This isn't an entirely new observation

That conflict between political visions and actual economics:

What if monetarists are right and German headline inflation - currently at a euro-era high of 6pc - proves stubbornly persistent?

Germany faced this level of inflation during the Reunification boom of the early 1990s. The Bundesbank crushed it by raising rates 500 basis points to 8.75pc, and in the process blasted sterling out of the Exchange Rate Mechanism, with potent political consequences for Britain’s relations with Europe.

This time the ECB is persisting with negative rates even as Germany hits full employment and full capacity, and even as the ECB’s own staff union demands a 5pc pay rise.

The central bank is continuing to soak up eurozone budget deficits with QE bond purchases on a vast scale, essentially shielding a string of insolvent Club Med states from market forces under scarcely-disguised “fiscal dominance”.

Leave aside all of the details here - exclude even Germany, Brexit, the Olive Line and all that from your thoughts. Observe instead that we have a clash here.

There’s a political idea - again, what exactly it is isn’t the point - which says that Europe should be united like a country, countries have the one currency, there should therefore be the euro.

There’s the economic reality which is that Europe isn’t an optimal currency area. Note that “optimal” here already means taking into account ease of trade in one currency, as against the problems of one monetary policy for disparate economies etc.

That clash produced that bouncing of Britain out of the ERM. Germany needed, and got, different monetary conditions than the UK so the FX peg could not be held. Later, Germany needed laxer conditions than some of the periphery countries needed - thus Ireland and Spain’s property booms. Then again conditions differed and Greece needed - and, and, and.

Just to emphasise again. This is not about the political dreams themselves, whether that united Europe is a good idea or not. Clearly, we have views but that’s not what we’re on about here.

Rather, there’s a clear attempt to impose a political dream upon reality. Further, it’s not really working. Working in the sense that the economy can do its job of making the average person better off over time. That hasn’t been true of Italy for three decades now, just as an example.

Which brings us to the point we do want to make. There are many political dreams out there. There is also economic reality. In a clash between the two it’s the economics that wins out - as reality always does against dreams.

Which is what our recommendation for the New Year would be. Try to make sure that your political dreams are in fact things that accord with that economic reality.

Just one of those little things that confuses

Yes, OK, EV revolution, save the planet, blah blah. And yet:

Yet there are 25 gigafactories planned for the continent by 2030, according to BMI, as the industry races to keep up with soaring demand for electric cars. Nine of those are owned by Asian manufacturers, which control most of the global supply.

The UK is arguably further behind the rest of Europe, with plans for only two gigafactories.

It’s this idea that if you don’t, in fact, make it yourself then you’re behind.

We have checked behind the sofas and all that and we here at the ASI seem to be remarkably short of steel making capacity. And yet we’ve never faced an inability to find some steel when we’ve wanted some. Seem to be shops all over the country piled high with the stuff in fact. Barring the possible odd tree at Kew the entire UK is desperately short of banana production capacity and yet unlike any socialist economy ever there seems to be a reasonable supply in every supermarket in the land.

So with batteries. There is no reason that they must be locally made. We are not in League of Gentlemen here, where we require local things only for local people.

In short, haven’t these people ever heard of trade? We’ll do what we’re least bad at, everyone else does the same, swap the resultant production and we’re all as well off as we can be? Adam Smith published 245 years ago, David Ricardo 204, isn’t that enough time for the lessons to sink in?

Division and specialisation of labour, comparative advantage - trade. Seems simple enough to us but clearly it entirely blindsides all too many others.

This is before we get to the narrower point that if other folk are building 25 factories then that sounds like a really good business not to be in for ourselves. Investment manias leading to overcapacity - tulips through railways to dotcom and banking - are a real thing. So are the resultant bankruptcies.

This is entirely vile from The Guardian

It’s difficult for us to constrain our anger at this suggestion:

An alternative African strategy would see governments spending on public services and on increasing food and renewable energy sovereignty, while cracking down on corruption.

This provides a way out of the current development trap. In their book Africa’s Last Colonial Currency, Fanny Pigeaud and Ndongo Samba Sylla suggest that, instead of importing food and burning through foreign reserves, African states should produce food at home, as land, work and knowhow are abundant. “If they financed the development of their agriculture, they wouldn’t reduce their foreign exchange reserves; on the contrary, they would save money.”

