Price caps never are a good idea

Sensible people would take the Californian deregulation of electricity supply as an example of what not to do. Of course, the powers that be took it the other way, as something to copy. Specifically, they insisted upon the silliness of allowing wholesale prices to vary with the market but retail prices remaining fixed. This had two effects. Firstly, when power became more expensive this did not feed through into consumer pockets and therefore prices didn’t do their thing of moderating demand. Secondly, all those suppliers in the middle between those wholesale and retail prices - all those unhedged at least - started to go bust. As happened in California.

One manager of just such a supplier says in The Guardian:

The frustrating thing is that a simpler approach to regulation that encourages competition and innovation, while guaranteeing that the most loyal customers are not penalised, is possible. Why not bin the price cap?

Quite so. Price fixing simply never does work.

Rather missing the point about economic development

Not that we are arguing that this specific person, or even these people, deserve to lose their jobs but it is necessary to point out an economic basic:

The steel industry supports thousands of high-quality jobs in some of our most disadvantaged communities. Steel jobs are good union jobs. They are jobs that pay well, above the national average, and they support families and communities as they do so. We don’t want to see these jobs go under any circumstances.

Yes, we do. The entire process of economic development is destroying jobs. That’s the aim, point and purpose.

Here, in this state, we require this much human labour to perform this task. There, in that more advanced state, we require less human labour to perform that same task. That’s what economic development is, an increase in the productivity of human labour. As Paul Krugman is quoted to the point of cliche, productivity isn’t everything but in the long run it’s almost everything.

We would, in fact, be absolutely delighted if the entire steel industry, with its labour demands, were replaced with a little black box which required just the one flip of a switch each year. We would then gain our steel with less labour. Meaning that that workforce could be off doing something to assuage or even sate some other human need, want or desire.

The entire point of economic advance, of economic development, is to destroy jobs. Any political argument which starts with the claim that we don’t want to kill jobs is doomed to logical failure. Not that that will stop people making such arguments but it does mean we must jeer at them when they do.

Mr Johnson, Tear Down Those Borders

Amidst 45 minutes of rhetoric, Boris Johnson’s conference speech did have a smidge of policy. The Prime Minister used this opportunity to briefly outline a key cause of Britain's stagnation:  mass immigration. Boris’ view is that an excessive supply of labour has ruined the bargaining power of native workers resulting in lower wages and higher unemployment. 

However, cutting immigration won’t reduce unemployment and it won’t increase wages. 

A reality of immigration, widely ignored by politicians, is that the aggregate demand curve also shifts to the right when people enter a new country. In layman's terms it means as well as taking up existing jobs, the money  the immigrants earn helps to create new jobs. And this isn’t just enough to replace the jobs that have been taken — it will actually create more jobs for native workers, expanding the economy’s ability to produce. 

An excellent paper by Gihoon Hong and John McLaren looked at this precise question for Mexican immigrants into the United States. They find that for every immigrant arriving in the US, 1.2 jobs are created as a result of their spending, with the bulk of them going to domestic workers. This is supported by a BIS publication from 2014 which found little evidence in the literature of a statistically significant impact from EU migration on native employment outcome. Since then we have enjoyed increased levels of immigration all while unemployment has fallen and remained low. There are also other benefits of migrants, such as filling skills gaps and bringing in new knowledge and techniques, that can expand domestic productivity and boost wages.

If Boris wants to end our stagnation, then encouraging more immigration would actually be a great way to address it. Between 2010 and 2020 productivity growth was just 0.3%. Looking at patents granted in the United States, a 2017 paper in the American Economic Review found that immigrant inventors were more productive than native-born inventors. Given the key impact technological innovation has on growth, it’s clear if we want to create growth an easy way of doing that is encouraging migration. 

It is admirable that Boris wants to create a high innovation high wage economy but cutting immigration is only going to push that ambition further away. Immigration is the way we attract the most productive workers to our shores, the exact people who would help encourage a transition to a better country. 

Now, what was it that Hayek said about the NHS making us slaves?

The Road To Serfdom does indeed make the claim that nationalised health care is the start of a slippery slope to a certain slavery to the state. It is a proper slippery slope argument too, not the logical fallacy. For the insistence is that if this first step is taken then the rest will inevitably follow.

It’s also worth noting what the argument is not, which is that government making or ensuring provision for health care will lead to such. Rather, that if it is the state itself doing it then that serfdom will follow. The serfdom itself being that we will be managed and manipulated in order to benefit the state health service rather than it serving our health.

