation will ever be left alone to get on with things the answer is therefore to blow up that Town and Country Planning Act 1947, plus successors, that creates the woeful shortage and thus excessive valuations.
The increase in household wealth is a result of pensions and planning. Acknowledge the one - that it’s a sensible, desirable, reaction to longer lifespans - and solve the other and we’re done. There is no economic problem left to be solved by wealth taxation, is there?
Or, as we might also have mentioned the once or twice, government can indeed solve problems, all too often by stopping doing what it is currently doing.
Nomadland and the Amazon labour monopsony
The New York Times tells us of Joan Robinson’s injection - perhaps reinjection as the idea is clearly there in Marx - of the idea of labour monopsony into economic discussions:
Crucially, Robinson argued that workers, as sellers of their own labor, almost always faced monopsonistic exploitation from employers, the buyers of their labor. This technical point had a political edge: According to Robinson, workers were being chronically underpaid, even by the standards of fairness devised by the high priests of the free market.
This certainly has happened, company towns were notorious for it. The closest the UK has been to chattel slavery this past millennium - domestically that is - is probably the example of certain remote Scottish coal mines. At a very much more superficial level Street in Somerset had no pubs - they were all immediately outside the area controlled by the Clark’s of the shoe company fame. This is why the Truck Acts where wages must be paid in cash, not company scrip. This is also a problem dealt with by the 1980s which is why the Truck Acts were repealed - simply not necessary in an age of personal mobility.
….a recent investigation by House Democrats concluded that Amazon deploys monopsony power and that its warehouses tend “to depress wages” for warehouse and logistics workers when they enter a local market.
Nomadland is, we agree, a film, it’s people playing dress up. It might even be art but it’s scripted drama, not a documentary. Still, the conceit is that those warehouses pull in labour from possibly thousands of miles away. That people travel hundreds of miles to work at them. There are echoes of the Joads in this but that tale, in all its grapey wrath, is of how the Model T frees from monopsony. The choices available might not please a progressive’s heart but choice is, by definition, the antithesis of either monopoly or monopsony.
A mobile force of 160 million people picking and choosing among millions of potential employers simply is not a labour market suffering from monopsony. That’s a tale that needs to be confined to the “once upon a time” section of the movie storage vault.
Theorising around The Theory of Moral Sentiments
Today we think of Adam Smith as an economist. But it was not his 1776 book The Wealth of Nations that made him famous. It was a work of moral philosophy, published seventeen years earlier.
The Theory of Moral Sentiments came out on 26 April 1759. It was a sensation, and made Smith a hot intellectual property. Moralists had been struggling for centuries to work out what makes some actions morally good and others morally bad. To clerics, who held great sway over the public and in intellectual debate too, the answer was plain: it was the word of God. Though of course, human life was complex, so God’s word needed a good deal of interpretation coming from those who understood it — the clerics, naturally. But then, in an age of science, there was a spreading reluctance to take the word of church leaders as definitive, and skeptics scrabbled round for other explanations. One popular theory is that human beings had a ‘moral sense’ just like smell or touch, such that they could instantly (and somehow) detect what was right and what was wrong, and distinguish them just as they distinguished red and green. But that too seemed unsatisfactory, as it was far from obvious how such a supposed sense worked, and why different people had different perceptions of right and wrong.
There were other theories too. But Smith’s breakthrough was to explain that our moral judgement stem from our very psychology as social creatures. Human beings, he suggested, are born with a natural ’sympathy’ (today we would say ‘empathy’) for other members of their species. They are distressed by the pain of others, and uplifted by the joy of others. And that is what helps us shape our behaviour in ways that produce a general good. We enjoy the praise that comes from others when we do something ‘right’ and are troubled by the disapprobation of others when we do something ‘wrong’.
Smith was writing exactly a century before Darwin’s 1859 classic The Origin of Species, so he did not have advanced evolutionary theory to help him explain why we should have this rather useful social psychology. He put it down to ‘Providence’. His friend David Hume had struggled with similar problems in the last section of his own Treatise of Human Nature. But Smith had no doubt that this social psychology persisted because it brought our species a general benefit. He knew it must be something like what we now call ’natural selection’. Honour among thieves and all that: if we started behaving wickedly to each other, our society would break down pretty quickly.
