Trade protection is another of those temporary government programs

As Milton Friedman noted, there’s nothing so permanent as a temporary government programme. Our example today is the trade protections upon steel. The UK imposes tariffs upon certain grades of steel because some Johnny Foreigners have the temerity to try to sell to British customers at prices British customers would like to pay:

Britain's steel industry is braced for a decision on the UK’s tariff protections as soon as this week – potentially opening the floodgates to a wave of cheap imports.

Industry insiders fear that Liz Truss, the International Trade Secretary, is set to follow a preliminary decision that recommends the removal of a large number of products from so-called import “safeguards”.

Such a move risks exposing domestic manufacturers to excess production at bargain prices which they cannot match, experts have warned.

Clearly this would make all consumers of steel better off and we just cannot be allowing that to happen, can we? And yes, the costs of this do fall on steel consumers. One analysis of US tariffs put in place during the Bush administration showed that the job losses among steel using companies were higher than the total number of jobs in the US steel industry.

The protective measures were brought in under EU rules three years ago but were transferred into UK law after Brexit. They were originally brought in amid ratcheting trade tensions, with the US introducing similar measures for its own steel industry.

However, the UK legislation is now about to lapse, requiring a decision on whether they should be retained or dropped.

We’re in favour of sunset clauses on much regulation. This being a good example why. Since 2017 - or even 2018 if we’re to be picky about “three years” - the global steel price has about doubled. Neither rebar nor hot rolled coil are quite the correct measure but they are indicative. The ability of Johnny Foreigner to steal the crusts from the mouths of the waif-children of Good British Steel Workers has somewhere between halved and vanished over that period of time. And yet the insistence is that the temporary measures must be continued. Because those Good British Steel Workers rather like being able to overcharge for their output at the expense of everyone else in the country.

As Friedman said, nowt so permanent as a temporary government programme. Trade restrictions, once introduced, gain a constituency vehemently against their relaxation. The answer, of course, is not to introduce trade restrictions and where we have them, abolish them.

National capitalism errs as does the socialism kind

There’s a little market here of The Observer not knowing what they’re talking about:

Depop may not be of such strategic importance to the UK economy as the likes of Arm, or fellow chip-maker Imagination Technologies, both bought by foreign buyers.

Neither Arm nor Imagination actually make chips. They design them. That is, employ high skill and expensive Brits to do the hard work of laying out the circuitry, then testing it. The results of which are then handed on to the high capital requirement ($10 billion for a factory) chip fabs elsewhere who employ vastly lower cost labour to “make” them.

If you;re going to get that sort of thing wrong then yes, you’re likely to get this next incorrect too:

Losing Depop to US ownership makes the British tech sector look secondhand

Time’s arrow moves in one direction. It’s the US sector which is looking second hand, if they’ve just bought a British developed company.

But it’s the underlying complaint that is the real mistake. There’s an assumption that the nationality of who owns the company is of importance. When whether it’s this group of capitalists or that which does is of zero importance to anything at all. What does matter is that the people who use the app - services, consume the goods, whatever - in this country continue to be able to do so. For this is what makes us all richer, being able to consume the production of these companies.

At which point the complaint is revealed in its silliness. The capitalists own the residual from the economic activity stirred up by their product. We the users gain the product itself, they whatever fraction is left over after everyone else is paid. So, some foreigners have just bought those residual rights:

Etsy is to allow Depop to continue as a standalone business run by the existing team from London. That is some good news at least for jobs and knowhow in the UK, although with upstarts such as Vinted and Asos’s marketplace already on its tail, it’s not clear if Etsy will enable Depop to keep its edgy, underground feel.

The change in ownership also will not prevent young UK entrepreneurs developing, via Depop, skills in online selling, design and merchandising that could lay the foundations for new standalone businesses.

There is hope the UK can capitalise on their expertise to keep the resale sector on British shores, even if we can’t compete with the deep pockets of the US tech giants.

Why on earth would people who have just bought a slice of the British resale market want to limit the size of the British resale market?

That is, we don’t actually care about the nationality of the capitalists - nor even their residence. Nationalism in capitalism leads to the same sorts of errors that allying it to socialism does.

Daniela Gabor might want to try reading the source material on climate change

Professor Gabor, of UWE Bristol (probably better known to our demographic as the Merchant Venturers’ Technical College) wants to tell us that this idea of a carbon price, a suitably altered market price as the solution to climate change, simply can’t be suffered. For to do so limits the ability of government to exercise its power and we cannot be having with that now, can we?

