We're largely unconvinced by macroeconomics
The conventional and standard wisdom in the general political establishment:
One of the big lessons of the Global Financial Crisis, still fresh enough not to have been wholly forgotten, is that the policy response to a bad downturn needs to be big, fast and sustained. We didn’t get that after the global financial crisis, which in part explains the subsequent decade of economic stagnation.
Therefore go big this time. Which, in reality, means the politicians gain unrestricted access to the societal chequebook. On the other hand, the conventional and standard wisdom among American economists:
“A lot of what he's saying is what everyone is saying over coffee and whispering,” said one prominent economist who proved the point by only saying so anonymously. “He’s an outlier in the public debate because the people that have megaphones aren't saying this on the Democratic side, but he's well within a consensus view in the economics profession.”
That’s Jason Furman commenting on Larry Summers and his assertion that they’ve gone too big.
Our point here being not just to emphasise the gaps between the science and politics - that’s ever with us. Rather, it’s to lead into pointing out how shoddy the science is.
We have decent enough economic statistics for some handful of countries - not even all the OECD ones - going back perhaps 70 years to just after WWII. There have been a handful of recessions in each of those. That’s not a decent evidence base.
Further, we’ve had, this past couple of decades, two entirely different types of recession. One in which the financial system pretty much fell over. Many monetary economists said this was different. Possibly more akin to the American experience in the early 1930s than anything else. Certainly not the same as, say, the 1970s. Now we’ve one where the economy was deliberately shut down and is now being reopened. This is very different and different things tend not to be cured by the same treatment.
We are a great deal more convinced by microeconomics - people respond to incentives, there are always opportunity costs, utility is between maximised and satisfacted and so on. We’re deeply unconvinced that macroeconomics, as a useful policy tool, really works very well. Simply because the evidence base underpinning it is so thin. One good piece of evidence for this being the multiplicity of opinions on what we should do that stems from those reading those macroeconomic runes.
Something that doesn’t come up with an answer - rather than merely supports extant prejudices - isn’t really something we should call science, is it?
Another demand for your money to be spent upon their wishes
There is one part of this which significantly irritates:
‘Priceless’ Brontë manuscripts could be lost to private buyer, warn experts
Historic holdings including handwritten poems by Emily Brontë are set to be auctioned by Sotheby’s, but MPs are being urged to save them for the public
“Priceless” means without a price. Going to auction is a means of establishing the price. Thus even if the collection is currently priceless it’s not going to be for very long, is it - the auction itself being the solution.
The other things wrong with the demand - that government buy it - are worse than irritating of course. The manuscripts have been in private ownership for a century now so their changing hands doesn’t mean their being lost to anyone at all let alone the public. That’s just an excuse. Certain culture mavens wish to be able to control the access to the books without actually having to pay for that power themselves. Thus the demand that the state do it.
Effectively, 65 million people are being instructed to pay for the desires of half a cozen bibliophiles. This is a less than compelling argument.
The correct answer is obvious - you want them then you pay for them. Can’t afford them? Then far from being priceless the amount you’re willing to offer isn’t enough, is it? You’re just trying to use the power of the state to get them on the cheap.
Dear Polly, to criticise statistics it is necessary to know statistics
Polly Toynbee is outraged:
Rattling through a lexicon of lies at prime minister’s questions is so routine that few bother to call out Boris Johnson any more. Besides, on Wednesday all attention was on the vendetta playing out elsewhere in Westminster. But when the Labour MP Gareth Thomas challenged the prime minister on the steep rise in child poverty revealed in official figures this week – 4.3 million children and heading upwards on a steep curve – Johnson boasted shamelessly: “We are seeing fewer households now with children in poverty than 10 years ago.”
Thomas protested at “Boris Johnson’s casual disregard for the truth”. But lies seem to work very well for him, and they’re eagerly echoed as fact by those on the Tory benches.
The numbers are here.
