Modern theories about government borrowing are just so difficult to understand

Two Guardian pieces which seem to be taking entirely opposite sides of the same point. We suppose we could take that as a welcome diversity of opinion over there but that’s not how they’re presenting it:

Lower income countries spend five times more on debt than coping with the impact of climate change and reducing carbon emissions, according to a leading anti poverty charity.

Figures from Jubilee Debt Campaign show that 34 of the world’s poorest countries are spending $29.4bn (£21.4bn) on debt payments a year compared with $5.4bn (£3.9bn) on measures to reduce the impact of the climate emergency.

If poor countries borrow then this leaves them with an horrendous debt burden that they struggle to service:

In his budget, Rishi Sunak will say the UK needs to cut spending. Don’t believe him

Yes, public debt is high, but the way to bring it down is to invest – starting with the government’s social and climate pledges

If we borrow then it creates the income stream - and more - to service that debt burden.

This is the opposite claim of that first. It’s possible to finesse it into coherence by insisting that we will spend the money sensibly - Hah! - and they do not. But that then calls into question the sense of sending more to those poor countries whether as loans or grants. Why send money to where it will be wasted on things that don’t produce a return? No, we don’t mean some mere financial return to lenders, we mean that sending money to where it produces less value than the starting point is to make us all poorer.

So, there’s the interesting question. Why is it that poor places borrowing leads to unsustainable debt burdens but rich places borrowing leads to paying off the debt?

Our assumption is that it’s just politically convenient - it’s Thursday, isn’t it? - to so insist but perhaps someone can come up with a better piece of argumentation than that.

They're right you know, people will pay more for high animal welfare standards

The National Farmers Union and others argue that we British not only will but positively gasp over the opportunity to pay more for our food if that means higher animal welfare standards. Thus imports of meats produced to lower standards should be banned - no free trade for you!

He said: “People have got more into provenance and wanting to know where their food comes from. The food scares of the late Eighties, early Nineties like mad cow disease and foot and mouth really woke people up in this country to thinking about what they’re eating. And now people are willing to pay a little bit more for good food. People think ‘I can go to Tesco and buy a chicken for £2.50’ and ask why a shop like mine is selling them for £12.

“Well, if you want a free-range chicken, it’s taken two-to-three times as long to rear it and it’s been fed properly and housed properly and that costs money. We find that people maybe eat a little bit less but they want to eat a little bit better and they are willing to pay for it. You’d go to a shop and buy a top-quality suit because you’re going to a wedding, so why not buy top-quality food when you want something really special or if you value your health.”

The truth being that some people are making very good livings meeting those demands for high standards. But, equally clearly, this is a niche taste, niche suppliers for niche markets.

This being the argument for free markets of course, free of import restrictions and bans. For only when the market is indeed free can each niche be served, the different utilities maximised. Those who actively desire the high standards can currently gain them at their relevant cost. This ability will not disappear with freedom. But with that liberty so also will those worried more about the monetary cost than anything else gain their desires.

That is, it’s the very fact that some Britons desire those high standards, others either do not or don’t particularly, which means we should be having that free trade. Because only when the consumer can make a choice are they both free and also at liberty to maximise their own utility.

After all, those who want to pay £12 for a chicken can. But why should those who prefer £2.50 have to?

Markets may take their time but they do work

Part - part - of the idea of asking students to pay for their own degrees was that students would then choose degrees which are worth it to them. It is, if you like, akin to a Pigou Tax. There’s a cost to these things and only if those gaining the benefit are also paying the cost will we have the correct amount of the right type of degrees being taken by the people who will benefit from them.

Thousands of academics from across the UK and abroad have signed an open letter calling on Goldsmiths, University of London, to “halt the decimation” of its English and History departments, after the university became the latest institution to announce job cuts in the humanities.

Goldsmiths has announced 52 compulsory redundancies to tackle “significant financial challenges”, targeting English and History as well as administrative staff. The letter, which currently has more than 2,600 signatures, warns that academics with “deeply rooted” expertise in Black and Queer History and Black literature are among those under threat of redundancy. It accuses university managers of running higher education like “fast fashion” and showing “utter disregard for the integrity of the education they want to sell”.

Well, yes, the point about selling things being that you do better selling what it is that the customers wish to buy:

While applications for subjects such as computer science and maths have been booming, applications to study English have slumped, putting the subject in jeopardy at many institutions.

There are those who value a degree in English. There are those who value one in a STEM subject. By exposing those who take such degrees to the cost of them then we sort through those who do in fact value the thing at at least the cost of its provision.

This is not some aberration of the imposition of student fees, this is the point. Markets work, as with the law they grind small even if they can be a little slow.

