Funding services

The funding situation of two services, university education and social care, is plainly not currently in good shape.

A few decades ago, when 5 percent of the age cohort attended university, it was funded out of taxation and was free to the student. Not only that, but maintenance grants, usually paid through local authorities, were available to most students to defray their living expenses, or at least to assist them. Even when the proportion edged up to 10 percent, central funding could just about cope.

It was when the decision was made by successive governments to expand university education towards its current level of 50 percent of the age cohort that people realized that total taxpayer funding was no longer viable. Not only would the burden be more than taxpayers might be willing to shoulder, but there were moral questions raised. Should those not able to benefit from a university education pay higher taxes so that others, who would earn much more over the course of their lifetimes in consequence, be given a free ride to those higher incomes at the expense of those less fortunate?

The obvious system of funding would be to have those who would gain the most from university education pay for it later out of their expected higher incomes. The system of student loans operated on the system that those who gained that future advantage would fund themselves from their future earnings.

Most students, of course, want it to be “free,” meaning that someone other than themselves would pay it. Most people would probably prefer to live at someone else’s expense if they could. Indeed, many students do end up doing that, since the default rate on student loans is roughly 50 percent. This is not surprising in that many leave university with indebtedness of about £48,000, a sum that rises each year with interest rates for average earners at the inflation rate plus 3 percent.

The Australian system seems to operate better in practice. A student entering into university education incurs an obligation to repay the cost of it when they start earning enough money. A sliding scale determines the rate of repayment, dependent on income, and the interest is the rate of inflation, meaning zero in real terms. This perhaps helps to explain why the Australian default rate on repayment is about 15 percent, very much lower than in the UK, and why Australians on average pay off their indebtedness much earlier. If the UK made its loans interest free in real terms, it could probably finance that out of a lower default rate.

For social care it is the other way round. On average 10 percent will need social care for an average of 2 years. Most would like this to be “free” on the NHS, meaning that someone other than themselves would pay, but in practice the best person to pay is themselves when younger, just as students pay for themselves when older. Many do this by paying out of the assets they built up when younger, including their homes.

Rising resentment at this has led government to put a cap on the assets a person might have to draw upon to fund their care, and now the general taxpayer is going to be burdened with a 1.25 percent increase in National Insurance as a Social Care levy. This will have adverse economic effects, as well as involving the relatively low paid being required to pay to protect the assets of the comparatively rich.

The statistics suggest that the risk of requiring social care is eminently insurable. What deters the insurance companies is the prospect that some cases might require decades of funding, but government could step in with a limit after which it would step in to cover any remaining years. Given this, compulsory insurance, such as we require for motorists, becomes a viable option.

Monies paid in taxes to the government or in premiums to insurance companies are lost to those who never need to draw on social care. Some countries practice an alternative. They require people to pay into funds to cover this possibility, with the difference that the fund is the property of its contributor, and if not used can be passed on to heirs and successors. Forced saving of this kind is more attractive to the citizen than taxation or insurance because it remains their property and does not die with them. Moreover, the funds would be invested by fund managers and would constitute an added investment pool to boost the economy.

The funding of higher education and social care could be put on a firmer basis if we abolished interest on student loans, funding this from a much-reduced default rate, and if we also required people to build up funds that could cover the costs of any social care they might need later in life.

It would mean that those receiving these services and benefitting from them would themselves be paying for them when able to do so. It would also end the notion that these should be ‘free’ for the recipient, meaning paid for by somebody else.

Time for a Bold Initiative

Cabinet Room 

“I’m reminded, Humphrey, of Gulliver’s travels where the great man was dragged down by the Lilliputians. They were preoccupied by trivia, the cost of living and eleven thousand died because they refused to open their breakfast eggs at the bigger end. Look at us now, Putin may be creating WWIII and yet Parliament is besotted by drinks in my back garden and bullying MPs. At least Cabinet Ministers were practising their shooting as WWI emerged, albeit at grouse.” 

“Are you suggesting, Prime Minister, that you should re-focus public attention on bigger issues, perhaps it is time for a bold initiative?” 

“It certainly is, Humphrey. We have a lot to learn from Comrade Vladimir Vladimirovitch Putin. Whenever he is in trouble at home, he rattles his sabres.” 

“Unfortunately, Prime Minister our sabres are not what they were. Not many countries are impressed by them. The French think our gunboats are a joke, the Russians think our submarines are there to help them find their way around the Atlantic and the Chinese think our new aircraft carrier is just the thing for target practice as they cannot be sure of hitting anything smaller.” 

