We fear George Monbiot is missing something important here

George Monbiot wants us all to know that building fences along borders slices up wildlife populations to the detriment of the future health of those populations. He may well be right in that. Not wholly right, absolutely, as those fencings and blocking offs have, at times, had the opposite effect. That Australian rabbit fence is rather useful for example. Or, given the area of the world Monbiot is talking about:

For decades, the border that cut through Europe was a brutal symbol of the hostility between East and West, between the socialist and capitalist power blocs. Until the fall of the Berlin Wall 28 years ago, it divided Germany into the Federal Republic of Germany in the West, and the German Democratic Republic (GDR) in the East. Many lost their lives trying to cross over to the West, killed by snipers or landmines, in the no-go zone between the two nations. This heavily guarded corridor became known as the "death strip".

But in this region where no humans could tread, plants and animals thrived.

No, we don’t think the abomination of the Iron Curtain was worth some wildlife but it is an interesting example of how everything does have costs and also benefits, everything.

But that’s not the important thing that we fear Monbiot has missed:

When the Berlin Wall fell, we were promised that this marked the beginning of a new era of freedom. Instead, far more walls have risen than fallen. Since 1990, Europe has built border walls six times longer than the barrier in Berlin. Worldwide, the number of fenced borders has risen from 15 to 70 since the end of the cold war: there are now 47,000 kilometres of hard frontier.

For those trapped at these borders, the cruelties of capitalism are scarcely distinguishable from the cruelties of communism.

The distinction should be simple enough. For there is a difference between a wall meant to keep people in and a wall meant to keep people out.

Yes, we grasp the moral point that the people should be free, that migration is one of the great exercises of that human freedom. We would also insist that observing the flow of people across such lines on the map tells us a great deal about the systems either side of it. People are moving from less desirable to more and one useful manner of working out what it is that people actually desire in this life - migration as revealed preferences - is which socioeconomic system loses people, which gains?

But we do still insist that there’s a simple manner of distinguishing between those different cruelties, of capitalism and communism. Which way are the guns pointing? Out to keep people out, or in to keep people in?

The NFU can go boil their heads

This is a special interest group demanding more of our money:

The supply chain crisis must be fixed urgently if the government is to ensure food security in the UK, a coalition of industry groups has warned.

Food and farming leaders warn that the sector has been hit by shortages of workers from seasonal fruit pickers to abattoir staff and lorry drivers, alongside inflation that has driven up the price of energy, feed and fertiliser.

The National Farmers’ Union (NFU), which has convened a summit of organisations to discuss food security on Tuesday, called for the government to make a serious commitment to at least keep Britain’s self sufficiency in food production at 60%, and create an environment to support businesses.

As the government itself points out, significant domestic supply is actually detrimental to food security:

Food Production to Supply Ratio is calculated as the farm-gate value of raw food production (including for export) divided by the value of raw food for human consumption. It provides a broad indicator of the ability of UK agriculture to meet consumer demand.

A high production to supply ratio fails to insulate a country against many possible disruptions to its supply chain.

Britain is a small enough place that the weather events that are so detrimental to a season’s crops can affect the whole place. Therefore concentrating our supply source in an area that can all be affected by the one season’s weather - or crop disease, or animal plague - reduces our food security.

As it happens that domestic production is about 54% of what we consume and 63% or so of all food - that second including exports.

The actually important demand there is “an environment to support businesses”. The NFU wants to ensure that when the holdover of the EU subsidy schemes disappears then there’s some other ladling of our cash into farmers’ pockets. “Food security” is just the latest fashionable cloaking for this demand.

As we should all already know and as the government itself does, food security is enhanced by having many sources of food, not concentrating supply into one geographical area.

The NFU can go boil their heads.

Holding people to the results of their policy promises

There are many suggestions in politics and policy. We should do this, or that, if we do the outcome will be this benefit or that t’other. The thing is the world’s a complex place with many different moving parts. We never really find out the effects of a policy until it has been implemented. For only by something actually working through the system do we see those full effects.

Women now account for a majority of independent directors at Britain’s largest public companies, research has found.

The biggest 150 groups listed on the stock market now employ 442 female non-executive directors, compared with 422 men, a report from Spencer Stuart, a headhunting firm, shows.

How excellent.

For we were told, nay insisted at, that gender diversity in the management of companies would mean that companies were better run. So much so that some countries - Norway comes to mind - insisted by law that it must happen. Others have fiddled with listing rules and so on.

