China's lesson concerning capitalists and free markets

All too many admire, to an extent, that Chinese authoritarianism when it comes to the operation of the economy. The actual truth being that, at one level, it’s possibly the most free market economy in the world.

From personal experience, just as an example, one Chinese company was able to think through, plan, build and bring into operation a minerals extraction plant in the time it would take to do the environmental paperwork here in Europe. China does have at least that part of a truly free market (along with some of the pollution that results, to be fair) - freedom of entry into markets.

China has also been notably lax on certain things that constrain such competition, patents, copyright and so on. We’re not suggesting that we should all copy that Chinese structure, not in the slightest. We do though want to point to one of the effects of it:

The long term picture scarcely looks any better. Over the past 30 years, Chinese stock markets as measured by the MSCI China Index have delivered a paltry 1.76pc annualised rate of return, compared to 7.47pc for emerging markets as a whole and 10.72pc for the US S&P 500.

Yet, China’s GDP has expanded by more than 30 times during that period, much more than any other emerging market and way, way ahead of the US.

It cannot be stated often enough that the stock market is not the economy, especially when it comes to China, where investing in stocks and shares is essentially just a form of high stakes gambling.

Wildly - viciously even - free markets aren’t a great place to be a capitalist but they’re excellent at driving up the living standards of the populace. A point that is worth considering in the policy structure surrounding our own economic lives. It is that market competition which restrains the money making ability of the capitalists. So, if you’re worried about the capitalists having too much then the policy indication is to have more competition.

Make market entry easier by removing some to much of the regulatory burden of market entry. It makes money collection by the capitalists more difficult while also driving up the living standards of the populace. What’s not to like about it?

You first Matey, you first

It’s possible to get all technical here about this demand from the Patriotic Millionaires. Wealth taxes are a bad idea, they’ve higher deadweight costs than other manners of raising revenue and so on. Possibly mutter something about how tax isn’t quite the way to reduce poverty, market activity is. We can also be simply practical:

More than 100 members of the global super-rich called on Wednesday for governments around the world to “tax us now” to help pay for the pandemic response and tackle the gulf between rich and poor.

As their open letter goes on:

As millionaires, we know that the current tax system is not fair. Most of us can say that, while the world has gone through an immense amount of suffering in the last two years, we have actually seen our wealth rise during the pandemic - yet few if any of us can honestly say that we pay our fair share in taxes.

There’s a simple solution to that. This despite the manner in which “fair” is a personal decision. As we noted in another place some 16 years back:

Cheques, by the way, should be made out to “The Accountant, HM Treasury”, and sent to 1 Horse Guards Road, London SW1A 2HQ. A 2nd-class stamp is sufficient and you are encouraged to add a covering note so that your donation is spent in the way you like.

If this commitment to more tax means that Americans should be doing this in America - but how could such big hearted people be as nationalist as all that? - then use this:

Gifts to the United States, U.S. Department of the Treasury, Reporting and Analysis Branch 2, P.O. Box 1328 Parkersburg, WV 26106-1328

At which point of course they can then leave everyone else alone. For note what their argument is again. “We” should pay more tax, tax “us”. The group making the insistence is of course that of the people making the insistence, not all of those who share one or more characteristics with them. They can only speak for themselves that is. As they can indeed pay more tax whenever they like we don’t need to change the system to accommodate their desires. They send off a cheque and the argument is over.

It does though give us an interesting test of their commitment. If they really do think that they, they as individuals, should pay more tax then they will have done so already. Even, be able to support their insistences by brandishing their thank you letter.

The thing is we very seriously doubt that they have in fact parted with money, done more than this virtue signalling of signing a round robin letter. Last time we checked that Gifts to the US account was getting $4 million or so a year and the UK Treasury enjoyed extra cash from an entire 5 people that year - and four of those were dead, leaving legacies.

Much economics is obvious, obviousness dressed up in formal language. Here the jargon is that there’s a difference between expressed preferences and revealed such. Or as the same point is made in more normal language, all mouth and no trousers.