It reduces democratic government action to higher carbon taxes,

What horrors. What’s the point of all the clever people being in government if that’s all they get to do? Even though she admits that the carbon tax would actually work:

The numbers behind private green investment seem to add up

At which point we’d suggest bothering to read the source material, which here is the Stern Review. In which the point is very strongly made that we want to use the carbon tax, not that exercise of detailed planning along those democratic lines.

Because markets are more efficient at the allocation of economic resources than the state, government or even democracy. There then being another point that an economist should be able to grasp. Humans do less of things that are more expensive, more of those that are cheaper. So, to deal with climate change we want to be efficient. The logic being that if we do things the more efficient, cheaper, way then we’ll do more dealing with climate change. If we do it the more expensive, government planning, way then we’ll do less of it. Just because that’s the way humans operate.

Assuming that anything needs to be done about climate change the answer is the carbon tax. Because that’s how we do more about climate change.

Well, yes, we expect this will be true

The latest nonsense to afflict the British housing market brings this comment:

First-time buyers in England will be able to apply for a discount of up to 50% on a new-build home under a government scheme.

The First Homes initiative could save buyers £100,000 or more. But some experts say that with demand for these cut-price homes likely to exceed supply,….

Well, yes, we expect that will be true. Offer something at less than market price and demand will outstrip supply. That’s definitional in the concept of market price - that being the price at which supply meets demand.

There is nothing special about housing - or health care, food or beanie babies - in this respect. The market price is the price at which markets clear, at which supply meets demand.

Still, this is nothing new for the Guardian to misunderstand:

The waiting list for council housing in England will almost double to two million people next year,…

Councils housing is offered at less than market price. So, of course demand outstrips supply, that’s inherent in the price at which it is offered. The very price itself is what creates the shortage.

People queue up to buy stuff at lower than market price? Gerraway, really?

Apparently we shouldn't have that circular economy when it's more expensive

As we all know the entirety of officialdom now buys into the idea that we should have a circular economy. This is something that has been pushed by the environmental movement for many a decade and in terms of intellectual fashion this has now won the day.

Our argument has always been that where this is cheaper, taking all costs into account, then of course it’s a sensible idea. Cheaper is better - achieving our goal, whatever it is, at the expenditure of fewer resources is a good idea. Where it’s more expensive it’s not a good idea as in a market economy greater expense is the very proof that more resources are being used to achieve that goal - whatever it is.

This isn’t how that fashion now goes, the circular economy has become reified. It’s a good, a goal, all by its lonesome, a pursuit that must be chased whatever the cost. Except, apparently, when it isn’t.

In a discussion of the new nuclear reactor designs being persued by Mssrs. Buffett and Gates the Union of Concerned Scientists tells us that:

These estimates find that closed fuel cycles are more expensive even after accounting for several factors that tend to offset the additional costs of reprocessing and recycle. These include the reduced demand for natural uranium and the potential to reduce the required footprint for geologic repositories for long-lived radioactive wastes.

This is used as an argument against the use of this technology. The circular economy is more expensive and therefore should not be used. Even to the point that not digging up Gaia for more uranium is a cost, not a benefit.

Well, yes, we agree, obviously. Higher costs are indeed higher costs and if they outweigh benefits then that should be the end of that idea or technology.

It’s just that the higher costs of that recycling are ignored when it is fashionable to do so - say plastic bags - and are proof perfect when it’s something that is unfashionable - nuclear power. Which isn’t, to us at least, how science works, concerned or not. The arguments about the costs of closed cycle systems are logically valid whatever it is that is being fed through such systems. But of course it’s terribly unfashionable to say so these days.

There does seem to be a simple solution to this

We’re told that European Union rules are to raise food prices here in Britain:

Shoppers face higher grocery bills as more EU red tape looms

Higher shipping and raw materials costs and EU red tape threaten consumers' hip pockets, says British Retail Consortium

Some parts of this do not have simple solutions. Rising global shipping prices, rising prices of traded foods, well, that’s just what prices do sometimes. Some other parts would seem to have simple solutions though:

Further Brexit checks from October are expected to force retailers to pass on additional costs to shoppers, the British Retail Consortium (BRC) said.

Ah - Brexit checks and European Union rules are not the same thing. The first is something we’re doing to ourselves. The second, well, given that we’ve left the EU rules can only affect what we send out of our country to their, not what we bring in from there to here.

"We will likely see these costs filter through in the second half of this year, and with the additional Brexit red-tape this autumn, retailers may be forced to pass on some of these costs onto their customers."