“All true, Humphrey, but it’s a matter of scale. Comrade Putin reduced the size of the Ukraine by picking off the Crimea and neutralising the eastern bit. It’s now bite sized and he can credibly absorb it. Greater Russia, that’s the game and NATO has provided a rationale for any action he may choose to take. He’s provided the blueprint: We’ve done Brexit, for a Greater UK.” 

“You would need better justification than Mr Putin’s. The Ukraine only said they might join NATO. It’s hypothetical.” 

“In geo-politics, that’s excuse enough. I’m thinking that adding Norway would make Great Britain an even Greater Britain.” 

“Norway?” 

“Russia has a 196 kilometre border with Norway, not counting the 23 kilometre marine border. He may well, after he’s knocked off Ukraine, regard Norway as a serious threat. It is the only NATO country that borders Russia so it must be on his list. I think we should take it over now ourselves. He might invade Norway as it is but once it becomes part of Greater Britain, he wouldn’t dream of it.” 

“Prime Minister, I’m sorry to nit-pick but Estonia and Latvia border Russia proper. Lithuania  and Poland only border Russia’s exclave of Kaliningrad Oblast which is nowhere near the rest of Russia – an issue that will not have escaped Mr Putin, Anyway, doesn’t the NATO treaty prohibit attacking other NATO members.” 

“In the first place, Humphrey, we would not be attacking Norway, just providing protection. Secondly, the treaty requires members to support each other if attacked by non-NATO-members but says nothing about one NATO member coming under the protection of another. We would simply be acting to ‘maintain the security of the North Atlantic area.’ (Article 5)”

“That would certainly be a bold initiative, Prime Minister, and without question you would recapture the media headlines. The Russians, we are told, have Mr Yevhen Murayev lined up to be Ukraine’s President when they take over. Do you have anyone in mind?” 

“Yes. Jacob Rees-Mogg and his extensive family should fit Norway well and I’d consider Oslo an acceptable distance for him.” 

“Do I detect a commercial interest here too?”  

“You certainly do, Humphrey. Previous governments cocked up our supplies of oil and gas. We used to be self-sufficient. Back in 2003, we supplied ourselves with nearly four times as much gas as we do now. Then governments got all excited about global warming, carbon neutrality and all that and discouraged digging for the stuff. Guess what happened? Global shortage, prices rocket up and our poor benighted citizens have to choose between heating and eating. Nothing to do with us, of course, it’s global markets.” 

“I can see where you are going, Prime Minister. Norway has masses of energy, notably oil and natural gas, and not many people. It is our main supplier now at horrendous cost to our economy, not to mention widening the poverty gap.” 

“You’ve got it, Humphrey. We used to be all one country, more or less: Vikings all over the north and the Orkneys and Shetlands were part of Norway. And we are not just talking energy. The North Sea fishing would virtually become all ours. The EU wouldn’t want to take us both on. The Republic of Ireland might even want to join and that would take care of the Northern Ireland Protocol problem.” 

“That’s brilliant, Prime Minister. One bold initiative and the next election is all yours.” 

This inability to understand markets is remarkable

So, remark we will.

Welcome to the fast-growing world of “build to rent”, an asset class that is shaking up the housing market, luring renters with the promise of more professional management than individual private landlords, and sucking in a flood of money, from banks, pension funds and even retailer John Lewis. Tempted by the prospect of stable returns, these blocks are developed, owned and operated by large companies with deep pockets.

Yet there is growing unease over the boom in this new class of rental property, with concern that the poorest in society will be priced out.

Sigh, every new dwelling created lowers the price that can be charged for every other dwelling in the country. This is how supply and demand works.

Assume, for a moment, that there are 25 million households looking for somewhere to be a household in. A reasonable assumption as that is about the right number. If we have 24 million dwellings inside which it is possible to be a household then prices will rise until 1 million decide to remain in their mother’s basement. If we have 26 million places then prices will fall as there will be empty dwellings and so prices are competitively cut by landlords who wish to fill theirs and damn every other landlord trying to do the same.

This is just how these markets things work. Yea, even with housing. Putting up some £10 million a flat development in Hyde Park still increases the number of potential dwellings in the country by 1 or more. So, the price chargeable on every other dwelling in the country falls by that infinitesimal amount.

If the desire is to reduce the cost of dwellings then the answer is, as the Americans say, to flood the zone. Just build more of absolutely anything, under any terms of tenure or in any price range. More dwellings to be a household in will reduce the cost of a dwelling in which to be a household.

This isn’t difficult, it’s explained on the first two pages of every economics 101 textbook in the world. Want housing to be cheaper? Increase the supply.

As to how to do that as we’ve suggested before the most obvious act would be to blow up the Town and Country Planning Act 1947 and successors. Proper boom, kablooie, blow up. Leave people to build whatever, wherever, and housing prices will fall.

