Sorry Claudia, billionaires have the right to exist

At the heart of Claudia Webbe’s recent tweets, where she stated that ‘every UK billionaire should be brought before a Public Inquiry to be held accountable for their wealth’ lies the dangerous fallacy that creating wealth is a zero-sum game.

Claudia claims that ‘if you cannot afford to ensure the workers that make your goods are paid at least a living wage, your business model is based on exploitation.’ There are a lot of issues with this statement. Firstly, what constitutes a ‘living’ wage? 

It is possible to live in a cave, without electricity or the delights of modern capitalism. Whilst humans did so for thousands of years and it would not be difficult to do so on minimum wage, I highly doubt Webbe would consider this ‘living’. All that is to say that what constitutes a ‘living’ wage is completely arbitrary.

More importantly, she is wrong in saying that business models that don’t live up to her standards of delivering a ‘livable’ wage are exploitative. Her tweets show that she arrived at this conclusion by judging how much ‘hard work’ workers put in. “Billionaires do not work harder than nurses,” she claims, then using this to justify her belief that billionaires do not deserve their wealth. 

Though here’s the thing: under capitalism, you are not rewarded for how much ‘hard work’ you put in, you are rewarded, through others voluntarily trading with you, for how much value you create. Elon Musk did not work millions of times harder than nurses, but he did create a product that has transformed millions of lives whilst promising to reduce air pollution. On the other hand, I would ‘work hard’ by breaking rocks all day but that would create very little value.

That is not to say the work of nurses, doctors, and supermarket workers has no value. On the contrary, I am extremely grateful to live in a country where we do have access to excellent healthcare and education. But wages should always be set according to supply and demand and there is nothing wrong with doing so.

At their core, prices are information signals. Thomas Sowell, in his book Basic Economics, very clearly demonstrates the implications of attempting to fix prices artificially high or low through price controls and taxes: it always distorts the efficient allocation of resources, as we’ve seen with the recent energy price cap.

Furthermore, to offer a job cannot be ‘exploitation.’ You are not forced to work for any company so people only do so as it benefits them. If you choose you do not want to live by growing your own food directly, you can obtain it by creating value in other ways then trading. The same is true for healthcare, education, and everything else. There is nothing ‘exploitative’ about that.

A claim I hear over and over again is that billionaires shouldn’t exist and the state should redistribute their wealth because the marginal utility of an extra Pound is higher for those at the bottom than those at the top. When examined more closely, I do not think this argument holds up.

It’s important to understand that most of the wealth owned by billionaires is speculative and illiquid. It is composed mostly of shares and real estate whose value is constantly fluctuating, and it is difficult to capture this, hence why many countries including France have abandoned their wealth taxes. What do advocates of wealth taxes propose? Seizing these assets and selling them off? Transferring these shares to poorer people? This would merely result in corporations becoming more badly run and would be a massive disincentive to investment.

Furthemore billionaires don’t just hold their money in a vault (though if they do, it’s their right). Many will reinvest it into other businesses, furthering innovation and creating more wealth. In addition to the direct benefits and jobs that are created, the resulting innovation overwhelmingly helps the poor. The invention of domestic appliances, to take one example, freed up the leisure time of the poor then created plenty of activities with which to fill that free time. But investment takes time and it takes money, and nobody spends their own money more wisely than themselves. The critics of billionaires should focus on the end result, not ideology.

To say that the rich are rich because the poor are poor is as wrong as saying that the healthy are healthy because the unhealthy are unhealthy. It’s just not true. I suggest that in 2022, Webbe reads a little more David Ricardo and a little less Karl Marx.

So, how was the housing crisis solved then?

A rather good article by David Olusoga* contains this:

While the 1921 census is a record of a moment of unique trauma, it arrives in the public domain at another fraught and disorienting point in British history, making it impossible not to draw comparisons between then and now.

The nation of 1921, like that of 2022, was afflicted by a deep and socially corrosive housing crisis.

The 20s didn’t in fact solve that housing problem although there was much trying to do so. There were advances, a possibly apocryphal story has Bath City Council declaring that a working man needed a garden large enough to grow the family’s vegetables plus the room to keep a pig. It is true that there are council built houses on the south of Bath today built at that time with enjoyably large gardens and they’re highly desired as a result. This also something that wouldn’t be allowed today as a result of that putrid (no lesser description seems appropriate) insistence that 30 to 35 dwellings must be packed into each single hectare of land.