That Brexit red tape is, again, what we are doing to ourselves, not what some others are doing to us. Which is what does mean that there’s a simple solution here. Stop doing this to ourselves.

After all, the general complaint here is that we are to be made worse off by this rise in food prices. So, we should take action to reduce the food price rises. Or even, in this instance, stop doing something silly that increases food prices.

Nigel Lawson took great glee in killing a tax - not just reducing the rate or changing the range of it, but actually killing off entirely - in each of his budgets. While we approve of that idea we do note that it’s entirely contrary to the spirit of this current age. We can still achieve that same goal though, that of making life better for the citizenry, by killing off red tape. Or even, kill a bureaucracy - action this day to quote another former Chancellor.

We do hope someone tries to use this particularly stupid argument

We most certainly don’t want the event to happen but we would indeed love to see the argument deployed:

Over the last few weeks, however, it has started to pick up some credibility. Intelligence agencies in the US and elsewhere are now investigating the possibility that Covid-19 was created in a Chinese laboratory, and leaked out either by accident or design, and for now President Biden is keeping an open mind on the issue.

Here is the important question for the markets, however, and one no one is thinking about yet: what if it is true? It would be the biggest shock to the global economy in decades. Why? Because governments would surely have no choice but to retaliate with sanctions and demands for full-scale reparations.

Chinese goods might suddenly be locked out of the global market, creating shortages and sparking a vicious cycle of inflation. Global trade would collapse. And the financial markets would crash as Chinese money was pulled out.

Even without full-scale retaliation, confidence in China would collapse. Paradoxically, it would cause far more damage than even Covid itself - and that makes it the biggest threat to economic stability right now.

We’ve no collective nor corporate view on the origin story, we tend to leave that corner of the intellectual heavy lifting to Matt Ridley (as he divides and specialises with us on things like mineral availability). However, Occam’s Razor does lead to the idea that inadvertent release from a lab working on gain of function to make bat coronaviruses (coronaviri?) infectious in humans is a more believable story than the so far untrackable Fried Bat Soup one.

Put that aside though and the part we would like to see someone try. In order to punish these people over there we’re going to entirely upend the international trade system. This will mean great suffering for you, you here. The citizens of the US, of Europe, of the UK, will see their living standards plummet in order to really put pressure on the Chinese government. That “more damage” part means that it will slice 15 to 20% off your lifestyle.

That is, using trade restrictions, protectionism, means that we will be paying the costs of the punishment to them.

This is, of course, a particularly stupid argument. Rooted in that old mistake about trade, refusing to grasp that the imports are the aim of the entire game. The whole point being to loose our consumption on those things Johnny Foreigner does better, cheaper, or faster, than we do domestically.

We agree it’s a very common argument, it’s even a policy deployed often enough. But it’s always small in total effect. When it becomes an immediate 20% slice off the living of everyone all at the same time then the absurdity of the underlying idea should become obvious.

We are to become poorer to punish them.

The battle against protectionism is a continual one. But imagine if they actually tried it on the basis above - that would put the issue to bed for another generation, wouldn’t it? Why, we might even get the only logically defensible trade policy there is - unilateral free trade - out of the attempt.

How to fail affordable housing: bureaucratise it

Once upon a time, local authorities and housing associations, funded by private donations, such as the Peabody Trust (1862) provided affordable housing, alongside some employers. That worked fine until Margaret Thatcher won votes in the 1980s by allowing council tenants to buy their homes at discounted prices and failed to leave the proceeds with the councils to enable stock to be replaced.  

The main methodology adopted since then has been to use the “planning gain”, i.e. the increase in the value of the land as it is re-zoned to building and planning application approved.  Known as a “Section 106 Agreement”, it is essentially a bribe so the local authority can off-load social development costs, be they for roads or affordable homes.  Developers are usually happy to have the roads and necessary attributes but wriggle out of commitments they dislike, notably affordable homes. They make little or no money from affordable homes and have rather a Victorian attitude to housing the impoverished within their gentrified estates.  It makes the executive houses harder to sell.   

The Ministry of Housing, Communities and Local Government (MHCLG) has recognised that this system does not work and proposed a “Community Infrastructure Levy ……a nationally set, value-based flat rate charge (the ‘Infrastructure Levy’). A single rate or varied rates could be set.” (p.22) This was ill-thought out, if it was thought through at all: a national levy could not both motivate each local developer and, at the same time, maximise the income for affordable homes nationwide. It would be about as successful as the Poll Tax. 