Again, excellent. But now comes the interesting part. Has it worked? No, not has the impulsion worked, but has the act itself worked? Are British companies now better run than they were before the gender diversity arrived?

No, not is the world fairer now that the economic liberation of women, that devoutly to be wished event, has matured. But has that claimed and insisted upon effect of companies being better run happened as a result?

Only by examining this can we find out whether those original assertions were true. Companies would do better with gender diversity. Now we have that gender diversity has the predicted company performance arrived as well?

Do note that this is actually nothing at all to do with gender or diversity at all, it’s to do with science. The prediction was, the event has happened, did reality conform to the prediction? If not reality wins, not the prediction. Which is why the management scientists, the advocates of equal outcomes along gender lines, need to be asked to prove their contention.

Has your prediction come true? If not, why not? How has your hypothesis changed if it didn’t? The reason being that if they’re not studying all of this, testing the hypothesis against the evidence and results of the experiment, then they’re not doing science, are they? Which is what they claimed they were doing so we should hold them to it.

Are British companies now better run, Y/N? If yes then excellent but prove it. If no then why is it being forced?

If earthquakes are the problem then why different rules for fracking and geothermal plants?

That there should be rules - laws, regulations, even social standards can work at times - over what may be done as it affects others is an obvious truth. However, it is a standard part of a just system that rules are rules, the law is the law. Where the limitation is upon third party effects then the cause isn’t the point, it’s the effect. So, different causes of the same effect should be treated the same way under the same rules.

As the man said the rich are prevented from sleeping under bridges, stealing bread, too.

Fracking companies were riled after testing to extract heat, power and lithium from deep geothermal waters in the county last year triggered mini-earthquakes similar to those caused by fracking, but different regulations meant the work did not have to regularly pause as a result.

There is energy in those geothermal waters, there is lithium too. Gaining access to both of those may or may not turn out to be profitable. There is gas to be fracked in various shales, gaining access to that may or may not turn out to be profitable.

The third party effect being worried about here is earthquakes. In common with mining - in fact with anything that involves messing around with underlying rock and geological structures - there is a risk of those ‘quakes.

Therefore the regulations, the rules, on what the effect of the earthquakes upon the activities should be the same for each activity. They’re not. At which point it’s possible to come to the, and we admit the horror of even thinking that British politics could be so corrupted, conclusion that the fracking limitations are about killing fracking, not actually a concern about earthquakes at all.

It’s not only that co-opting the claim about safety regulations to advance a specific political cause is that undesirable political corruption. It’s also that different rules is grossly inefficient. If the rules do vary by the cause then it becomes ever more risky to try out new things that might create the effect. For who knows what the law will be on causes that have not yet been considered and codified?

That is, if we’re to have technological advance - the entire secret of making the world a better place - the rules have to be known and in advance. Not reliant upon whatever politics thinks of the cause but concentrated purely upon the effect.

If x, y and z all cause earthquakes - something oft true of fracking, geothermal and mining - then x, y and z should be treated equally under the law concerning the creation of earthquakes. Otherwise it’s not actually the rule of law, is it?

You can have a progressive taxation system or a large state - choose wisely

A further little point concerning the World Inequality Report. They argue that corporate taxation is a backstop to the income tax one. That a truly progressive taxation system - by which they mean high taxes on richer folk, not just a progressive system - is only possible if the combinations are taxed as well as the individuals.

As part of this discussion they seem to be arguing - implicitly at least - for both a large state and also that progressive tax system. We feel honour bound at this juncture to point out that you cannot really have both.

The American federal tax system is significantly more progressive than any of the European. Progressive in its true sense, that the portion of income paid in tax rises as income does. This system captures some 18% of GDP. The US system as a whole captures some 26% and is, with that addition of state and local, less progressive but still more so than European.

The European systems capture, largely, in the 35 to 45% range of GDP. The reason they’re much less progressive is that it’s just not possible to only - or only heavily and then lightly for the poorer - tax the rich and capture that amount of GDP. Even attempts to do so will lead to those richer leaving, or not working, or cheating, so that GDP itself is smaller which really isn’t quite the point.

So, taxation to gain that portion of GDP needs to weigh more heavily upon the poorer as well. It’s necessary to tax everyone, not just the rich, to gain that portion. This is largely achieved with VATs which are sometimes actually regressive and near always more so than income taxation systems.