Primary school children should be taught to treat their minor illnesses on their own to stop unnecessary visits to GPs, NHS leaders have said.

The call is part of a raft of recommendations for a national “self-care” strategy to ease the burden on the NHS, set out in a new report written by a coalition of health bodies.

The authors include NHS Clinical Commissioners, which is part of the NHS Confederation, the body which represents all parts of the health service, the Royal College of Nursing, the Royal Pharmaceutical Society, and the National Pharmacy Association.

It’s entirely true that a scraped knee isn’t the most appalling of health care problems. And yet those injunctions to suffer the little children do come to mind, even the obvious point that our children are the most precious thing of all to each of us.

But how foul would it be if any of the priests of the national religion had to sully their hands in comforting a crying child? Quite, we must be managed for their benefit rather than they having to do anything we might want them to.

It’s only taken 73 years - for the NHS - or 77 years - since the publication of the forecast - but who really wants to try and insist that Hayek was wrong?

Why would we want to tax consumers more and landlords less?

The argument in favour of us having all those clever and informed people governing us, in such detail, is that they’re all clever and informed people governing us. Therefore they can correct our misbehaviours and solve our problems, in detail.

This all rather fails when those doing the governing are neither clever nor informed:

Rishi Sunak is stepping up plans for an online sales tax to level the playing field between tech behemoths and high street retailers after delaying an overhaul of business rates.

Treasury officials have accelerated work on a new e-commerce tax in the past few weeks and are scoping out details of a potential levy, including what goods and services will be covered, sources told The Daily Telegraph.

Whitehall insiders said that a so-called “Amazon tax” under a wider business rates shake-up is “clearly the direction of travel” being considered by the Chancellor, but that final decisions will be pushed out beyond the upcoming Budget.

Tax incidence is the study of who really pays a tax. The wallet of which live human being gets lighter as a result of the existence of the tax?

For business rates this is landlords. For a sales tax this is consumers.

Now, yes, we do understand the larger picture. It’s simply impossible that government could get by while devouring fewer societal resources. There are green boondoggles to fund, inefficient manners of providing health care to finance, diversity advisers who need paying and so on. Absolutely everything government currently does is essential, must be done by government and no reduction in the bill is possible by even the merest iota, penny or groat.

Therefore if the revenue from one tax seems to be sliding another must be created to make up the difference. Given the inability of any politician with a chequebook to spend less that’s just the way it’s gonna’ be.

But this still leaves us with that point the clever and informed seem to have missed. Why do we want to transfer that tax bill from weighing upon the wallets of the landlords to doing so upon those of consumers?

It is the failure to even note these not very small details that brings into doubt the idea that government is run by the clever and informed, isn’t it?

Waging war against asylum seekers

The Nationality and Borders Bill will make it more challenging for asylum seekers to access protection. The government has justified the changes by claiming that the system is overwhelmed, with 73% of claims having been in the system for over a year. While this is certainly an issue, the solution should be to improve the systems for the benefit of the UK and asylum seekers, rather than break the Refugee Convention.

The Refugee Convention requires states to provide certain protections to refugees: defined in international law as “someone who is unable or unwilling to return to their country of origin owing to a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group, or political opinion.” In the Nationality and Borders Bill, however, the Government creates two classes of refugee status, allocating groups according to factors that are simply immaterial to refugee status in international law. The UK will then only grant the necessary protection to those in group 1.

One factor used for determining the group allocated is route of travel. Asylum seekers will be placed into group 2 if “an individual does not come directly from a territory where their life or freedom is threatened”. The notion that asylum seekers must make a claim in the first country of entry is not a requirement under international law or the Refugee Convention. Many asylum seekers may choose to continue past the first safe country to another due to connections, language or cultural reasons. If it were a requirement it would put an unnecessary burden on countries dependent on their geographical position, such as Greece who already accept far more asylum seekers per capita than the UK.

The changes will mean most refugees are automatically placed in group 2. To travel directly to the UK from their country of origin, asylum seekers would have to travel by plane. However due to the serious financial consequences faced by plane companies for allowing passengers without visas, this is often untenable. Without the option of plane travel, this pushes asylum seekers into travelling by boat. As this is unreliable and dangerous, asylum seekers are often unable to make the journey in a single voyage, requiring them to enter other ‘safe’ countries before entering the UK.