That said, any policy for affordable homes should be funded, at least in part, by planning gain.  There is no reason why the developer should pocket it.  The 2020 Planning White Paper does say (p.60) that about 30,000 (a suspiciously round number) affordable homes were built in 2018/19 - 12.4% of the total – as a result of Section 106 agreements.  

The Housing, Communities and Local Government Committee’s report “Building more social housing” defined rents as being “only affordable when they do not exceed one third of household income” (para. 23). When the Committee quizzed the Minister for Housing on how many affordable homes were needed, he responded ““we need more homes, more affordable homes and more socially rented homes”, but that he did not think it was right to put “a number on the number of homes that need to be built of one tenure or another” (para.51).  

On 30 June 2020, the Minister tweeted that the 2021–2026 programme would deliver “...around 36,000 affordable homes a year”, which is a lower output than 9 out of the last 10 years. According to the Committee “There is compelling evidence that England needs at least 90,000 net additional social rent homes a year” (para.53) and they went on to show how that could be financially justified. By December, MHCLG had moved in the opposite direction: the target dropped to 26,000 a year for the next five years, costing them, or rather us, £7.4bn.

Annex 2 of the 2012 of the National Planning Policy Framework defines what is affordable as, basically, anything 20% or more below market price. The definition of those entitled to affordable housing is to be savoured: “All households whose needs are not met by the market can be considered in affordable housing need.” How many that might be is not quantified, still less the extent of future unmet need. 

However, MHCLG has a precise formula for calculating future needs: “ Total newly arising affordable housing need (gross per year) = (the number of newly forming households x the proportion unable to afford market housing) + existing households falling into need”. The trouble is that MHCLG has little or no idea of any of the numbers on the right hand side of the equation. 

But they do have an “Affordable Homes Programme”. This will operate through Homes England, a quango, which “will create a more resilient and diverse housing market. This means partners will also be expected to focus on promoting significant use of Modern Methods of Construction (MMC), high-quality sustainable design and working closely with local small to medium-sized enterprises (SME) housebuilders.”  

“Homes England” excludes London where “Overall the GLA aims to support 82,000 affordable homes between April 2021 and March 2026. This will see investment partners in London make a significant contribution to the national target of 180,000 starts by 2026.” “Over half of these starts across the new programme will be at Social Rent – where we know there is the greatest need in London. The remainder will support households into home ownership, through the delivery of London Living Rent or Shared Ownership homes.” 

The 41 page “Homes for Londoners: Affordable Homes Programme 2021-2026 Funding Guidance” (November 2020) is immensely complex with all kinds of categories of affordable homes and rules and regulations for developers and tenants/prospective owners. Although it gives the impression that only new-build homes are being funded, this may not be the case: “91. The Mayor will use the Affordable Homes Programme 2021-2026 to maximise the number of new homes in London and is eager to ensure funding results in net additionality. For this reason, the GLA will only fund a limited number of acquisitions of existing homes through this programme.” The good news for MPs is that Sadiq Khan will provide them with new houses as their salaries are below his £90,000 limit for shared ownership. (Para 22) 

One of the mysteries is why London is being treated differently. The additional layer of bureaucracy (the GLA) sits between the MHCLG, who still intervene when it suits them, and the Greater London local authorities who actually authorise these homes. The other bureaucratic layer, Homes England, acts similarly for the rest of the country. 

If you ever imagined developers find the sites, get planning approvals, employ builders and sell the homes to the future owners, whether private, housing associations or local authorities, think again.  Homes England, with only 1,042 staff in 2019/20 (albeit up 20% from the year before) did it all single-handed.  According to its Chief Executive, “I’m incredibly proud that we have exceeded our annual delivery targets...and in the number of homes we have delivered that were additional to the market [sic], as well as surpassing our target for affordable housing delivery.” Its Annual Report does not quantify any future targets, just the ones surpassed, but it would be churlish to imagine those were finalised after the event. Amongst its many other achievements, it has delivered a modern slavery awareness webinar and it “continues to create a hostile environment for modern slavery and ambiguous supply chains.” (p.29)  

Homes England was founded in 2008 in succession to the Housing Corporation. Its original role was narrower than it now seems to enjoy, namely just to assist housing associations to acquire affordable housing – that and no more.  If we need Homes England at all, and that is questionable, it should be restricted to its original remit. 