What did solve that housing crisis was the rampant free market boom of the 1930s. Which was, of course, the last time that it was possible to build houses people want to live in where people want to live. Since then - with that little interregnum of not much building being done at all - we’ve all been constrained by the planning system which insists, in its wisdom, on not being allowed to build housing people wish to live in where people wish to live. The end result being that Britain now produces the smallest new housing in Europe. Smaller than vastly poorer places as well as richer.

The thing that has changed in the Town and Country Planning Act 1947 and successors. Which all does indeed simply ban the building of housing that people would like to live in where people would like to live.

Fortunately this makes the crafting of a solution rather simple. Blow up the Town and Country Planning Act 1947 and successors.

You know it makes sense.

*Yes, we know, we know, wonders will never cease etc

Petitio principii in defence of the NHS

One of the CEOs of one part of the National Health Service tells us that:

These are the advantages of a single, taxpayer-funded, national system. A system with a proper national and regional infrastructure to support local trusts to work together to meet collective patient need, free from the requirement to maximise individual organisational profit.

Ah, no, that is petitio principii, or begging the question. Assuming what it is necessary to prove.

Health systems everywhere have dealt with covid these past couple of years. It is possible that the NHS, with its centralised, single, taxpayer-funded and no profit motive, system has done better than others which do not share those attributes. It is also possible that it has done worse.

In order to praise that NHS structure - even to assume that it has done better - it is necessary to show that it has done better than those other systems with those different attributes. At which point, well, has it?

No evidence of any kind is presented. It is merely assumed that because the NHS is wondrous therefore the superb performance may be asserted and no actual reference to reality is required. This isn’t the way to prove anything.

It is now very clear that the NHS and our social care system do not have sufficient capacity. That asking staff to work harder and harder to address that gap is simply not sustainable. That we need a long-term, fully funded, workforce plan to attract and retain the extra 1 million health and care staff the Health Foundation estimates will be needed by 2031.

As a result that also rather fails. But then that should be obvious enough too. An insistence upon decade long plans to near double the workforce and also gain lots, lots, more money isn’t that innovative plan we’re all looking for to make even better what is already being assumed is the finest health care service in the world.

Chris Hopson is chief executive of NHS Providers

We’d also put forward the idea that management capable of such logical errors - and swathes of near mindless corporatespeak at the same time - might be one of the problems we all have with the NHS.

We don't believe a word of the ONS wealth statistics

Or rather, we’re entirely willing to believe the numbers presented, we just insist they’re not the relevant ones for decision making.

The richest 1% of households in the UK each have fortunes of at least £3.6m, according to new official figures that show the inequality gap was yawning even before the pandemic struck.

At the other end of the scale, the poorest 10% of households have just £15,400 or less, with almost half burdened with more debts than they had in assets, according to figures released on Friday by the Office for National Statistics (ONS).

It means the gap between rich and poor has widened to the largest in more than a decade. The ONS said the income inequality gap as measured by the Gini coefficient had “steadily increased to 36.3%”, which was “the highest level of income inequality since 2010”.

The full figures are here.

The wealth and income figures are being presented on entirely different bases. The income inequality figures are after the influence of tax and benefits and before those of government spending upon services - the NHS, education and so on. The wealth figures are the pure market distribution, before the effects of tax and benefits let alone state spending.

ONS is running with the mainstream in doing it this way, chapter two of this Saez and Zucman paper outlines the standard approach. We insist though that this standard approach is wrong.

Wrong in the sense that it does not provide useful information for decision making. The income inequality figures tell us what inequality remains after the things we do to reduce income inequality. It might be that we should do more - we think probably less but that’s an opinion not a fact - or that we’re doing about the right amount. But the data needed for decision making is what is the effect of what is already done and so what more, or less, needs to be?

The wealth figures are before all of that entire influence of government and the welfare state. Which means we have no data at all about the effectiveness of what is already done. Nor, of course, any useful information about whether more should be done or not.

A lifetime tenancy at below market rent is wealth. Education free at the point of use - or the health care from the NHS - might not be worth what’s spent upon it but it’s certainly wealth to the recipient. The wealth figures are so useless that private pensions are wealth while the state old age pension isn’t.