The problem with Polly’s outrage is that there’s nothing, at least in principle, to stop both being true. That there are more children in poverty and also fewer households with children in poverty. We admit that we have not checked either statement but that’s not the point we’re making. If poverty has become more concentrated into certain households then that would explain both.
We might even expect this to happen:
The universally used measure of poverty, in Britain and internationally, is relative, counting anyone living below 60% of a country’s median income.
Well, no, it’s below 60% of median household income adjusted for household size. That adjustment for size not quite, wholly, working. If the modal family is two adults working - which it probably is - then families with large numbers of children, which are more likely to be single earning families, are more likely to be in that relative poverty. Certain people, perhaps, preferring a wealth of offspring rather than storing up consumer riches.
There is a further amusement from Polly’s statistical observations as well:
For obvious reasons, the government grasps on to a different measure called “absolute poverty”. Here’s the oddity of this number: it is anchored in 2010, so it measures how many children are still living on what was the 60% below-median level 11 years ago, when the median was of course far lower, as it rises with growth.
How excellent, so, we all agree that economic growth does matter, also that it has been happening in this decade of austerity then and that average incomes have been rising as a result?
Making farmers into free trade winners
The advent of free trade deals agreed between the UK and Australia, then New Zealand and Canada, and subsequently others, raises the prospect of cheaper food in the shops for UK customers. The economies of scale made possible by the larger farms that tend to dominate the ex-dominions, combined with their efficiency, mean a potential bonanza for UK shoppers. That is the point of a free trade deal. Each side receives what the other does competitively, and trade between the two expands.
The UK was previously tied into the EU Common Agricultural Policy and the Common External Tariff. These were specifically intended to “protect” European markets from the cheap foodstuffs produced outside the EU that would otherwise have been accessible to their citizens. They raised the prices to European consumers in order to keep European producers from feeling the impact of competition from outside. Brexit has given the UK the chance to opt for free trade and lower prices rather than protectionism and high prices.
The National Farmers’ Union (and its supporting MPs) is protesting that the upcoming free trade deals will make life harder for its members. In some cases they may well be right, in that British farmers who can adapt to the changed circumstances might prosper, but those less able to do so might find it difficult to compete. There is a way in which they could be helped without denying UK families access to cheaper food.
Farmers unable to compete could be offered a deal. If they opted to quit farming, half their land could be sold with planning permission for housing, provided that the other half was turned into woodland. The half sold with planning permission would bring in enough money to assure the retiring farmer of a sufficient income in retirement, or enough money to fund a new project.
The UK would gain the housing it desperately needs to make home-ownership a viable option, especially for young people, and the environment would gain the extra woodland as habitat for wildlife. In cases where the new homes might alter the view of nearby dwellers, the requirement could be that the new woods be created around the new houses.
Such a policy could assuage farmers, would-be home buyers, environmentalists, and current rural inhabitants. And it would do so without impeding the lower food prices that imports promise. It could be a winner.
Both a logical error and trivia over climate change
A groupuscule called Transport & Environment wants us all to know that:
It is clear that private jet use creates a disproportionate impact on the climate, and for questionable social and economic benefits.
However every sector should at least be given the opportunity to decarbonise.
As ever, start with everything else told to us in that conventional wisdom. Does this then mean that every sector should decarbonise? No - entirely the opposite in fact.
We are assuming agreement with the idea that lower emissions overall would be a good idea. But the task, then, is to still maximise human utility within whatever limits there should be. This is not, not at all, the same as saying that every activity, or sector, should reduce emissions.
To illustrate, the taking of a car to gain fresh bread for a sandwich might gain less value, on the whole and roughly estimating, than the same emissions from an ambulance taking a pregnant woman to hospital to be treated for pre-eclampsia. In that second there might be two lives saved, in the first a lunch. Rational thought about limiting emissions would - even given the insistences we are bombarded with about future costs - not demand a reduction in ambulance emissions but would possibly quite happily expunge fresh bread ones.