State-owned enterprises and a competitive domestic private sector would help Africa evade activities demanded by the global north. As African countries become increasingly digital, data will be power in economic governance – and local entities must be its custodian, not transnational corporations. Trade agreements between countries of similar income levels are more beneficial for them compared with the World Trade Organization’s framework.

This is just the old idiocy dressed up in new clothes.

This used to be what was recommended for all of what was then called the “Third World”. Don’t trade with the richer capitalist places, aim for autarkic development. It didn’t work. Then we tried it the other way around, that global neoliberalism. Which worked, astonishingly well. This past 40 years has seen the greatest reduction in absolute poverty in the history of our species.

Now, when we’ve the one more heave to go - that absolute poverty is largely still concentrated in Africa - the argument is that we must abandon what provably works and return to the policy failures of the past.

Just how racist is The Guardian against black Africans? That they must be condemned to longer and deeper poverty to conform to fashionable metropolitan ideas?

It’s simply vile to be insisting on the policies that have been tried, have been seen to fail, once and yet again. How dare they?

So, £20 billion seems to be the cost of current energy policy then

That combination of the price cap - a ludicrous idea - plus no fracking and the dash for renewables seems to have caused a £20 billion cost:

Energy bills could treble unless the Government sets up a £20bn fund to help companies spread out the cost of soaring global gas prices, ministers were warned on Monday.

That idea of the government setting up a fund to pay that bill - spreading it over all taxpayers - doesn’t decrease the cost of the policy mess of course.

In fact, it would increase it. If people were facing higher costs for their energy consumption - absent the price cap - then they’d reduce their energy consumption making the cost lower.

Ministers are under growing pressure to protect households from soaring energy costs as they face the threat of their bills doubling in a year.

It’s not possible to protect households from that cost. There’s only us 65 million folk here to pay the bills. We can indeed pay through the tax system, or out of pocket, but that cost is going to fall on the 65 million of us whatever anyone does.

We would insist that this should all be visible through those bills. If wholesale prices have risen then so too retail. Because that’s the way for us all to see the costs of those decisions that have been made about the energy system. Who knows, we might even disagree about that policy or those policies. You know, when being up front and in our faces fully informed?

The universe really does throw costs at us and while it’s possible for governments to make those costs higher just shifting who pays for them doesn’t lower them. One of those advantages of actually free markets being that we find out, plainly, how much the fashions of those who govern cost us. To the point that we might even disagree about going along with the latest fad.

Amazingly, we don't believe Christian Aid about climate change damages here

We’re entirely happy to specify that if climate change is happening then there will be damages from climate change happening. Even, that if the process is getting worse then so will the damages. However, we don’t think that excuses this tosh from Christian Aid:

The 10 most expensive weather disasters this year caused more than $170bn in damage, $20bn more than in 2020, a British aid group has found.

Christian Aid said the upward trend reflects the effects of manmade climate change and added that the 10 disasters in question also killed at least 1,075 people and displaced 1.3 million.

Each year, the aid group calculates the cost of weather incidents like flooding, fires and heatwaves according to insurance claims. In 2020, it found the world’s 10 costliest weather disasters caused $150bn in damage, making this year’s total an increase of 13%.

Weather disasters, well, yes. The big thing in climate change research is, well, where are all those super-storms? No, really, significant work is going on try to explain why those predicted aren’t arriving in the numbers predicted.

We might also use those super-sekkret insights available to us from economics. The first of those being that they’re measuring insured losses. Insurance being a luxury, or superior, good. Richer societies devote more of their total income to insurance that is - the peace of mind being something that folks buy more of as the daily grind of finding three squares becomes less of a task.

Economic growth in 2021 has been substantial.

We might also want to add in inflation - if we’re talking about the US we could peg that at 6% or so, which is a substantial fraction of that claimed 13% rise, isn’t it?

We might even go further. The damage from such storms is largely to property, property largely being the thing that is insured too. US house prices have risen 16% of this past year. That is, if there were exactly the same US housing stock, facing exactly the same weather damage, at the recorded price change, we’ve already explained more than Christian Aid’s climate change related increase in damages.

Of course, we can’t add together rising house prices and also GDP and also inflation and also the luxury nature of insurance because that’s counting inflation at least twice and possibly more. But it is entirely possible to say that those features alone more than cover that 13% rise in insured damages. For Christian Aid hasn’t accounted for inflation or any of those others even once.

We’d also like to complain about this practice of pushing out the press release - which is why it’s in the newspapers - without releasing the actual report so that it can be checked.