We do know how to calculate the wealth effect of those things. Just use the same technique as the Saez and Zucman paper, capitalise the income stream from them. But none of the wealth inequality measurements used do this. Therefore, as we really do insist, none of the wealth inequality measures are useful in a policy sense.

We don’t know the effects of what we’re already doing therefore we cannot, possibly, decide whether we should be doing more or not.

Think on it. If we don’t measure the effects of what we do then if we do more then we’ve not changed what we measure in the slightest, have we? So how can we use this as a measure of policy if the measure doesn’t measure the effects of policy?

We insist that all of the wealth inequality measures currently in use are wrong as sources of information for policy decision making purposes. The solution is to start measuring the real world properly - after the effects of what is already done - and until that is done we’re just going to keep shouting that all of these numbers being used are rubbish, rubbish, rubbish. We don’t believe a word nor digit of them.

You can't get the rich to pay for everything, they've not got enough money

Or, perhaps, you can’t get enough money purely off the rich to pay for everything without their leaving, or working less, or running into other of those inconvenient Laffer effects. This matters, more so for some dreams than others.

Polly Toynbee starts out by insisting that we all really must be willing to pay more for the NHS. To which our answer is, as it always has been, that if the NHS is such a wondrous system, both more efficient and also more fair, then we should need to pay less for the same level of health care as other countries. The insistence that we must pay at least as much as others is, we insist, evidence that the efficiency claim cannot be true.

However, Polly then goes on:

In this forever undertaxed country the tax revenue is 33% of GDP, while the 14 EU states pay an average 39%, according to the IFS.

Would we pay that EU average?

The idea that the EU consists of 14 countries amuses - what is meant is Western Europe and also EU. The other countries of the Anglosphere have generally lower tax to GDP ratios than the UK. Whether Britain should run at tax levels determined by geography or culture is an interesting question.

However, using Polly’s own source, we are told this:

UK raises less from social security contributions……

The amount the UK raises through income taxes (a category that includes smaller taxes such as capital gains tax, as well as the main income tax) is broadly in line with international norms – it is Scandinavia that stands out, with higher income taxes than elsewhere.

The amount the UK raises through VAT is also comparable to most other developed economies….

The biggest difference between the UK and most higher-tax countries is the amount of revenue raised through social security contributions (SSCs) levied on employees and employers. In 2019, National Insurance contributions (the UK version of SSCs) raised 6.6% of GDP, compared with 12.0% on average for the EU14. The UK’s lower revenues from SSCs more than explain the UK’s below-average tax take – the UK raises more than both the OECD and G7 average from taxes excluding SSCs.

Leave aside theory and even morals for a moment and become entirely pragmatic. We’ve a globe’s worth of rich country experience here over roughly a century of Big Government. Roughly the same portion of national income is raised by income taxation, the US aside roughly the same from consumption taxation, the only way anyone gets to larger than UK taxation - and thus state size - is through the regressive social security taxation.

We can indeed have a larger state but we can’t demand the rich pay for it. We’d need to near double national insurance - not rates but as a portion of GDP which would mean a more than doubling of rates given exemptions.

And that then becomes the actual question that needs answering. Not ~”would you like a better NHS by taxing those rich people behind the tree over there?” but instead “If you want more government then you, yes you Ms. Voter, are going to have to pay not 25% of your marginal income in combined national insurance but double that.”

At which point we might well find that the decision is to run with the culturally associated slightly smaller state of the Anglosphere rather than the slightly larger of Western Europe. Possibly, maybe, but that is actually the question, isn’t it?

For that massed set of experiences of those other countries does show us that the large state cannot be financed purely by taxing the rich. If it were then someone would be doing it, given the political attractiveness of the idea, wouldn’t they?

Fracking can play an important role in lowering energy costs

When energy costs rise, people feel the hit directly. Not only do their own energy bills go up, but so too does the price of food, electronics, and almost all other goods. People are quick to act in situations like this, as the now outgoing Government of Kazakhstan learnt following large protests over the cost of fuel earlier this week.