The Theory of Moral Sentiments was an instant and international best seller. Not only was the central idea sensational, but the prose (for the time) elegant and Smith’s rubbishing of other (often pompous) moral theorists was thought exquisite. It brought Smith to the attention of Charles Townsend, a leading intellectual and British government official, who asked Hume to introduce them. It led to Smith being plucked out of Glasgow University and hired, for a very generous lifetime income, to become tutor to Townsend’s young stepson, the Duke of Buccleugh. The tutoring took Smith on the grand tour of Europe with his the young aristocrat, where he was able to talk with some of the leading European intellectuals and to see the different industries and ways of working on the Continent. He started thinking about a new book: not this time on moral philosophy but on another part of human social psychology — economics. It took him over a decade to turn his ideas and the vast mountain of economic facts he assembled into what would become The Wealth of Nations. And with that, his fame was assured, not only in his own time, but in centuries to come.
This is a problem with using planning over climate change instead of the market
A letter in the Sunday Times:
Your article on the battle over the technology used to remove carbon emissions from heating rightly mentions the heavy lobbying by the gas industry to promote hydrogen over heat pumps (News Review, last week). As my own research shows, lobbying power is stacked in favour of these companies because of their market dominance. In reality, heat pumps are the only deployable option in the short term; and studies have shown there are fundamental problems with hydrogen.
It is worth noting the connection to your separate articles on lobbying. Join the dots and you’ll find a number of energy lobby group chief executives with easy access to politicians. It’s no surprise hydrogen is high up the policy agenda.
Richard Lowes, Energy Policy Group, University of Exeter
People can only lobby government over a particular technology if it is government deciding which particular technology should be used.
This being exactly what the Stern Review told us should not be done. Instead, set up the system so that no specific path, plan, technology or solution be decided upon, just internalise those externalities and see what happens. The reason being that government picking losers is inefficient and if our reaction to climate change is to be inefficient then we’ll do less of it.
That people lobby for what Mr. Lowes insists is the wrong solution is all the argument required to insist that lobbying not be the basis of the decision. Set the goal, by all means - heating houses to the temperature desired by those who live in them at the lowest overall cost including that upon the climate. Then leave the market to work out what is that lowest cost technology.
After all, people only lobby government in order to gain privileges from government. If privileges won’t, cannot, be granted then the lobbying won’t happen.
We might have said this before but if only Owen Jones understood anything
Owen Jones tells us that the defeat of the European Superleague is a victory for people power against markets. No, it’s a proof of the fact that markets enable, support and ensure the victory of people power:
The great ESL revolt of 2021 has shown that corporate boardrooms are not invincible, and that business decisions that prioritise profit over wider social needs can be exposed as hubristic rather than lucrative. Rather than a one-off, the debacle has provided much-needed political education to millions about an economy rigged at every level in favour of unaccountable vested interests. It was grotesquely self-evident in football; but it should be obvious everywhere else, too.
The specific point of the ESL was to create a cartel. One that had a hard cap upon how much of the revenue could be paid to the players. It was indeed an attempt to recreate the experience of American sports leagues where there is no competitive entry and relegation and thus there’s considerable capitalist power and therefore profit.
The solution to this - evidenced by the very thing they were trying to do, remove it - is that system of promotion and relegation of teams. Or, as we can also put it, competition within the rules of the market.
Markets and their competition are, therefore, the very things which control and often enough entirely destroy that capitalist power. Which is what we’ve been saying for decades now, economists for centuries, and it’s about the time that Owen Jones caught up.
We entirely agree that cartels, monopolies and economic restrictions are bad things, the solution being more markets. Now that we’ve proven this with the example of football perhaps we can all - Owen included - agree that this applies more widely?
Imagine if this is actually true about renewables energy generation
We don’t say that this is true, nor that it isn’t. Rather, just consider what also is true if this is:
Huge and ongoing falls in the cost of renewable energy mean that it could replace fossil fuels for global electricity generation by 2035 and allow all energy production to emit zero carbon by 2050, according to a report.
The fossil fuel industry will be unable to compete with cheap wind and solar power, while millions of people in developing countries will have access for the first time to affordable and domestically produced electricity, according to the think tank Carbon Tracker.
The cost of solar power has fallen by an average of 18 per cent and wind power by 9 per cent a year since 2010, the report said.
As with the point that Bjorn Lomborg was making in the 1990s. Solar had been falling in cost by 20% a year, was likely to continue doing so and if it did then by the 2020s it would be the technology of choice purely upon cost grounds. There would still be minor issues over intermittency, to be sure, but the basic climate change problem would be solved. If, of course, there is that problem that needs to be solved.