That is, it is total emissions that are to be reduced, those from all sectors in aggregate, not from all individually. Meaning that we should, rationally, be entirely happy with certain sectors just carrying on.
Whether private jets meet that ambulance standard is another matter of course. But that then brings us to the trivia point.
Private aircraft account for about 2 per cent of aviation emissions
Aviation accounts for some 2% of total emissions. 2% of that is 0.04% of the total problem therefore. This is not just a rounding error it’s something that we’d never even be able to measure the effects of whether it persisted or vanished entirely. We’re really very sure that attention might be paid to things of rather more import. Well, if anyone were actually interested in solving the problem as defined that is.
Sometimes the ignorance is just stunning
We were alerted to the image above from the American Chemicals Society. Which purports to show the elements that we might all run short of in the near future. The idea that we might run short of gallium or germanium is, to put it most politely, silly. The thought that we might run short of hafnium is a claim so alarming as to call into doubt the species of those making the claim let alone their knowledge.
Sadly, this is all being perpetrated by the British Government - we’re all paying for this through our taxes. The source is the “Chemistry Innovation Knowledge Transfer Network” which appears to be these people.
We have gone through this before, at book length. Hafnium is one of the examples we spend considerable time upon there.
For gallium the extraction is from bauxite, the ore for aluminium. We’re not about to stop mining bauxite so we’re not going to stop having gallium available. Just those resources there should be good for a thousand years rather than the 100 the claim is being made about. For germanium the major source is coal. We are unaware of any likely shortage of coal.
But it’s hafnium that really shows that someone isn’t thinking.
There are no ores, no economic deposits of hafnium. They simply do not exist at current prices. However, all zircon (the sand, which is processed to make zirconia, the oxide, or zirconium, the metal) is 2 to 4% hafnium. We usually don’t bother to separate the two because it’s a pain and why bother?
However, sometimes we do and that’s where our hafnium comes from. Are we going to run short of this in the next 100 years, as claimed? Well, no, not really, Because as we can see from the claim in the chart even their estimation of the risk to zirconium supplies is much lower. So if we’ve still got zircon we’ve still got hafnium.
Well, perhaps there might not be enough contained? Accurate numbers are difficult here but rough estimates are that the world uses some 500 tonnes a year of hafnium as hafnium. It also processes some 600,000 tonnes a year of zircon/zirconia (note that tonnages of ores and concentrates are not the same as material contained). At that 2 to 4% Hf content - call it 3% between friends - that’s 18,000 tonnes a year of hafnium of which we use 500.
We are not going to run out. Really, we’re not.
And yet your and our tax money is spent on promoting this idea that hafnium is going to be in short supply. Why? Well, because we must have a circular economy, that’s why. The argument in favour of a circular economy being that we might run out of hafnium. The problem being that the argument starts with the desire for the circularity rather than the examination of the hafnium supply.
And yes, just to repeat this, we’re all paying for this propaganda. Perhaps we should stop doing so?
We refuse to see this as a threat or a problem
Front page headline in The Times:
Rural areas face threat of 400,000 new homes
We refuse to see this as a threat or even a problem.
Start from the very beginning. With any economic resource we desire to put it to the use that produces the most value. Moving something from a lower to a high valued use is the very definition of wealth creation.
We also think it a useful attribute of a planning system that it enables people to do what they want where they want to do it. Yes, there are limits on this, those third party effects. But those effects must be significant - more than harming the view out the window - for them to overcome that general presumption in favour of people being able to maximise their utility.
So:
The revised planning formula requires that more homes are built in areas where house prices are higher, because property costs are seen as a proxy for where people want to live.
That strikes us as a very useful proxy. If £5,000 worth of agricultural land can be turned into £1.5 million of building plots then that is value addition. We also agree that willingness to pay is a useful definition of the value being added. We can’t do that with an acre of Snitter, up by Morpeth, we can with parts of Surrey. Building in Surrey thus adds more value.