In the UK, the Government has tried to mitigate against rising prices through tinkering with the energy price cap (which has only worsened the problem - as predicted in 2017) and extending loans to troubled energy producers. Whilst proposed solutions, such as increasing the Warm Homes Allowance and cutting VAT, may address the problem in the short term, it does nothing to increase overall market supply and resilience. 

This is where hydraulic fracturing (fracking) comes in. This process of extracting oil and natural gas through the use of pumping pressurised fluids deep under the earth could be a source of large amounts of cheap and relatively clean energy. 

Prior to 2019, the Government’s position was extremely favourable. Private companies were encouraged to explore and drill for natural gas and oil in this way, and it was widely acknowledged, even by environmental groups, that gas obtained by fracking was a ‘bridge fuel’ which would allow us to transition away from dirtier coal and towards nuclear and renewable fuel sources.

In the United States, it was fracking that finally allowed the nation to gain energy independence. It has provided the nation with trillions of cubic feet of natural gas and helped lower energy prices for all. This is desperately needed in the United Kingdom where inflation is soaring and energy price hikes are set to cripple households up and down the country.

Fracking is also a lot better for the environment than other forms of fossil fuels which we currently use. Shale gas is significantly better for air quality. Particulate matter (PM) are small particles which when inhaled, can cause cancer and other health complications. Research has shown that natural gas contains a PM2.5 footprint 400 times smaller than coal, and a 4000-fold reduction in sulphur dioxide. Natural gas also produces the least CO2 of any fossil fuel. This is not to say that we shouldn’t aim to move towards cleaner energy sources like nuclear and wind, but that fracking is a quick solution and enables an immediate improvement in air quality.

Sadly, the Government’s approach changed in 2019, when the ‘precautionary principle’ was applied and an immediate moratorium was announced on fracking given the difficulty in ‘accurately predict[ing] the probability of tremors associated with fracking.’

Whilst this may be true to a certain extent, we must assess the trade-off between preventing a small disruption lasting several seconds with the loss of an important and relatively green energy source. Not only are earthquakes from fracking exceedingly rare, when they do occur their impact is small and often unnoticeable. Almost all of these ‘earthquakes’ are in fact microearthquakes, which cannot be felt and score less than 1 on the Richter scale. The impacts that any eventual earthquake would have on surrounding areas could easily be addressed through sensible legislation, say introducing a pigouvian tax on earthquakes over a score of 1 on the Richter scale. Organisations undertaking fracking operations would then have to pay out a fixed sum to each household or community within a given radius. The benefits are two-fold - we could benefit from cleaner and cheaper energy whilst local communities would also see a boost to their economies.

More likely is that opposition to fracking from green activists stems from idealism. There is a nirvana fallacy that just because natural gas still emits some carbon emissions, it should be ruled out entirely. This approach fails to assess the trade offs and unforeseen consequences, which as Kazakhstan shows, are very real. Allowing fracking is a quick and affordable way to address the energy crisis, and a move that the Government should make as fast as possible.

History is a set of mistakes to avoid, not examples of stupidity to repeat

The worst of the varied attempts at electricity deregulation is probably California’s. The mistake made was to allow wholesale rates to move without control, while insisting that retail rates be capped. Worse, retail volumes were not, while prices were capped. This was such foolishness that it drove the once mighty Pacific Gas and Electric into one of its bankruptcies.

Consumers in Britain have so far been spared from a surge in their bills because of the energy price cap, although this has had the side effect of triggering a wave of bankruptcies because suppliers were unable to pass higher costs on.

It’s not a side effect, it’s an inevitable consequence.

There is an argument in favour of having generalists in power. They might have a more rounded view of life than the mere economic technocrats can bring to the procedure of governing. This does though require that geographers, classicists - if we are to pick just two from the list of possible courses of study - regard history as what it really is, a list of mistakes not to repeat. Rather than what we’ve had which seems to be the view that we should repeat the stupidities of others.

Seriously, what did anyone think would happen with a price cap at the retail level and free floating wholesale prices?

Fake it 'till you make it

The Elizabeth Holmes trial - we have no problem with that or the verdict - is leading some to crow about the end of “Fake it ‘till you make it” as a guiding ethos in Silicon Valley. Something we insist is a mistake. For every act of entrepreneurship is exactly that. To a markedly less criminal extent of course, but the entire process of getting something new up off the ground is a wizardry of levitation:

Holmes verdict an indictment of Silicon Valley’s ‘fake it till you make it’ ethos

This does not depend upon whether it is the state planning something or the individual get rich quick merchant flying a kite (kiting cheques is where it might stray over into being illegal).