Ourselves we don’t believe a word of what these Mateys are saying. Not until they prove to us all that they have indeed gone first, as it is simple and easy for them to do.

Non-Conservative

Although a government is in office that is formed from the Conservative Party, some commentators have complained that it is by no means a Conservative government. They point to ‘typical’ Conservative policies featuring low taxes, smaller government, and a greater area of both responsibility and opportunity for individuals and families, and they point out that this is not what the current government is doing.

Instead, they say, it is implementing policies that oppose, rather than support the classically Conservative agenda. They suggest it is in the thrall of lobby groups whose agendas run counter to the best interests of the Party and country as a whole. In support of the green lobby, the government’s Net Zero platform involves increased taxes, larger, more intrusive, government, and diminished chances for people to make their own decisions. It is also making their lives more expensive. A corollary to this is that the opportunities open to people are also reduced.

Critics single out the public health lobby as another group with an agenda that opposes those ‘typical’ Conservative policies, and suggest that the civil service of the Department of Health is determined to implement that agenda. They allege that ordinary people find themselves under daily attack by a government that is bent on implementing controls on what they eat and drink, how much they eat and drink, and whether or not they choose to consume tobacco or nicotine products. This agenda is being advanced by imposts and prohibitions, all in the name of the general health of the populace, but achievable in practice only by controlling in minute detail the everyday lifestyles of that populace. This is not what Conservative governments are supposed to do.

The government is certainly not conservative with a small “c,” preferring to keep things as they are, and move forward cautiously and perhaps reluctantly. This describes a character trait shared by few who enter the political arena. But, more tellingly, the government is not Conservative with a capital “C,” representing the political tradition that wants change to be natural, organic and spontaneous, instead of being imposed to fulfil a preconceived plan. Conservatives of the political tradition want change that results from the cumulative decisions of those who make up society, and they point to the current government as one that imposes change in order to move society in a direction that Westminster’s planners want, rather than one that ordinary people want.

Margaret Thatcher was firmly in the political tradition of Conservatism, in that she restored much of the spontaneity of society that had been lost to decades of central planning and socialist policies of state control. She also supported lower taxes, a less intrusive government, and an expansion of opportunity. The present government, however, does none of those things. The one exception to this has been that they achieved Brexit against a hostile establishment determined to override the choice made by the people of the UK. Had the success of Brexit been used to promote those ‘typical’ Conservative policies once free to do so, the critics might have applauded them. But to replace a foreign master by a domestic one does not diminish the burden or the degree of control.

The question of whether this government is a good one or a bad one will be determined by the electorate in due course, although the answer is looking more obvious each day. The question of whether this government is a Conservative one is already obvious, however. It is not.

We don't doubt this could be true, it's not important though

We’re not vouching for the truth of this but that it could be true is obvious enough:

The climate crisis will wipe at least 1% a year off the UK’s economy by 2045 if global temperatures are allowed to rise by 2C, the government has said.

It’s also not important even if it is true.

Or, to be entirely accurate, even if it is true it’s by no means the end of the matter. A change in the surrounding environment will reduce GDP. Seems a fair enough claim.

But what is the cost to GDP of not changing the surrounding environment? It is the balance of those two which determines what GDP will be as a result of climate change.

Of course, it’s entirely possible - wrong, but possible - to insist that we shouldn't consider GDP at all when deciding whether to ravage nature or not. But if that’s so then losing 1% of GDP isn’t a problem either.

All of the standard models of the economy used in climate change research assume, at the start, that the global economy will grow, from 1990 to 2100, by between 5 and 11 times as measured by GDP. That’s 500% to 1,100%. The difference between the extremes of those assumptions is that the higher growth comes from a globalised, largely capitalist and free market economy. The lower growth from a regionalised, more heavily regulated and, perhaps extreme, social democratic one. In the parlance of the SRES models, the difference between the A1 and B2 families of scenarios.

As it happens, the A1 with renewables (what is called A1T) produces that wondrous increase in wealth, the abolition globally of absolute poverty and also less climate change and emissions than that B2, a very much poorer future world.