Which does mean that if this report is true then the climate change problem is solved. Solved by the invention of cheaper than fossil fuels energy generation and all we need do is wait. As the current generation of installations wears out they will naturally be replaced by the lower cost alternative.
That is, we’re done. No need to abolish capitalism, uproot the global economic system, build back green or better. The process desired is already baked into the price system. Of course, for some, that non-uprooting and non-abolishing will be a missed chance but for the rest of us we can now proceed to dealing with some other problem on our little list.
The only reason this isn’t true is that the original insistence, that renewables are now and will be cheaper than fossil fuels, is incorrect.
If renewables are now cheaper than fossil fuels then we’ve already solved climate change. So, why is everyone still shouting about it all?
To test the Feynman Contention with Nobel Laureates and climate change
Andrew Simms, he formerly of the Not Economics Frankly groupuscule, has rounded up a group of Nobel Laureates to insist that stern governmental action is necessary concerning climate change and fossil fuels. Given that Simms is involved it is obviously going to miss the economic point under discussion.
Which provides us with a lovely example against which to test the Feynman Contention:
I believe that a scientist looking at nonscientific problems is just as dumb as the next guy.
We tend to extend that a little and muse that a scientist looking at a problem outside her own area of expertise is that, umm, misguided shall we say.
The plan is that there must be lots of fierce government activity to keep those fossil fuels in the ground. Actions and plans and international meetings and opportunities for losers to be picked. As with the absurdities like biofuels that have already been foisted upon us.
We did look through the list of Laureates and noted a lot of chemists, some peace folks, a writer or two, even a few economists. We did though note an omission, someone missing. That’s Bill Nordhaus whose Nobel was in fact for studying what should be done about this problem of climate change. The answer being, as with the Stern Review, not to have lots of lovely government plans and actions but instead to add that carbon tax to market prices and thus both allow and insist that our only valid calculating machine, the economy itself, chew through the problem for us.
We’d suggest that the Feynman Contention is in fact true along with that extension of it that we apply.
Logic and rhetoric at the heart of Smith's ideas
Today (22 April) is the date when, in 1751, Adam Smith was appointed Professor of Logic and Rhetoric at the University of Glasgow. Though only 28, he was already well known as a gifted scholar. He had given a very successful series of public lectures on philosophy, in Edinburgh. The intelligentsia of Scotland’s capital were impressed.
Before the year was out, the young Smith was promoted to the prestigious Chair of Moral Philosophy — a post he held until 1764. In the meantime, he served as Dean of Faculties, Quaestor of the University Library (i.e. in charge of management and accounts — he was a very meticulous person), and Rector.
Today, we remember him as a pioneering economist. But he was really more of a philosopher and social psychologist — he saw economics, politics, ethics and aesthetics as merely different parts of the human mind. Among the subject he taught at Glasgow were logic, ethics, rhetoric and belles-lettres (the arts of using language effectively and finely), and jurisprudence (what today we would call politics). A polymath, he even wrote a long essay on Newton and the philosophy of science.
He was familiar with the Classical Greek and Roman authors, having largely educated himself in Balliol College’s outstanding library, having found that: “In Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.”
His real fame began in 1759 with the publication of his Theory Of Moral Sentiments, which analyzed the social psychology of morality. A century before Darwin's 1859 Origin of Species, it took a remarkably modern evolutionary view that our morality persists because it is useful and helps our species to prosper. Human beings, he said, are social creatures, needing the reinforcement of others; and their values are modified by the praise or disapproval of others.
It struck a chord with many who were not convinced by the contemporary ideas on where morality came from. The book brought him a generous offer to become personal tutor to the Duke of Buccleuch, still in his early teens, and to take him on the Grand Tour of Europe. On that journey, Smith met and talked with other the other leading European intellectuals of the time. In France, he wrote to his friend David Hume, back in Edinburgh, that he had started mapping out ideas for a new book. Those ideas would become An Inquiry into the Nature and Causes of the Wealth of Nations — a book that Smith referred to as his Inquiry, but which we know as The Wealth of Nations. It turned out to be one of those books that changed history.
Learn more about Adam Smith here. Download a condensed version of Smith’s two great books here: Adam Smith – A Primer; Condensed Wealth of Nations.