Consider, say, Concorde. It is possible to build supersonic aircraft but does the world want them? As it turned out the outside environment changed - fuel prices mainly - and the answer was no. Or NHS coding, yes, it would be great to have proper electronic records keeping but can we build it? As it happened no, the state couldn’t, £12 billion was spent producing not one usable line of code.

Or in that private sector, perhaps the world does want smartphones, maybe it doesn’t. One that uncertainty Steve Jobs gambled the entirety of Apple. Possibly the world wants Ford Edsels. Ah, no, it didn’t.

The point being that we always do face uncertainty. We simply do not know whether we can produce, newly, something the world wants. Nor, often enough, whether the the world wants something that can be produced. Every act of entrepreneurship is exactly that levitation of the project, over perhaps reasonable measures of risk, to the answers to one or other, possibly both, of those questions.

There are indeed, as there should be, rules and laws and regulations about how far this process can righteously be taken. But fake it ‘till you make it is the entire foundation of what drives society forward. That trying out of ideas that may or may not fit the joint spaces of what is possible and what is wanted.

That someone very much overstepped the mark here and is to be righteously punished for doing so doesn’t disprove the basic strategy. Every new company is the selling of a dream which may or may not work out.

So Nick Stern was right in his Review - we've got to do it the cheap way

Agreed, this is only polling evidence but still:

Soaring energy bills put Britons off paying higher taxes to save the planet

This is a point that the Stern Review addressed in some detail.

Sixty per cent of Britons say that they are not willing to pay higher taxes on their energy bills to help reach the Government’s net zero targets, according to a poll.

That people dislike paying more is not a surprise to anyone who has paid attention to the behaviour of human beings in the past.

But then this is exactly the point that Stern made. Humans do less of more expensive things, more of cheaper. That’s how we derive those lovely demand curves. So, if we do the fighting the climate change the expensive way then we’ll do less fighting climate change. Simply because people - they being humans with this behaviour trait - will do less of the expensive thing. If, on the other hand, we use the cheap ways of addressing the same problem then we’ll do more addressing, fight and deal with more climate change.

This is precisely and exactly the logical walk through that leads to the recommendation for a carbon tax and allow the market to chew through it rather than some plethora of possibly bright ideas from central state planning. Or, as it’s more usually known, government picking losers.

Economic efficiency matters here that is. The more one worries about climate change the more this is so too. Nick Stern should be dancing around the room repeating the Kingsley Amis suggestion to Robert Conquest. That this clear and obvious truth isn’t at the heart of current policy tells us what’s wrong with current policy.

Boris and his Bureaucrats are Bungling Brexit

The referendum promised that the UK would regain sovereignty but continue to trade with the EU much as before – no duties and frictionless trade across borders.  The consequential Trade and Cooperation Agreement (TCA) was received with much rejoicing. Unfortunately, “cooperation” has not extended to minimising regulation and controls at the EU/UK borders nor to maintaining the EU practice of each country retaining the VAT it collects rather than leaving collection to the country of the ultimate buyer.  The former system is much simpler and the swings pretty much offset the roundabouts. 

These two oversights first showed up with the Northern Ireland Protocol. Mr Johnson was persuaded that the UK/EU border along the traditional Northern/Southern Ireland border (border posts) would infringe the Belfast Agreement. This is, and always was, total nonsense as that Agreement goes nowhere near the topic and moving the border to the Irish Sea neither prevents smuggling across the land border nor sectarian issues.  It has probably made the latter worse.  Some, e.g. Sir Bernard Jenkin and other MPs, claim the Protocol is diverting business from Great Britain to Ireland which would be itself enough to justify triggering Article 16 but it is too soon to be sure. 2020 Northern Ireland exports were flat to both.