With the Affordable Homes Programme, Homes England and Homes for Londoners, the government has created a dense layer of expensive bureaucracy.  It is unnecessary for a simple reason: central government is trying to intervene top down in a process that should be driven bottom up.  Local authorities have a far better grasp of what housing in general, and affordable homes in particular, are needed where than the MHCLG or its affiliated bureaucrats.  They also have a far better grasp of what resources are needed from the centre to meet those needs.  Their annual housing plans, and consequential financial needs, would be unlikely to total to national needs, nor what HM Treasury is prepared to provide, but at least the negotiations would start from reality.  Redundant High Street shops and office space post-pandemic should be factored in as well as planning gain, not to mention the savings from the removal of Kafkaesque meddlers which would streamline, as the government claims it wants, planning processes.  Less bureaucracy, more affordable homes.

An interesting bit from JB MacKinnon's consumption porn book

The Guardian tells us of a new book insisting that we should all consume less. Because, well, because the author hasn’t understood the economy actually. Still, there’s one interesting part:

The US population is 60% larger than it was in 1970, but consumer spending is up 400% (adjusted for inflation) – and other rich nations, including the UK, aren’t much better.

There are any number of people who try to tell us that incomes, wages, haven’t risen in these decades of neoliberalism. But there’s the opposite statement. Real wages are what it is possible to consume. So, if consumption has risen then real incomes and wages have.

The solution, apparently, is that this was all a bad idea:

He wants us to act on that discomfort. But he’s not suggesting we live entirely off the land. In his hypothetical model he applies a 25% reduction in consumption – a figure “modest enough to be possible, dramatic enough to be earth-shattering” – and while he won’t specify a figure when discussing what our real-world efforts should be in the coming years, something in this ballpark might well be the goal.

That doesn’t just mean fewer physical things; it’s also less electricity, travel and eating out. “Basically $1 spent is a consumption dollar; I’m not fussed whether it’s spent on a canoe or a powerboat,” he says. “If you want a rule of thumb for how much impact you’re having as a consumer, the best one is: how much money are you spending? If it’s increasing, you’re probably increasing your impact; if it’s lowering, you’re probably lowering your impact.”

That is, we must all be poorer because something or other. It’s not an entirely convincing suggestion to be honest. It’s all also based on an entire misunderstanding of the economy. Instead of this consumerism thing we’re apparently expected to:

We participate in communal activities, such as tending public gardens, engage in social movements and take care of children and elders.

The thing being that that’s all economic activity.

He points to an uplifting case study from London. In Barking and Dagenham, one of the city’s poorest boroughs, the “Every One. Every Day” initiative brings together locals to cook, partake in poetry, craft and hair-braiding sessions, and spruce up common areas, all of it free. “For many of the people participating, it’s deeply engaging and profoundly affecting,” he says. “In a lot of places, if you don’t have the cash to consume, there’s nothing to do; the closest I came to tears in researching this book was watching people who were feeling isolated and excluded from consumer culture have an alternative put in front of them. That points towards the potential.”

That’s also all economic activity.

It’s true that economic activity that isn’t mediated by money isn’t counted as part of GDP but that’s to do with the method of counting rather than whether it’s activity or not. Growing a vegetable in a communal garden to give away is growing a vegetable which will be consumed just as much as a farmer doing it and our gaining it from a supermarket. It’s still the economic activity of transforming soil and water into dinner.

The advantage of the money intermediation is that we can do this with strangers. This, given that the gains from trade increase with the number of people we can divide and specialise labour over, means that the money economy, that GDP, gives us a higher standard of living for the same resource use. As long as we’re being sensible and counting human labour as an economic resource of course.

The insistence thus boils down to we must reduce our efficient, money intermediated, economic activity and increase our inefficient, non-money intermediated, activity in order to be poorer while still undertaking the same amount of economic activity.

Well, yes. By Jove, even By Toutatis, that is a manifesto to really mobilise the masses, isn’t it?

(happy) Tax Freedom Day 2021

As of June 2024, this is out of date. Please refer to Tax Freedom Day 2024 for the updated statistics.

A very happy Tax Freedom Day 2021 to you. Sadly it is getting later and later each year. And with the grand plans of our political masters ranging from train tracks costing over £100bn, a new Royal Yacht, and the as yet undefined Levelling-Up agenda, not to mention the pandemic, it looks like we’re set for Tax Freedom Day falling later and later still for the foreseeable.

Yet it does not need to be this way. It is a pure political choice to accept the Conservative Party forcing the country to work for the taxman more than they did even under Gordon Brown.

Learn more about how we calcuate Tax Freedom Day here.