To have a large state you have to tax everyone and heavily. There’s a limit to how much you can tax the rich. The combination means that you cannot have a large state financed y a highly progressive taxation system. The need for higher rates upon the rich, which are necessarily limited, means there’s no room to lightly, or not at all, tax the poor to provide the progessivity.

It’s necessary to make a choice. Progressive financing of the state or lots of the state?

We’re just fine with the progressive part - Adam Smith did muse on “more than in proportion to income” as being a reasonable taxation basis. In fact we’d insist upon it, as all our taxation proposals have done. This does bolster our further insistence upon the small state though.

It’s true that we always do argue for that small state. We’re liberals, so we insist that the vast majority of life is best, also righteously and justly, run by people themselves doing as they themselves desire. We’re also - having spent these decades up close and personal with the system - insistent that government isn’t very good at the vast majority of the things it tries to do. But it is also true, as a supporting argument, that you cannot finance large government progressively. On balance we think the large part is the one to get rid of.

Why not a state that we can pay for out of what can be grifted off the rich?

Capitalism does work but it does have to be capitalism

There is much woe and gnashing of the teeth over how the investment industry is gaming matters:

As socially conscious investing surges, dodgy metrics and dirty tricks abound.

…

Being able to label a fund as net zero is a marketing coup for fund managers, and has prompted some to try some classic financial engineering.

Yes, obviously. If strewing a few pretty words around and continuing to do the same ol’, same ol’ makes money then pretty words will be strewn and the same ol’ done.

If you actually want people to change what they do then you’ve got to recall that first important part of economics - incentives matter. What you do is change what makes money, not what rhetorical wrapping you put around it.

This is the argument in favour of that carbon tax. Every price in the economy is changed by its existence. What is profitable to do is then informed by that. Every capitalist - and every manager of capitalists’ money - can instantly see that incentive reflected in the numbers of every potential investment.

At which point we don’t need standards and exhortations and committees and meetings and social movements. For the task is already done - all investments are now made taking full account of both the costs and benefits of that climate change and how to deal with it.

The reason being that capitalism really does work but it really does have to be capitalism. Haul ‘em in by their wallets and all else will follow. Change the incentives, not the language, investors face and investors will change their actions. It really is just that simple.

Why we don't believe anything said about the wealth distribution

The World Inequality Report is out in a new and fresh edition. In it is the reason why we don’t believe anything anyone says about the wealth distribution. When looking at income the definitions are:

We call this “post-replacement, pre-income tax” income. This definition of income includes most incash redistribution, which occurs through pension and unemployment insurance. Another important income type corresponds to income measured after all income, wealth and consumption taxes are deducted, and after all non-replacement transfers (e.g. healthcare, disability and housing benefits) are added. We call this “post-tax income”. In this report, we alternate between the two concepts, using “post-replacement, preincome tax” as the benchmark

What matters is income after the influences of government on changing income. We might even add a third, after all the consumption available through the government provision of services - education say. But the base concept is clear. Government influences incomes, the correct measure of incomes as they are is after the influences of government upon incomes.

When looking at wealth however:

Household wealth is defined as the sum of financial assets (e.g. deposits, stocks, bonds, equity) and non-financial assets (e.g. housing, business), net of debts, possessed by individuals.

Wealth however is defined as being the pure market value. It does not take any account of what government does to influence. This is clearly an entirely different concept.

If we take a step back into the research by Saez and Zucman (two of the four who produced this World Inequality Report) we find this becomes absurd. Fully funded pension pots are wealth, the state pension is not, nor are unfunded pensions promises like certain public sector ones. When trying to determine how rich people are, the distribution of wealth among people, this is clearly untenable.

That paper even gives us the wealth measurement tool required. We can look at an income stream (and a stream of benefits from a service like health or education can be treated in exactly the same manner, should be in fact) and capitalise it, that capitalised value being the wealth. This is exactly how they treat possible wealth which doesn’t have an obvious market price. So, that’s what we should do to things that are wealth that don’t have an obvious market price.

What the factor used to create that net present value of the income/consumption stream is matters. Say, perhaps, 20x for market instruments, akin to a 5% discount rate. For something significantly reliable and inflation adjusted - government benefits say - 40 might be more appropriate, closer to 2%.