A stark illustration of the effect of the new plans can be seen by comparing the demands put on Boris Johnson’s London constituency and Rishi Sunak’s North Yorkshire seat. The analysis suggests that the prime minister’s seat of Uxbridge & South Ruislip would need to accommodate 1,220 homes a year, ten times as many as the chancellor’s constituency of Richmond.
We’re not sure we entirely share these tastes but then the point of an economy, a civilisation, is that each gets to maximise their own utility according to their own determination of it. If ten times as many desire to live in Uxbridge than the Yorkshire Richmond then that should be the distribution of the housing.
The claim in that headline is that housing people would like to live in being built where people would like to live is a threat. We think it’s the point.
Merchants' Day
In my diary for today, 25 May, is a mysterious entry: “Merchants’ Day”. I have no idea when or from where this reminder came. But it struck me as a red-letter day worth celebrating. After all, merchants of many kinds have had a pretty tough time of it over the last year.
So to find out what Merchants’ Day was all about, I turned, naturally to Mr Google. Or is it Mrs, Ms or Mz Google. Let’s just say Dr Google, which is gender free. Or does that sound too elitist. Anyway, I, er, got on the internet.
I thought I’d struck paydirt straight away when I alighted on a page from Chapman University, where my friend and fellow economist Mark Skousen teaches. He’s the author of a book on Smith and Keynes and the Austrians and an enthusiast for the General Output measure of economic benefit. “Third annual merchant’s day sees record turn out” said the heading. Sure, it was from 2019, but then things have been pretty odd over the last 18 months so maybe there wasn’t a 2020 one.
It looked promising. Local businesses apparently line the piazza, giving out free samples and offering games and prizes (even a surfboard, among those) to the students. Looks jolly and helps the students to get engaged with and support the local business community. The sun shone, and it seems everyone had a good time. The dark cloud for me, though, was that this was on 18 September, not 25 May.
Next I found a site advertising (at least, I think it was advertising) “[Game Even] The Merchants Day!” “Wanna be a RockStar in Trading?!” it asked. “So, what’s the problem buddy?” “Are you a well-known Trader? This event is for you then,” it continued. I’m not, and it advised me that “midnight is your last chance,” so I thought I’d best move on.
Moving on, I found another link between “Merchant” and “25 May” on Wikipedia. But it turned out only that the Indian-born film producer and director Ismail Merchant (he of Merchant Ivory) died on that day in 2005. Ah, well.
Another promising find was for “Merchant Day [singular], also known as Trader’s Day” [also singular, but with a “ ‘ ” for some reason]. This, I was advised, “was a holiday on many Human worlds celebrating merchants, traders,” [this is looking good!] “and space explorers.” Oh, not what I had in mind. Interesting to know that traditional families that celebrated Merchants Day [which somehow seems to have become plural again] abstained from eating dinner in reference to the low food supplies that many merchants endured during their travels, and I know the feeling. But I seem to have alighted on a Star Wars fan site rather than anything exactly ... real. Nor did this Merchants Day seem much allied to 25 May. Well, May the Fourth be with you.
Maybe someone out there knows what Merchants Day really is. But I certainly think some sort of Merchants’ Day [grammar!] should be celebrated as a recognition of the staggering benefits that are brought to us by millions of individuals, buying and selling goods and services, freely and voluntarily, in competitive markets. Without their resilience and adaptability in difficult and changing circumstances — think shops, supermarkets, private schools, Amazon and other delivery companies — we would not have been able to continue daily life through the Covid lockdowns. While so much of the public sector — NHS family doctors, state school teachers, civil servants — just concluded that things were all too difficult and replaced customer service with queues and waiting lists, merchants kept us going. With things at last opening up, this day as much as any other seems a good day to raise a toast to them.