To our surprise, another thing that Polly Toynbee doesn't understand
That we’re not great fans of the logical or observational qualities of Polly Toynbee merely makes us rational and capable of logic and observation ourselves. But it does still come as a surprise to find another thing that Polly manages to entirely misunderstand:
Britain’s birthrate is plummeting. The already fast-falling rate has sunk into yet steeper decline during the pandemic, as people stop having babies when times are hard – and there may not be a bounceback.
No, people stop having babies when times are good.
All the reasons for this are depressing, signifying hardship, insecurity and anxiety. It tells of a society where bringing up children is too heavy a burden on women, with too many obstacles to earning while parenting.
Again, no, the opposite is true. The global and historical data is here. As a place, society or country gets richer then fertility rates decline. As the economic liberation of women proceeds then fertility rates decline. As the opportunity costs of having children rise - as there are more and other things to do with a life than pump out children - the fertility rate declines.
To the extent that a declining fertility rate is a problem - we can’t see it as being such, it is the aggregate of personal choices in a world that newly allows them and so is emergent from the liberal ideal - it’s a problem of wealth, not poverty.
As we’ve been known to note over the years it is impossible to craft a solution to a perceived problem unless we correctly identify what the cause is.
Absolutely every country that has empowered women, raised the general income much above subsistence level, has a fertility rate below replacement level. There are no exceptions whatever the levels of maternity leave, child care arrangements, schooling, even religious arrangements.
This is just what people do when given the freedom to make the choice - have fewer children. And?
The sad misunderstanding of what is an economic resource that we should be sparing with our use of
That we wish to be efficient, even miserly, with our uses of economic resources is obvious enough. By definition economic resources are scarce so using fewer of them to do any one thing allows us to have more things within our resource limits.
So far so good - but it is then necessary to define what is an economic resource whose use we desire to be efficient with our use of, even miserly in how we apply it. This being exactly the thing which is not currently done:
The extraction and processing of resources to make consumer products is responsible for over half of global carbon emissions and 90% of the destruction of nature – yet the prime minister’s 10-point plan for a green industrial revolution missed a crucial 11th point on reducing resource use. The “whack-a-mole” strategy of targeting only some types of waste, such as plastic straws and stirrers, is so far short of what is needed and doesn’t do anything to prevent extraction in the first place. Our dependence on ever-increasing consumption can’t be tackled without a clear plan. A legally binding UK target to halve resource use by 2050 would focus minds in the same way climate targets are doing.
We can hear the sneer there about using up things to produce mere “consumer products” as if that’s not the aim of all economies - to produce for the consumption of the people what the people desire to consume. But leave that aside, what is necessary here is to define what is a resource that we should be sparing in our use of:
For a successful transition to a resource efficient, circular economy
That’s not correct. It is what many are asserting but it’s still not correct. For a circular economy can - in some instances and activities either does or will - consume more resources than a non-circular one.
A stimulus programme focused on green and digital infrastructure, research and development, energy and care work could create more than 1.2m jobs within two years and more than 2.7m jobs during the next decade, according to research.
Human labour is an economic resource, a scarce resource. So, this plan insists upon using the labour of 2.7 million people. That’s the use of a scarce resource to achieve it.
Yes, we’re fully aware of the fact that there can be and even are externalities and so on. But it is still true that “resource” is not just what is dug out of the ground. Thus that is not the thing or things that we desire to optimise our use of. We need to optimise the use of all resources - land, labour, capital, knowledge, and on and on.
We also have a system to work this out for us, the price system. Sure, we need to ensure that externalities are implanted into it but once that’s done we have our calculating machine for what does require more resource use. If it’s more expensive then it’s using more resources.
The circular economy often enough is more expensive than the linear. Therefore we should not be being circular in order to reduce our use of resources. For that very expense is telling us that the circularity isn’t necessarily resource saving.
There is an easier way of putting this too. If, once externalities are included, you are making a profit doing something then you are reducing resource use against the alternative methods of doing that thing, also against the alternative uses of those resources. Therefore the circular economy is not something that requires government action nor a plan - it’s something we can leave to that greed and grift of capitalism. Or the enlightened self-interest as a preferred formulation.
That is, the environmental work required isn’t to build a new economy, nor to force a specific mode of production, it’s to build the right price system, the one that includes those externalities. Once that’s achieved then we can just stand back and let the system itself chew through the information that directs it.