Not the way to bet

Boris’s central economic policies are “levelling up“ and “green jobs”, the latter falling out of his ambitions for COP26. Unfortunately they run up against the obstinate truth that since WW2, it has never been wrong to bet against UK manufacturing. As we all know, this has been bad news for the individuals and regions once relying on it. Thus, the relative immiseration of Britain’s north and midlands, not to say the formerly-industrial working-class in general.

Nothing works. In the mid-sixties, Kaldor’s Selective Employment Tax failed to give manufacturing the intended leg-up. For a generation after 1963, the Location of Office Bureau pushed only back and middle-office employment out of London - and often no further than smaller towns in the southeast. Apprenticeships suffer from vanishing repute among middle-class or aspirational parents (would you want your child to have one?) and the blind-eye regulation of provincial banks under Blair and Brown, hoped to bring high-quality service jobs out of London, led the outfits concerned to spearhead Britain’s part in the financial collapse of 2008.

So is it hopeless? Almost certainly so, at least within the timescale of an electoral, business or reproductive cycle. Taking this last first: from a personal point of view, it is a longer-shot gamble than ever, for ambitious parents to bring up their kids as a bet against London, or at least the southeast.

As to public policy, officials are confined to:

- Palliative care, e.g. further rusticating government back-offices; and in the case of Channel Four and BBC News, risking the resilience of business models under threat from new media;

- Artless plans to create provincial tech hubs around Russell Group Universities, bound to fail as private investment which is value-added, i.e. associated with applicable skills and relationships, will hesitate to make excursions beyond the proposed Oxford-Cambridge tech corridor - if it ever happens;

- Gestures, e.g. HS2 if it ever happens. Ballooning costs make the railway unlikely to be extended. This means it is destined to frustrate its promoters’ intentions, by making Birmingham further subaltern to London, rather than goosing up the torpid city-regions of Yorkshire and Lancashire.

This is the context for Boris’s economic policies. He is a natural booster and we have to assume that his heart is in it. After all, he famously claimed to be “Brexitty Hezza”, invoking the great Tory interventionist and troublemaker; we may take it that he is not deaf to pillow-talk, and it may help with the kids who hate him but love greenery.

Unfortunately, nothing in 250 years of modern British economic history suggests that government has a contribution to make in such circumstances. Any money spent on the “levelling up” will be public funds, acceptable only by companies either in extremis or for the most cynical of reasons, e.g. to horde labour. As ever, truly promising businesses will seek out and be able to attract value-added money.

This takes us back to COP26 and the “green jobs” underpinning Boris’s net zero commitments. They suffer from similar problems for him: those with any gumption will see state money as the mark of Cain. In addition, the underlying policy relies upon immature technologies, where the bet is that learning-curve effects will tweak the physics and make the economics come good. If so, any profit-maximising promoter of fruitful developments will be looking for manufacturing facilities which are either overseas or labour-light. The private sector will be more suspicious than ever of government money, for fear that the price will be domestic production that is more labour intensive than industrially sensible.

Boris has made a political gamble, no surprise as he is a gambler. But his climate gamble is far riskier than Blair’s original commitments. These piggy-backed on Britain’s coincident move from coal to gas in power generation, guaranteeing that we could meet Blair’s carbon reduction targets. Boris is making bets of his own: that the tide of opinion will continue to flow green, that a enough unproved technology platforms deliver to keep the lights on and that a British government can do something it has never done: supervise an industrial paradigm shift. It’s not the way to bet.

The problem with cultural appropriation and public goods

Not that we generally turn to Rod Liddle here:

Everything that is good about us as a species has been enhanced and enriched by cultural appropriation, and you would think that the internationalist left would concur. But instead the left insists that we must all squat inside our respective ghettos, because no exchange between us can ever be quite pristine and equal. It is an absurdity.

While there’s many a truth spoken in jest Liddle’s position as the dyspeptic jester - say, the Jack Dee of the broadsheets - does leave him usually some way from our own interests.

However, here we’ve half of something that has long puzzled us. The varied and opposite claims made about public goods and cultural appropriation.

A public good is, in the economic jargon, something that is non-rivalrous and non-excludable. Once it exists there’s no way to stop someone from using it - excludability - and their use of it doesn’t diminish the supply available to others - rivalry. As the supply is therefore unlimited it’s something very difficult to make a living out of producing in the first place. Knowledge being exactly one of these things - once something is known then other people can also know it without reducing the supply to the originator.

All of this is well known within the hallowed halls of social science and it’s the argument in favour of government subsidy of basic research, the existence of patents and copyrights to produce excludability and so on.

It’s also the argument that we in the rich world should be doing all the spending upon vaccine and drug development, renewables research and design, all these sorts of things, then be giving them away to those poorer. Once the thing has been thought up, invented, designed, then humanity is made richer by it being free to use for all.

Well, OK.