For those asylum seekers placed in group 2, temporary protection may be granted. With temporary protection, refugees have no recourse to public funds unless in the case of destitution, no route to resettlement, continued work restrictions and no rights to family reunion. Not only is this creating a hostile and solitary environment but any barrier to family reunification contradicts both article 8 of the ECHR and article 6 of the Human Rights Act. As temporary protection only lasts 3 years, it becomes far harder for people in this position to integrate into society, and find a stable source of income. In addition, barriers to employment mean that rather than becoming constructive members of society, refugees in group 2 are likely to be a strain on public funds or turn to alternative, even illegal, sources of income.

The Government ought to understand that simply stating that this bill is compatible with the Refugee Convention does not automatically make it true. Rather than warping international law to deny necessary protection to many refugees, in order to deter illegal travel, the government needs to improve and expand the safe and legal methods for arrival in the UK.

The Hume-Rousseau Affair

When David Hume learned in 1762 that Jean-Jacques Rousseau was interested in relocating to Britain, he got busy to make that happen. The two men first met in Paris in 1765. They travelled together from Paris to England in January 1766. Hume arranged lodging for Rousseau, otherwise tended to him, and successfully procured a pension for him from King George III.

Within a few months, things turned very sour. Rousseau wrote hateful letters to Hume accusing him of having plotted for his disgrace and humiliation by way of petty torments. An especially long letter, declaring enmity toward Hume, was written as though for publication. Hume felt the need to counter Rousseau’s version and defend himself against accusation and besmirchment.

What was published was a rushed version of the account, first in French in Paris in October, 1766, then in English in London the next month. The English version was, apart from the letters therein, mainly a retranslation of a French translation of Hume’s manuscript. Mishaps and communication problems between Edinburgh and London led to Hume’s extreme dissatisfaction with the English version.

The blow-up between two of Europe’s most illustrious intellectuals was an affaire célèbre throughout Europe at the time. The two protagonists could not have disagreed more in their moral and political tendencies and influence. The spectator feels divided sympathies with each of the two men. Their interpretations disagree wildly. Was Hume innocent in the matter? Was Rousseau?

Now, 255 years later, Hume’s original manuscript has been put before the public, by Jason Briggeman, Jacob Hall, and me. Hume “expresses himself bluntly and forcibly,” as Paul Meyer said about this never-before-published manuscript. Also provided is link to a PDF scan of the original manuscript itself, kindly provided by the National Library of Scotland.

Even after the blow-up, Hume continued to work for more than year to maintain the plan of a royal pension, and to keep Rousseau settled in England. Rousseau remained in England until May 21, 1767, but never accepted a single payment of the pension.

What was Hume thinking? What was he up to? In an article that accompanies Hume’s manuscript, I suggest that Hume went to such remarkable lengths because he felt that doing so would diminish Rousseau’s influence and legacy, and consequently improve the lot of humankind. I believe that, had Hume succeeded, Rousseau’s influence and legacy would have been greatly diminished, and the lot of humankind would have been improved.

Hume’s manuscript consists in large part of letters between the two men. One sees the relationship evolve and go bad.

An article about Hume’s original manuscript was published in 1952, by Paul Meyer. Hume’s manuscript account differs markedly from the London publication of 1766. There is, said Meyer, “a decided discrepancy in tone.” Hume’s original version has the tone of “a man sitting down in a rage immediately after a violent quarrel and giving his version of it.” Hume “is plainly beside himself at Rousseau’s behavior”. The 1766 publication, by contrast—and by way of the French editors—gives a voice to Hume that is more detached, sometimes even circumlocutive. “Certain of Hume’s indignant and spontaneous exclamations on reproducing Rousseau’s charges against him are not given in the published texts at all.” Hume’s original has him enumerating a dozen lies (“lyes”) as footnotes to Rousseau’s mammoth letter of July 10, 1766; such enumerating of points is absent from the 1766 published version. The original is stouter and more authentic.

The account oozes with psychological paradoxes, wrapped in a huge moral conundrum. Was Hume conspiring against Rousseau? Was Rousseau one of the conspirators?! Was the conspiracy against Rousseau for Rousseau? Was Rousseau playing Hume? Don’t miss it!

Dan Klein for Adam Smith Works. Hume’s manuscript account of the extraordinary affair between him and Rousseau can be downloaded here

The problem with government planning things

There are problems with planning. There’s that uncertainty about the future which gangs aft agley the ability to make it arrive on time and in line as upon rails. There’s the quality of the people doing the planning of course, a talent for kissing babies not being notably efficient as a method of selecting those who should decide upon, say, what the energy production mix should be. There’s that problem with planning for everyone rather than just for the self-interested who bother to engage with the planning process.