It should be obvious that the difference between 500 and 1,100 is larger than 1%. Which is where the real calculations about the effects of climate change on and about GDP should be concentrated. Our very models which tell us that climate change is something we might want to turn our attention to also tell us what should be our underlying approach to matters economic as a whole. If we’re going to believe the models about climate change then we should also believe them about those matters economic as a whole.

So, globalised free market capitalism it is then and we continue the work on renewables alongside it. That way we get the richest projected future plus also deal with climate change - for yes, A1T does in fact deal with it.

This is also what we can call the no regrets policy. Even if climate change turns out to be a chimera we’ve still produced that as rich as possible world to leave to our descendants. So, why wouldn't we do this?

Fischer–Tropsch

Not that we are making a prediction here, just pencil sketching in a possible route to viability. Andrew Orlowski points out that electric ‘planes, even hydrogen ‘planes, might not really work:

Hydrogen can’t power the green flight revolution

Aviation is an unforgiving battleground – review the physics and reality bites very quickly

We’re willing to agree for the point of argument. But only up to the point that the suggestion is that the hydrogen go up with the ‘plane.

Imagine that we do get to cheap, green, hydrogen. No, just imagine. If solar gets cheap enough then this will indeed be possible. Really cheap electricity from solar power, electrolyse water and there we are, cheap, green, hydrogen. What then?

Fischer–Tropsch

We know how to do this. If we’ve hydrogen - and we know there’s no great shortage of CO or CO2 around, that’s rather our problem - then we can make complex hydrocarbons. Like, say, aviation or jet fuel. At which point we can use the entire global installed base of ‘planes and technology.

You’re right, this isn’t terribly efficient as a pathway but if that solar power at the start of it is cheap enough then it does all work. We have seen estimates (pretty sketchy ones to be fair) indicating that if that solar panel derived electricity is 2 to 4 cents per kWh then the resultant jet fuel is price competitive with the more traditionally derived fossil oil stuff. We’ve also seen talk that certain bids in Abu Dhabi for solar installation have prices of 1.8 cents per kWh.

We don’t guarantee those numbers but they’re usefully indicative we feel.

This would make the future of air travel very like the present of air travel. Which we think would be nice for folk do seem to like their air travel. The only people who would be unhappy about this are those using climate change as an excuse to stop the proletarians enjoying that mobility which is properly the preserve of the antinomian classes. And of course there are just none of those around at all, are there?

Government doing the wrong things

It says much about a government when the list of things it has done wrong far exceeds the list of things it has done right. It is a consolation, albeit a small one, that it could have done even more things wrong but did not. A government composed of the other parties would certainly have done more wrong things, given what they have urged, but “least bad” is by no means the equivalent of “good.”

It has been particularly disappointing because in December 2019, when they were elected, this government came in with the high hopes of the nation that they would set things to rights after the zombie Parliament of 2017-19. It was particularly encouraging that the new Parliament was mostly devoid of the worthless contingent that had disfigured its predecessor. Those high hopes were soon dashed.

By continuing with HS2 they were committing vast and unquantified resources to a white elephant project. For many travellers, time spent on trains is not time wasted because they can work, so the small saving in travel times that HS2 might achieve becomes even less worthwhile than it was, and in no way justifies the vast costs involved. For a small part of such sums, commuting into Northern towns could have been made faster and easier.

By proceeding with HMRC’s IR35, government supported the Treasury’s hostility to the self-employed, and its determination to push as many of them as possible into PAYE rather than self-employment. Yet self-employment offers the flexibility the future UK economy will need. IR35 is one reason why so many self-employed truck drivers left the profession and created a shortage.

The “Online Safety Bill” being driven forward is an attempt to censor the internet, and will open the gates to restrictions on the free expression of ideas. Social media companies will be forced to crowd out virtual public spaces, making a public discourse ever more woke and radical.

The continuation of the absurd energy price cap that fixed retail prices has led to the bankruptcy of many suppliers unable to cope with wholesale price rises. And the abandonment of fracking has combined with it to create a totally unnecessary energy shortage combined with higher energy costs for both householders and industry.