The point of trade is the imports
As Adam Smith pointed out, the purpose of all production is consumption. So too the purpose of trade is to gain access to the imports:
Securing an FTA with Australia would be a fillip to them. But an Australian deal is running into strong opposition from all the usual suspects for all the usual reasons. When it comes to discussing trade arrangements, many people are obsessed with the interests of producers and think that the interests of consumers don’t matter. Accordingly, they believe that it would only be sensible to “concede” foreign access to our domestic market if we secure equivalent access to their market. In the Australian case this is particularly relevant because Australian exports to the UK will potentially rise by substantially more than British exports to Australia.
This is often presented as a reason why we should not favour an FTA with Australia. But this is bonkers. Much of the gain from trade comes to consumers in the form of lower prices, higher quality or wider choice. If Australian exports to Britain rise by more than British exports to Australia, then potentially British consumers can gain more than Australian consumers.
Quite so. Which is why Patrick Minford’s work has always so appealed. Britons, therefore Britain, would gain substantially from the simple declaration of unilateral free trade. Thus we should declare unilateral free trade.
Just as we did with the repeal of the Corn Laws and just as we benefited mightily when we did so. Time to get all 1846 on the enemies of free trade, time to get Victorian.
So much for Brexit reducing Regulation
On 2nd February, the Prime Minister asked the Rt Hon Sir Iain Duncan Smith MP, the Rt Hon Theresa Villiers MP, and George Freeman MP to form a new Taskforce on Innovation, Growth and Regulatory Reform (TIGRR). The announcement included an invitation to send in suggestions. That apart, and after nearly four months, no action has transpired. As Sir Iain has reached the age where people take longer to cross the road, one should make allowances, but it is disappointing nonetheless.
When Lord Frost appeared before the Commons’ European Scrutiny Committee on 17th May, he endorsed this initiative “You will know, I am sure, about Sir Iain Duncan Smith’s work and his team’s trying to identify opportunities for regulatory reform.” Rhetoric but no substance.
The wine industry would be a good place to start. In June 2008, the EU Commission enacted Regulation (EC) No 555/2008 which introduced the VI-1 form. Third country exporters of wine into the EU were required to provide a mass of wholly unnecessary information therein. This was of no benefit to EU consumers, indeed it put up their costs, but was designed as a “TTB” (Technical Trade Barrier) to protect EU wineries. As far as the Commission was concerned, the EU had plenty of wine of its own.
EU Regulations are supposed to have Impact Assessments showing the cost/benefits of the proposals, i.e. an “Appraisal showing the expected technical, economic, environmental and social impact.” In this case, no appraisal was made: the requirement (C) has a footnote saying “Member States referred to in Article 5(4) of Regulation (EC) No 479/2008 shall not have an obligation to fill point C and F.” The UK’s European Scrutiny and Regulatory Policy Committees seem to have been asleep at this particular wheel. If these Committees do not protect UK citizens from costly and unnecessary bureaucracy of this type, and a fortiori, its transposition into British law (see below), one has to wonder what they are for.
With Alice in Wonderland logic, the government decided that, post Brexit, VI-1 forms, and laboratory tests (now dropped), would be required for all wine imports from the EU, presumably as a tit-for-tat for the above Regulation 555/2008 being applied to UK wine being imported into the EU. Whitehall has now deferred this until January 2022.
Post-Brexit, the rationale for VI-1 Forms for third country wines as a TTB to protect continental wine growers (if that ever made sense) fell away and the expectation was that wines from Australia, Chile or wherever would no longer need them. The Department for the Environment, Farming and Rural Affairs (DEFRA) with their customary generosity put us straight: “Wine imported into the UK that originates in a non-EU country can continue using the existing VI-1 arrangements.” The Minister, Victoria Prentis, attempted to justify this to the Delegated Legislation Committee on 25th January, by saying that as VI-1 forms were already required from third countries, it was only fair to apply them also to imports from the EU.
Wines shipped from Northern Ireland to Great Britain do not need VI-1 forms. As Brussels regards the Province as part of the EU, no VI-1 Forms are needed for EU wines shipped directly to the Province. It follows that wine merchants in Great Britain could avoid VI-1 forms by shipping their EU wines via Belfast. Daft!