But the really big one is that no one has a clue about the present:

But you don’t need to have spent those ten minutes on hold — or to have read MPs’ rather more critical report on the early months of the pandemic, published last week — to have doubts. The kind of doubts I get when I read that the government has authorised visas for 800 butchers, or 5,000 HGV drivers, or 5,500 poultry workers, to tackle the supply chain crisis.

In the very precision of those figures is a built-in assumption that the state has a perfect understanding of the employment market, just as it has a perfect understanding of infection rates. And yet as Dominic Cummings — remember him? — pointed out last week, this is the state that experienced large waves of immigration from the EU for 20 years but “was so useless at handling this, it could not even estimate its size to the nearest million”.

GIGO is not just some computing term, garbage in, garbage out is a truism of any system of calculation. It’s why philosophy spends so much time in defining terms before even attempting logical deduction - which is why the subject is still chewing over whether truth is actually beauty these millennia after folks started writing stuff down. And let’s not get started on the complications of thinking our way through “What is truth?”

If we don’t know the present then we cannot possibly plan our way to a preferred future. Simply because not knowing the starting point makes the navigation impossible.

Of course, this has been pointed out before. Hayek’s Nobel Lecture is on this very point. But it’s worth insisting, once again, that we need to pay more attention to it. Every attempt at central planning does indeed leave us where we don’t want to be. For the simple reason that we never do have much more than a vague clue as to our starting point.

At least we're getting an accurate definition of austerity

How long has this taken to arrive?

“Restrictions on the growth in health and social care expenditure during ‘austerity’ have been associated with tens of thousands more deaths than would have been observed had pre-austerity expenditure growth been sustained,” said Prof Karl Claxton of the Centre for Health Economics at the University of York.

“Our results are consistent with the hypothesis that the slowdown in the rate of improvement in life expectancy in England and Wales since 2010 is attributable to spending constraints in the healthcare and social care sectors.”

This past decade people have been screaming about the cuts. And there it is, the actual definition - a slow down in the rise of such social spending. It should be obvious that such social spending cannot continue, forever, to grow faster than the economy as a whole. For the, well, obvious reason that if it did then soon enough we’d have nothing but social spending and nothing financing it.

Some haven’t quite got the message yet. Polly Toynbee, obviously, among them:

I once chronicled Labour’s social programmes and their effects from 1997 to 2010. Spending on the NHS rose by an average of 7% a year, more than since it was founded in 1948.

Well, yes, but it can’t do that forever, can it?

Perhaps now that it’s in a scientific journal we can all agree that there were no cuts? That it was the rate of growth which was shaved, nothing else? That what actually happened was that after an election the new government declined to follow the spendthrift ways of the people who had just lost the election? That being, we’re really pretty certain, the purpose of having elections, that we folks out here get to decide whether the current plans should be followed or that the nation tries some other ones?

Democracy?

We fear the Prince has been grievously ill-informed

It is never The Prince who is wrong but the advisors. So we fear it is here:

In his interview about climate change, ahead of his inaugural Earthshot Prize awards, the duke said: 'We need some of the world's greatest brains and minds fixed on trying to repair this planet, not trying to find the next place to go and live.'

This about Bezos boldly firing Shatner off into sub-orbit and all that.

The mistake being to think that space isn’t a (not the, a) solution to repairing this planet. For example:

But what if we could have solar panels that always face the sun, that are immune to the vagaries of British Isles weather, and which could never be accused of blighting the countryside?

That is the idea behind out-there proposals for a series of giant solar farms floating in space, which are now being considered by the Government. Experts say the systems - each one able to produce power equivalent to a nuclear plant - would provide 24-hour reliable energy and account for a quarter of Britain’s electricity needs.

The first mistake is to think that the current rocket firings are just those sub-orbital tourist trips. They’re actually part of the development programme for orbital heavy lift. The second is to think that being up there isn’t a solution to woes down here. It’s possible to take the Elon Musk view that there is indeed that asteroid out there with our name on it and the solution is to have some of us where that asteroid won’t be. It’s not necessary to take that view though.

For space based solar is entirely possible right now. It’s simply fearsomely expensive and thus not a viable solution as yet. Billionaires spending - or making in one case - their money making getting into orbit is not a diversion from solutions it’s a path to them. For getting into orbit cheaply then makes those fearsomely expensive possible solutions cheaper. Cheaper here means more viable - to the point that if orbit becomes cheap enough then space based solar becomes the solution of preference to our energy desires.

This isn’t to say that orbit will ever become cheap enough for this to be true. It is though to insist that finding out whether it can be made so isn’t a diversion from solving our local planetary problems, it’s one of the means of devising those solutions. As, you know, privately funded technological development tends to be.