Elsewhere the government has kowtowed to the extremist Green Lobby with its “net zero carbon” target imposed instead of a more phased withdrawal from fossil fuels. It has failed to prioritize nuclear as a carbon friendly power source. The requirement to replace gas boilers with heat pumps will impose a costly and less effective new technology on households and bump up their bills yet more.

It is all indicative of a failure to perform cost-benefit analysis, and calculate the costs of doing what are promoted as desirable things. This is especially true of its climate policies. A sensible government would assess the trade-offs and only proceed with those whose benefits outweighed the associated costs. In raising taxes, including National Insurance, the government has lost sight of the Laffer Curve, and failed to appreciate how higher taxes will impact upon economic expansion and job creation.

The government’s commitment to a “high skilled, high wage” economy is partly behind its restriction of low-skilled immigration, leading to massive labour shortages in certain industries, and chaos in others. The phrase is an intellectual supposition rather than an observation of the real world. Such evidence as there is points the other way, and suggests that immigration can increase economic growth and raise productivity with it.

The commitment to have more homes built for young people in places where they want to live has foundered in the face of a lobby that is comfortably off and wants to keep things as they are. The planning reforms have been diluted to the point of abandonment, so the chronic housing shortage will not be solved. One day a bold government will repeal the 1947 Town and Country Planning Act that strangles our towns and cities, but it will not be this one.

Government does not have a clearly defined drug policy. Trafficking, especially involving children, is rife, yet the talk is of going after middle class users of recreational drugs. This is a wrong policy, putting more people into conflict with the law and the police, whereas a right policy would look at what Canada and several US states have done, and learn how to legalize recreational drugs under controlled conditions to deprive the drug gangs of a market and to assure quality and safety.

The vaccines were done well, but there have also been wrong policies aplenty in the handling of the coronavirus pandemic. There was the failure to protect care homes by discharging patients from hospitals too early. There was the PPE procurement scandal, the chaos of the GCSE and A-Level exams of 2020 and 2021, the uncertainty of the travel ‘red’ list that left some people stranded abroad, and innumerable pointless restrictions imposed without evidence that they would make any difference. No-one counted the costs to industry, to jobs, to mental health, or to delayed essential treatment. It gave the impression of a government held in thrall by ‘worst case scientists,’ and not giving consideration to the public good.

Finally one cannot help noticing the somewhat cavalier attitude to following rules about procurement and payments, and about government keeping to the restrictions it had imposed on others. This has been a government addicted to doing wrong things. There is still time for it to make good by doing right things and reversing the wrong ones, but not much time. And it might take another government.

It is to giggle at the plans of bureaucrats and planners

We’re not holding out the Mail On Sunday as wholly and entirely accurate readers of the complexities of the insurance markets but:

New rules requiring insurance companies to stop discriminating against loyal policyholders have unleashed a wave of industry-wide price increases, The Mail on Sunday can reveal.

Customers are being hit by inflation-busting 20 per cent-plus premium hikes on home and motor policies renewing this month. The dramatic increases make a mockery of boasts made by the City watchdog that its rules would save loyal customers more than £4billion in premiums over the next ten years.

Evidence collected by the MoS shows the price hikes are being imposed on those who have a longstanding policy with their insurer – the very people that the regulator says its rules are designed to protect. The Financial Conduct Authority had said the so-called loyalty penalty – where longstanding insurance customers are charged more than new ones – would be banned on January 1.

We can certainly imagine this as being the actual outcome. Ban cut price offers to new customers on the grounds of that being unfair to old ones and the effect is prices to old customers rise.

It’s easy enough to sketch out how this might happen. Assume that companies are profit maximising - not the normative claim that shareholder primacy should be true, but the positive one that by and large it is - and add in that we all satisfact. Sure, we can and do model that we all rigorously maximise our utility, that we’re rational calculating machines that will do anything for a quid.