But all of these cultural quirks that we must not appropriate are also public goods. The design of a hat - Liddle mentions the sombrero - or the making of a curry (and do leave aside that the vindaloo is an adaptation of the Portuguese vin d’alho to start with) is something which is done once and can then be enjoyed by all. It’s a public good in that economic sense.

At which point we seem to have the same people, for it is largely the same people who make both arguments, arguing that the drug which costs $1 billion to design and test in the first place should not have excludability created via patent, but the tweak to a recipe that was a few minutes of happenstance must be so protected by social conformity against appropriation.

We can’t help but think that there’s a certain illogicality to that stance. Even, that it has the entire thing wholly backwards. For public goods are lovely things, it is indeed true that their spread advances civilisation. Someone has a good idea, we all copy it, we’re better off. The only restrictions we might want upon this, even then only for some limited time like the effective decade of a drug patent, being to encourage the creation in the first place.

If people do invent these things for free anyway then why would we want to limit their spread?

That is, the ban on cultural appropriation is an insistence upon denying ourselves the public goods created by others. Why would we want to do that?

The costs of going green

We’re told that plans to go green will cost some £1.4 trillion:

And it will also cost an eye-watering sum – as much as £1.4 trillion, according to the Climate Change Committee, which advises the Government on its net-zero strategy.

This, very sadly, being an underestimate.

The actual cost of something is whatever must be given up in order to gain it. Which means there are further costs to consider, over and above the mere money:

According to Wells, the shift to electric needs to coincide with significant behavioural change in order to be a success in actually driving down emissions, with far less car ownership. The Government hopes half of all urban journeys will be taken by foot or bicycle by 2030.

“It is a mistake to think we can simply replicate our petrol and diesel fleet in electric and use our cars the way we do now,” he says. “That in itself is a significant policy failure.”

We’re all to have less freedom and mobility.

There are obvious health and societal benefits in eating seasonally, locally and limiting the amount of meat and dairy in our diets.

We’re to return to the diets of medieval peasants - meat to be for high and holy days only.

It has also pledged to introduce a standardised approach where green waste, food waste and tougher-to-recycle plastics – from single-use polyethylene plastic bags to the pump mechanisms in bottled lotion dispensers – will be collected from every home across the country.

We’re all to spend many more hours sorting things for the binmen.

We will be expected to bring an array of empty tubs and cartons to fill up at the supermarket, while high street fashion labels such as H&M are increasingly trialling repair shops where customers can bring in old garments for recycling, rather than merely buying new ones.

The assumption that washing the tupperware uses fewer resources than fresh single use plastic is very dodgy indeed. And don’t you just love that word “merely” about us all going back to wearing patched rags?

Unless new technologies are rapidly advanced, it seems to meet net zero, staycations are here to stay. “The unpalatable truth,” she says, “is we really have to fly less or at least not allow aviation to increase as it has done.”

Do not even think of jetting off to find the Sun.

The costs of going green are very much higher than that £1.4 trillion.

As the Stern Review itself pointed out, humans tend to do less of more expensive things, more of those cheaper. There has to be a concentration upon dealing with climate change the cheap way therefore - because that’s the way we’ll do more of it. Or, as the Review also pointed out, stop damn planning things and get the market prices right and leave well alone afterwards.

Well, yes Polly, but the NHS still isn't very good

Polly Toynbee tells us that the National Health Service is very green, as health services go:

But one event at Cop26 will raise the spirits. The NHS, far out ahead, will make a key presentation to the world’s other health systems to show what can be done. The NHS is responsible for 5% of the UK’s carbon emissions: the recently departed head of NHS England, Simon Stevens, put climate targets firmly into the NHS long-term plan, warning: “If health services across the world were their own country, they’d be the fifth-largest emitter on the planet.”

You might think going green was the last thing the NHS could do right now, after its decade of unprecedented underfunding, with waiting lists going through the roof, acute doctor and nurse shortages, and burnt-out staff being awarded paltry pay rises. But no. Jackie Daniel, head of Newcastle upon Tyne hospitals, has pioneered the green cause within the NHS and is making the Cop26 presentation to world health services. “A few, exhausted trusts did think this was the last thing they could cope with now,” she tells me. “But astonishingly, nearly everywhere has seized on this. We’ve found it’s something that really enthuses staff, and they have been the ones driving it forward.”

We also know that the NHS is very equitable, most fair and offers equal access to all. All quite possibly desirable attributes of a health care system.

We can’t help but keep reminding ourselves that even with all of this the NHS isn’t in fact a good health care system. As the OECD (and others, there are a number of attempts at quantifying this) points out the NHS just isn’t very good at “mortality amenable to health care”. That is, stopping people from dying from things which medical treatment could stop them dying from. We may indeed be merely neoliberal utilitarians but we do think that could be a significant aim of having a health care system.

Even to the point that worrying a little less about greenery, equity, equality and so on might - just possibly, you know? - lead to an improvement in actually curing patients?

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.