At which point:

Social protection and health together account for more than half of all of central government own expenditure. In 2020-21 spending on social protection increased to £242.7 billion compared to £221.2 billion in the previous year.

£250 billion among friends - £5 to £10 trillion when capitalised. We should add the NHS as well. After all, the selling point is the system’s equity so we really must include it in a calculation of how equal we all are. Add say another £7.5 trillion.

But total household wealth is £15 trillion. Yet, at an extreme valuation government is moving around £17.5 trillion in wealth already. We could even raise that number again by claiming that as all benefit equally from the entire £700 billion government spend then that’s the sum which should be capitalised.

Looking at the pre-government influence number for the wealth distribution is false. Worse than that, it’s not even a useful number.

No, think on it. Say that we instituted a universal basic income at the real living wage. That roughly £20,000 a year claimed. Not that we can, it’s too high but just imagine. That clearly changes the wealth distribution - every adult in the country has a £20k a year income, for a lifetime, that’s a significant chunk of wealth. We know how to value that too, it’s the price of an annuity that would produce that income - a £million or two say.

But by the current measures of wealth and the wealth distribution such a plan would change the wealth distribution by not one single farthing, groat or bawbee.

The entire analysis of and conversation about the wealth distribution is wrong and we don’t believe an iota of it. Simply because it is being measured in the wrong way. It is being measured before the influence of government upon that distribution. Which is not just wrong it’s absurd for it’s a prelude to a discussion of what government should do about that distribution. But if we don’t measure the effect of government then government action will change nothing, will it?

Until they fix this base logical problem the entire wealth distribution literature should be ignored. It won’t be, but should.

Nadhim Zahawi's sound backdrop

Education Secretary of State, Nadhim Zahawi, nailed his colours to the mast in his TV appearance today. There, proudly beside him in his office, is the bust of Adam Smith he was given on Tuesday after his speech at the ASI’s Christmas Party. Very sound.

A price is still a price

Prices are information.

But for now Philips-Davies is concentrating on seeing off Elliott with a comprehensive rebuttal of its demands, claiming that a standalone renewables arm would suffer devastatingly higher borrowing costs.

This is with reference to SSE. The renewables arm and the distribution, the current strategy is to use the profits from the one to fund the other, it being possible to do this at less than market rates by cross-funding internally.

We have no view at all on the company, the raider or even the strategy. What we do want to insist upon though is that a market price is indeed a market price.

Whether or not the renewables are cross funded internally, or externally from the more general market, that price is the same. If it’s done at arms’ length then that price is obvious in the cashflow to financiers. If it’s done internally then it’s not obvious but still exists - in the cash not flowing to the corporate owners, the shareholders.

The price of funding those renewables is whatever it is. Moving around who pays it doesn’t change that in the slightest.

For prices really are information concerning what it costs to do something.

Gosh, planning an economy is hard, isn't it?

It amuses that it’s The Guardian complaining so bitterly about how the vaccination of the poor world is going:

…as wealthy nations have amassed enough surplus vaccines to inoculate their entire populations many times over, in low-income countries just a small percentage have received even a single dose.

Even with the ambitious booster programmes, there are still plenty of unused doses sitting in the warehouses of western nations.

And:

…there will still be close to 1.4bn surplus doses by the end of March 2022. It’s bordering on criminal that these are not being urgently airlifted to countries in need.

Even:

….that the principal factor driving low vaccination rates isn’t one of supply,

And:

….even when they hit the tarmac, dose deliveries too often arrive unexpectedly, or less than three months from expiry.

Plus:

And the White House has already warned that the US’s donation of Pfizer doses requires specialised syringes that are in short supply – which means many could yet expire in warehouses. Between 18 and 25 countries worldwide are now struggling to distribute doses,

This is government working - or not, to taste - in the middle of a pandemic when government is the necessary actor, even when government is the very reason that we have government.

The complaint is that politics and politicians are somewhere between incompetent dolts and just not very good at doing things even when things really need to be done.

At which point think how badly they mess up the things that don’t have to be done by government - health care, education, the morals of the nation - when they apply those same skills and perspicacity to them.

Of course, The Guardian’s not going to note that given that it argues with their entire worldview but the rest of us should pay attention. We have here, in these complaints, a dual lesson. The first is that planning stuff is really, really, difficult. The second is that the political system isn’t very good at it.

So, we should stop using politics to try to plan our world, shouldn’t we?