Except that rationality, calculating and utility should also include that many things are a faff to do. So, we need to see clear benefits before doing something like changing the car insurance (and perhaps moving from AA to RAC cover, having to change the emergency number of the phone and whatever else, even if comparison shopping is pretty easy).

The way that insurance companies did get people to switch was to offer those bargain rates for the first year, two. OK, those are now not allowed. What’s next? Well, apparently, given the lightening of the pressure to not raise rates as folk might switch, the insurance companies see that they can raise rates on their current customer base.

That is, competition didn’t used to be just about the effect on new contract rates. Removing that competition on new contract rates alleviated some of the competition on old contract rates - it was less likely that people would be offered a price differently large enough to overcome the faff of changing insurers.

Those discount bargains on new contracts served as a limitation on how much the profit maximising insurance companies could gouge the extant customer base.

So, the regulators ban the discounts to new customers in order to lower price to old. The effect is to increase prices to old consumers by removing some of the competition. Well done there, vry well done those men.

As we say, we’d not take an MoS article as being absolute proof that this is what is actually happening out there, nor that even if it is that this will be the final and stable outcome. But we certainly think that it’s a possible one.

At which point, isn’t it so glorious that we have such bureaucrats and regulators to make life better for us? For it clearly is a better world where insurance companies make more profit from us. Well, we assume that’s what the regulator was thinking, the idea that they might have messed things up just doesn't bear thinking about, does it?

A little point about the costs of renewables

The International Energy Authority says that the solution to not having enough power from renewables is to build more renewables:

Electricity prices and carbon emissions will keep rising unless more money is invested in renewables, the International Energy Agency has warned.

Well, yes, although we’re not sure how having more windmills produces more electricity when there’s still no wind.

However, snark aside, there is an important point here. One solution to the intermittency problem is said to be deliberately overbuilding. Say, sometimes solar only produces one third of rated power. Cloudy days say, or short winter daylight hours. So, overbuild by a factor of three.

We have seen this seriously suggested.

But here’s the problem. Rather the point of renewables is that near the entire cost is in the capital, construction. Once built the energy comes - near enough - for free. So, building 3x the renewables capacity means that the system costs 3x.

So, imagine that solar power costs £50 MWh just to use some number or other. That’s the cost of electricity from one set of panels. But if our system, in order to deal with cloudy days, requires 3x capacity then actually the cost is £150 MWh. No, we can’t use just the cost of the electricity we actually use at peak performance because all of the cost is in the building out of the system itself. Therefore all electricity from the system as a whole has to be priced at the cost of the system as a whole.

Marginal cost isn’t something that really works with a renewables system that is because there aren’t, to a useful level of accuracy, marginal costs as they’re all fixed. In this it is very like nuclear - once you’ve built and fed the reactor that’s pretty much all of the costs involved, actually operating the thing costs next to nothing.

Now of course benevolent and omniscient planners would have already incorporated this into all discussions of the system. Our problem here is that we just don’t feel lucky, today or any other day, about the omniscience nor even benevolence of those planning the energy system. Our proof being that if either were even vaguely true then we’d not be right where we are, would we?

The British Museum and NFTs - exactly why we use markets

We do understand, it is the job of the newspaper columnist to suck teeth over the way society is going. And yet there’s a significant point to be made about the British Museum and their issuance of NFTs:

The British Museum should think again on NFTs

We agree entirely, they - or it - should.

Institutions could come to regret joining the rush to cash in on collections by issuing digital art tokens

We think that entirely possible.

Leaving that debate aside, the two most likely outcomes are that NFTs soar in value, in which case those that sell them may face accusations having offloaded them on the cheap, or they crash in value, in which case sellers may face accusations for duping buyers. I will leave others to decide which of these two eventualities is more likely.

We’d not agree that those are the most likely outcomes and certainly not that they are the only likely two. But the essence of our point is in the word “likely”.

We all face uncertainty here. We cannot even calculate probabilities, we simply do not know. This is something new that might become a common feature of the future society - like the automobile - or some forgotten byway as with the Pet Rock. Shrug, absolutely no one has a clue.