Quite apart from the absurdity of filling in forms, designed to prevent EU wine imports, for EU exports, we have the nonsense of DEFRA requiring third country wines coming into Great Britain to have VI-1s and then to have a further set when they travel on to Northern Ireland. Some small producers in the EU and third countries are refusing to play these games and thereby depriving the British wine trade and consumers of the most unusual and interesting wines.
There is an EU/USA wine deal, which does not simplify VI-1 requirements, but does make all paperwork electronic. Since the start of 2021, USA wine (shipped in bulk) coming first to the UK and then the EU has to convert the original VI-1 e-form into a paper one that can be signed by the UK government – with a ‘wet’ stamp by Defra’s Rural Payments Agency.
In order to get the VI-1 proforma to fill in, one has first to send DEFRA a four page Application for an EU VI-1 pro-forma document for exporting wine to the European Union. The VI-1 proforma may then take a week to turn up.
Hundreds of thousands of VI-1 forms cause delays and costs for the trade, and then their customers, as they are extended next year. The cost of bringing in a single pallet of EU wine has nearly doubled from £200, and if multiple wines are grouped together, as was common practice, the charges are considerably higher.
The taxpayer also bears the cost of all the civil servants processing these forms. The delays mean the trade has to carry higher stocks with financing costs falling on a Covid-struck economy. Not good timing. Most of the UK wine trade are SMEs, the sector the government regards as critical for post-pandemic recovery and yet this is the sector the government is penalising hardest by failing to remove this bureaucracy.
The All-Party Parliamentary Group has been very critical of the government’s approach to this bureaucracy. The “House of Lords has supported calls to scrap ‘unnecessary’ wine import documentation, which could cost the UK trade an extra £70 million a year.”
One indication of the artificiality of the justification for VI-1 forms is that they apply to wines but not beers or spirits or, indeed, to any other food or drink product. Of course, the EU was not trying to protect their beers and spirits but neither does the UK wish, or need, to protect our wine producers in such an underhand manner. Most of the EU documentary requirements for food and drinks are related to hygiene but this does not arise in the case of wine.
It is hard to understand why the government continues to insist on VI-1 forms for all imports and exports. Senior government sources have indicated that, entre nous, they are being maintained as bargaining chips to be given away when doing trade deals with third countries. As rationales go, that is scraping the barrel:
It does not apply to the requirement for EU wines
They could be eliminated now and the bargaining chip, if it has any value at all, used the other way round, i.e. threaten to reinstate them.
The WTO, rightly, does not like TTBs and would get especially grumpy if they were applied to some third country wines and not others.
January 2022 will bring another red tape bonanza as organic wines get special attention. Mandatory “Certificates of Inspection” to be checked at each UK Port Health Authority. All kinds of other authorities, like the Soil Association, diving in will add delays and £75 per consignment even though it’s only a few cases amongst a great majority of non-organic wines and they have had much the same checks at the producer’s end. One wine merchant told me that although his customers want organic wines, he is not going to bother with importing them.
Finally, the regulators are messing about with labelling. Traditionally, labels that sufficed in their domestic markets were fine in the UK. Now they will need the addresses of the winemakers. An unhappy customer complains to her retailer, not some winemaker on an Andean slope who may not understand English.
The Commission claims that EU legislation requires a label to have a named EU-based originating company and EU wines in the UK would require two labels (EU and UK).
Furthermore, there are moves afoot to add the calories, or “energy values”, to help wine drinkers lose weight. American experience has shown that putting calories on menus, or wine labels, will not, as some health lobbyists claim, do anything to reduce obesity. That said, some winemakers believe calorie information to be helpful and they should be free to show it.
Brexit was sold to the nation on the basis that regulation would reduce and we would trade more freely with the rest of the world. Unfortunately, that is not what this government is delivering and, so far as wine is concerned, red tape is dramatically increasing. Government rhetoric is not the reality.