UK negotiators were so preoccupied with trade with Ireland, north and south, being duty free, that they failed to recognise that imposing the EU’s regulatory regime on the north would, in effect, colonise it. It seems likely that this was a deliberate plan by the EU, some of whose senior officials made no secret of their view that Northern Ireland was the price the UK would have to pay for Brexit. Given that Mrs May had brought UK regulation into conformity with that of the EU in 2021, the excessive zeal applied to customs controls for regulatory, not duty, reasons smacks of ill-will and certainly not the cooperation outlined in the TCA. Brussels has not denied that goods from Great Britain bound for Northern Ireland suffer 2.5 times the number of customs checks borne by Rotterdam’s imports from all the world.

Boris Johnson was foolish to sign it but he was under pressure to Get Brexit Done and in negotiations of this type, the larger player, the EU in this case, always has the advantage.  The fisheries deal was another example of claimed UK victory which was far from it.  In looking at how the UK government snatched defeat from the jaws of victory, we need to focus on the impositions it freely, i.e. without any negotiating pressure to do so, imposed on its own citizens and businesses, as distinct from negotiations it lost. 

High on this list is the new set of customs regulations coming into effect in 2022, starting on 1st January and phased in with two further tranches at three monthly intervals.  It has been reported that one third of UK importers are unprepared and HMRC IT systems are so “medieval” (scholars may be surprised that there were any IT systems then), they will not be able to cope. For example, the main new Commons Library briefing page helpfully says: “The Brexit checker personalises information on HMRC processes for importing, exporting or customs relief” but if you press on the link you get a page saying it is insecure and you must return to the previous page. “Medieval” is about right. 

More modern is the set of “step by step webinars [which] provide an overview of the new rules and border requirements that will be required from January and then July for moving goods from the [following] EU [countries] to Great Britain”:  Belgium, France, Germany, Italy, the Netherlands, Poland, Portugal and Spain. If you want to import from other countries than those and Ireland, you are on your own. Ireland is not affected by these new rules and regulations which raises the question: if they are not needed for Ireland why are they needed for any other EU country? 

These webinars are all very similar.  I sat through most of the Polish one and doubted whether many business people would last as long as I did.  The civil servants presenting were remarkably pleased with themselves but their slides were low-grade and uninformative. 

I will not detail these new regulatory customs requirements in this blog, suffice it to say that they are complex and burdensome. The government’s “overview” runs to 159 pages of small type. The question is not what they are but why the UK government is imposing them at all, along with the costs and delays, on its own citizens and businesses.  Of course, customs arrangements are necessary for imports from third countries but why those from the EU where we have just concluded a TCA eliminating duties?  As a sovereign state, the UK is under no obligation to introduce any of these rules, so why are we? 

So far as VAT is concerned, the UK and EU could simply return to the far simpler EU system with each country collecting from its own citizens and businesses. The new system is unfair: my grandchildren’s German grandmother had to pay German VAT and then UK VAT on top of that when her Christmas presents clear UK customs (if they ever do). 

The main justification given for this UK customs bureaucracy is the need for verification that the goods originated in the EU; otherwise, duty is payable.  This makes sense until you think about how it got into the EU if it did not originate there.  Duty should have been paid then and it should not have to be paid twice. Importers should declare non-EU originated goods arriving via the EU and spot checks would be needed for suspect items but not a whole, huge paper mountain.  And, by the way, all paperwork (or the electronic equivalent) is required twice: once with the goods and a copy one day in advance, one day, not two, please note.  Then we will be paying for the army of clerks comparing the two. That could be computerised but if HMRC specifies the system, it will take too long and cost too much. 

A watered down version of all this was operating in 2021. HMRC requires importers to use agents to assemble the paperwork and ensure it complies with HMRC requirements, so, in theory, all HMRC has to do is to rubber-stamp them. The trouble with that, as the children’s German grandmother discovered is that the agent’s (who had better be nameless) employees were too stupid to understand the requirement or admit their ignorance.  The Christmas presents posted in November have yet to get to HMRC for clearance.  Maybe they never will but she cannot claim on insurance because, technically, they are not lost. One swallow does not make a summer but I have heard of many similar cases. 

The bottom line is that Brexit is being bungled by the UK’s own bureaucrats.  Maybe it is because they never liked Brexit in the first place but more likely it is because they are petty minded and get satisfaction from creating hoops for citizens and businesses to jump through and penalising them when they fail. If eliminating customs duty and VAT on imports from the EU might be expensive, then HM Treasury should publish their arithmetic for expert review.