Which is why we use markets of course. Changing tastes mean that what people wish done, umm, changes. Changing technology means that what can be done similarly changes. The societal task is to sort through those two sets of changes and see where they can meet. Among the things we can now newly do what is it that folk want done?

The entire point of the system is that anyone gets to do anything possible and then we see how it turns out. Most of the time it is Pet Rocks but sometimes it is that car, or new fangled permanent dyes from coal tar, or aspirin, or….or, well, all the things that make up our civilisation. They all did start with some nutter running wet down the street shouting Eureka!

Which is why we allow, encourage, even applaud, the attempts. Because we face uncertainty and can only find out by doing. The time for the rethink is after the having done and the collapse of that uncertainty down to “Ah, so, that’s what happens then”.

This is the entire and whole point of the use of markets in the face of changing technology - to find out what does and does not work.

I Spy With My Red Eye

With recent news of espionage in the heart of Her Majesty’s Most Loyal Opposition, we have a responsibility to bring the public to further attention of communist malfeasance in politics. Barry Gardiner’s willingness to accept Beijing bucks and take the Chinese Communist Party’s line from Hong Kong to climate change, should bring goosebumps to anyone proud of the West’s liberal institutions, respect for democracy, and protection of human rights. 

The Chinese spy, Mrs Christine Lee, used charm, intelligence, and finances to leverage influence with a self-avowed “democratic socialist” until she was eventually outed as an agent of the United Front Work Department. This wing of the Chinese Party, and therefore of the Chinese State, operates a complex network of financially-backed agents to actively undermine Western institutions. Without a firm and aware stance from liberal institutions, our superior system of governance will soon be shunted aside - all due to fifth column manipulation from within.

Communist spying and manipulation is not just confined to today’s Labour Party. Giles Udy’s Labour And The Gulag: Russia and the Seduction of the British Left examines how the British Labour Party responded to the endemic genocide and terror regime of the USSR; frighteningly, he discovered that figures within the British left actively defended this horrifying system in the face of the more peaceable liberal democracies which sheltered them. Sound familiar? 

Liberal internationalism is having a reckoning against the many-armed octopus of Beijing. In Australia, the Labor Home Affairs spokeswoman, Senator Kristina Keneally, proudly boasted of meetings with anti-Taiwanese agents of the United Front. Meanwhile, universities across the US, UK, and EU are awash with Chinese money through Confucius Institutes; academic free speech is curtailed and research bends from autonomy to instruction. During the early pandemic, United Front agents based in embassies around the world mobilised to deprive their host countries of PPE and Covid-supplies by exporting them to China, before Beijing leaked the news of an embryonic but devastatingly growing pandemic. 

How can liberalism stand its ground against this malevolent force? Liz Truss’ leadership of the Foreign Office is an encouraging development. Truss has argued that the West, not just Britain, needs to stand firmly against Beijing. Aware of Communist espionage and threats in Europe, she has agreed security partnerships with a specifically anti-China bulwark across the world, including the Five Eyes security network.

Our own institutions require greater strengthening against bullying and espionage. Universities should take a more robust stance in response to pressure from Chinese authorities; the LSE received abuse from the Chinese state (and students on campus) after unveiling a work of art that displayed Taiwan as an independent country. Anti-Beijing students have also been harassed on campus by Workers Front agents across the Western World, which should prompt universities to further stand with democratic values against the dictatorial communist threat which is increasingly present in universities. 

The Chinese espionage state should be actively confronted and curtailed across our institutions. Gone are the days of a Golden Age between liberal democracies and Chinese authoritarianism; a Muscular Liberalism is required, confronting anti-democratic and anti-Western values wherever they are present in our world.

Barry Gardiner’s disappointing receipt of Chinese manipulation will not be the end of the effrontery by Communist state action against the free world. Our liberal institutions must provide support to one another in order for the successful liberal world-order to survive a new era of skullduggery and cloak-and-dagger international affairs. Without such strength against a genocidal, imperialistic, and belligerent power, liberals can begin to write the epitaphs of our most successful civilisation yet.