We’re absolutely delighted to discuss climate change, what we should be doing about it and all that. But even the dangers of that dread event don’t excuse this total tripe that Christian Aid is trying to ladle onto our plates. Measuring insured damages without correcting for inflation, nominal values of assets, GDP growth and the very nature of insurance itself simply isn’t good enough. This gets a ”Grade F. See me after class”.

If only Will Hutton were able to make the necessary logical leap here

Will Hutton tells us that neoliberalism - capitalism and markets - is terrible, no good, horrible, because self-interest. And he then divines the truth of human nature:

On the other hand, are the “we firsts”. They are equally passionate in their insistence that salvation lies in the group and society and convinced, whether on the climate emergency, hi-tech monopolies, crippling uncertainties about living standards or just the evident truth that we humans are altruists as much as individualists, that to follow the “me firsts” is the road to perdition. What is crucial to us as social beings is the group, society, the commonweal and belonging as equals. After all, it was associating in groups that was fundamental to our evolutionary capacity to hunt and to see off predators. That primeval urge to associate in the group is what underpins happiness and wellbeing. What people want is less the exercise of choice in markets, more to control their lives in the service of what they value – and that is best done collectively and, as far as possible, equitably.

The logical leap Hutton fails to make is that yes, that is indeed that human nature. We are a cooperating species, working in groups. That’s what makes neoliberalism - capitalism and markets - work. That’s what capitalism and markets are, people cooperating with each other. Exxon is 100,000 people cooperating to bring us fossil fuels. Amazon is a million people cooperating the heck out of each other to bring us speedy tchotchke. The whole system works precisely because humans do cooperate with each other. A transaction is exactly that cooperation, competition is merely the choice of who to cooperate with.

Neoliberalism being - that globalised version of capitalism and markets - the apposite socioeconomic structure for our species precisely because we are a cooperating one.

It’s also worth pointing out that if Will Hutton were to truly believe his own rhetoric there then he’d have to conclude that we need fewer Will Huttons telling us all what to do. For as that we first species we’d already be cooperating, wouldn’t we? As, indeed, we do.

We really shouldn't be taxing companies at all

Current political philosophy is that companies should be taxed and then given tax breaks on things that politicians would like companies to do. This makes sense to politicians. A better suggestion might well be just not to tax corporates in the first place.

There exists a large set of well-identified studies demonstrating that targeted R&D tax policies – such as R&D tax credits, deduction possibilities or subsidies – indeed increase firms’ R&D activities

Tax something, you get less of it. Tax privilege something you get more of it. This is not a great surprise. But now comes the next question:

In contrast to this large literature, little is known about the possible disincentive effects of general profit taxes, which – unlike R&D tax credits – are in place in almost every country. From a theoretical perspective, general profit taxes should have sizeable disincentive effects on innovative activity, as higher taxes reduce the after-tax returns on investment. Due to differences in deduction possibilities, this is particularly true when investments are financed via equity rather than debt – which frequently applies to R&D projects because investments carry high risks and lack collateral.

The answer is yes. So, logically, the thing to do is not to tax corporations in order to increase the amount of R&D that is done.

Politicians won’t like this because it would lessen their power over what sort of R&D gets done. Taxing then privileging does direct, of course, to be able to direct is power and why does anyone go into politics if not for power?

Which is exactly why the rest of us should like the idea of not taxing corporations of course.

Just a little note on that boy child thing

We note that there’s a complaint about how male focused health care is. Women are simply ignored:

Finally the UK has noticed its rampant sexism in healthcare. What now?

Analysis: acknowledging the shocking female health gap is only a first step – ministers must put money into reversing it

The 50% of men who die with prostate cancer (note, with, not of) might observe the funding concerning breast cancer and emit a little hollow laugh at that.

In many countries men face greater health risks, but not in the UK. A study from Manual, a wellbeing platform for men, has found the UK has the largest female health gap among G20 countries and the 12th largest globally.

Now that is an interesting finding given that the largest gaps against females are found in those places with the greatest equality - the Scandis and Holland. It’s even possible that what is being measured isn’t what they think is being measured.

We’d also suggest that there’s a pretty simple explanation for this:

The inequalities start well before women make it to their doctor’s surgery. Women are routinely underrepresented in clinical trials,

Before the routine use of chemical contraceptives no one really did want to do medical experiments on a woman who was, or might be, pregnant. Which was any woman of fertile age in a sexual relationship. Thalidomide showed the dangers of that. Today the answer might be considered more sexist but still true for all that. “Scientists, would you like to try your new medicaments on a population with wild hormonal swings?” And we think we know the answer “Umm, thanks, we’ll do it on the others first, get to that later. Please.”

It’s even true that drug trials are conducted on volunteers and we’re aware that young men tend to be happy with taking more risk than any other group of the species.

But really irks our bile is that argument about the production of children itself - apposite given the day. Historically women lived shorter (peacetime at least) lives than men simply because of the risks of childbirth. Survive those and as now, lifespans for women were longer but that survival was a risky bet. Death in childbirth is now a rounding error in the mortality statistics - even if they did put Semmelweis in a lunatic asylum for pointing out how to make it so.

And, finally, we get to that point that women do indeed live longer lives than men.

But gender inequality in healthcare runs deep. Recognising, as the government has today, that system-wide changes are needed to tackle “decades of gender health inequality” is a vital first step yet, as Criado-Perez has said, women have been considered less important in healthcare as far back as Ancient Greece.

At which point, sorry, but we disagree with the entire premise here. But then what’s that got to do with the validity of a political campaign, eh?

Bless, Owen Jones has only just noticed

We’re not quite sure whether to applaud here - Owen Jones has noted reality - or hiss given how long it’s taken him.

Public support for lockdown measures is disintegrating - a new approach is needed

Owen Jones

Well, yes. This is, of course, the basis of the Swedish approach. Us folks out here will only put up with restrictions on how we wish to live our lives for so long. So, limit such restrictions to when they are absolutely and wholly necessary. For use of them on the precautionary principle, just in case, will exhaust that willingness and we might in fact really, really, need it at some point.

This must be why so few examinations of how Sweden has done through all of this are performed.

But the point is rather larger and we do wonder whether Jones will be able to recognise the logical connection. It is possible to get the Stakhanovites to storm the workfront - when there is a real emergency. What doesn’t work is that constant exhortation for the greater good at personal cost over time. Effort slacks off. That’s just the way humans work.

Therefore economic systems, entire societies, have to be based for the long term on personal incentives, not that more ephemeral gain to the general good. Again, this is just how humans work, we’ll all put our backs into it for no personal gain when we can see and feel the emergency. In more normal times we’ll all worry more about our own thumbs than the lives of a million Chinese - as the man, approximately, said.

Days, weeks, of constant effort to shore up the dyke, rescue the children from the earthquake rubble? Sure - a decades long struggle to build socialism? Doesn’t work.

Because we’re optimists we’ll hope that Owen Jones is able to make the connection - but it does require that significant optimism.

Costs don't go away you know

The collapse of Bulb Energy - largely through not disposing of wholesale price risk to the speculators in The City - is leading to government carrying some rather large costs:

The cost to the taxpayer of running Bulb, the failed energy supplier, could spiral by £1 billion or more as gas prices hit fresh record highs, according to industry estimates.

The point we want to insist upon being that those costs don’t go away simply because someone else - in this case government - owns it. The idiot price cap means that the gap between wholesale and retail prices is there. Someone, somewhere, has to carry those costs.

This principle is of wider application too. George Monbiot was earlier this week wittering about free health care. The NHS isn’t free, it surged through a cost of £150 billion a year some time ago. UK health care is free at the point of use but someone is still carrying that cost.

The Resolution Foundation is today complaining about how social rents are going to rise with inflation. OK, someone, somewhere, is going to carry the costs of housing 5.5 million people. That we might be talking more of opportunity costs - the rent that could be collected rather than the direct cost of housing provision - doesn’t change matters. If we’re not including opportunity costs then whatever it is we might be talking about it’s not economics. Someone, somewhere, is carrying that cost of providing that housing.

We do not solve cost problems by changing the ownership of something. Dumping something on government does not change those costs. We can - and sometimes most certainly should - change whose wallet lightens to cover certain costs but that switch doesn’t change the amount of those costs.

It’s an important point and given current conversations worth recalling. Costs are costs and changing who pays them is not the same thing, at all, as changing the costs themselves. That second is rather more difficult in fact and isn’t something that - unless we desire to increase them often enough - is achieved by nationalising something. As Bulb is showing. That price mismatch between unhedged wholesale and capped retail costs is still there whoever owns or runs the organisation.