Very serious people do indeed say that it’s just not that easy. But then that’s because they’re not being serious about reducing the price of housing. They’ve other issues at the forefront of their thoughts, other things they’re being serious about. Silly issues like “concreting over the country” when housing is only 2% of it at present. “Protecting the green belt” which is code for we’ve got our country views and you can’t have yours. "Even “planning” itself which is the insistence that the haute bourgeoisie know where the proles should live, in what and how.

Making housing cheaper is simple. It’s just that none of the people currently in control of the housing system actually want to make housing cheaper. Remove the restrictions on building housing and it will, inevitably and provably, become cheaper.

We are always amused by claims of lower resource use by reuse

We’re fine with the idea that we might all walk more lightly upon this Earth. Why not, after all it’s only the claim that we should be more efficient in our behaviour. But we do see some amusing, to us at least, claims in this area.

Take this Guardian story about making chef’s knives out of those little nitrous oxide party popper (although we’re all supposed to agree they’re for whipped cream only) steel capsules. Hand worked by a master craftsman that mild steel is turned into those very knives. Well, OK, but is it actually saving resources through that reuse?

One method of working this out is to look at the price. Prices are, as Hayek pointed out, information and the price will - by and large even if not wholly, exactly - be a record of the resources used in producing the item.

These hand crafted from those party popper knives seem to run at £240 a piece and up. A quick Amazon shows that the same style and size of chef’s knife, newly made from furnace steel, is £23, or a little under a tenth the price. Working purely by price we’d rather assume that the hand crafted item uses more resources than the industrial and machine made one.

We’d also be right in this assumption even if the proportions might not be wholly correct. For that hand made item is using vastly more human labour than the machine one. Human labour is a resource, it is also something that we might want to be efficient in our use of.

Running this the other way around there are economies of scale in manufacturing. Those popper capsules can indeed be stuck into a steel furnace, empties can be sold to steel scrappies for £100 a tonne perhaps. US prices might differ a little.

OK, so what is this telling us? Sure, run those poppers through the system again. They can’t be refilled for contamination reasons (not that that would worry the party goers but imagine some were in fact used for cream by some mischance) which only leaves us with how to run them through the system again?

Hand crafting knives out of them looks hugely more resource using than sticking them back into a furnace and allowing the machine to make knives out of the reprocessed, not reused, steel.

This is not, of course, a claim that one should not buy the reused knives. Whatever floats your boat, we are after all liberals around here. But the claim that this uses fewer resources than industrial capitalism simply isn’t true. Largely because that capitalism is obsessed with profits, those being a product of being efficient in the use of resources.

Or as we can and should put it, the environmental joy of the capitalist and market system is that it is continually demanding the cheapest and least resource using methods of reusing, recycling, any and every possible input into the system.

Just to be completist, it is also possible to reduce resource use considerably here, sell big tanks of nitrous and packets of party balloons - something currently illegal. But then that would be breaking that fourth wall of the general agreement that this is all about whipped cream, wouldn’t it?

Updating the woke M&Ms

M&Ms cartoon characters are being updated to “commit to gender-balanced leadership teams and an independent 'annual diversity audit' of the company's advertising.” However, their attempt to have their characters reflective of the modern assertive and diverse world will undoubtedly be criticized by some for failing to accord with the woke world as it actually is.

Surely there should be one holding duct tape to silence the unacceptable views of characters it disagrees with? And a no-platforming M&M should be equipped with a small saw to cut platform shoes down to size. Other characters should have ropes and sledgehammers to cut down statues of M&Ms associated with the cocoa and chocolate trade that was the product of colonialism.

And no set of candies would be complete without one eagerly holding out an empty sack for taxpayers to supply them with free goodies. Critics will say M&M have at least made a start, but must go much further.

The solution to free speech is free speech

As with high prices being the solution to high prices, the solution to free speech is that very free speech:

Covid conspiracy theories should not be removed from social media sites as it only serves to drive the conversations into dark, unregulated corners of the web, experts have said.

A landmark report from the Royal Society stated that governments and online platforms should instead focus on investing in fact-checking and improving digital literacy.

Frank Kelly, emeritus professor of the mathematics of systems at the University of Cambridge, and one of the co-authors of the report, said: “Our report does not recommend removing misinformation.

“We found little evidence that forcing major platforms to remove offending content will limit scientific misinformation’s harms, and could even drive it into harder-to-address corners of the internet and exacerbate feelings of distrust in the authorities.”

The report looked specifically at harmful but legal misinformation, which can dupe people into believing falsehoods, but are not inherently dangerous in the same way as hate speech, threats or terrorist content.

We would go rather further too. Subject to only two restrictions you may say what you wish - libel, and probably a rather tighter definition than English law provides, plus incitement to immediate violence. After those two you have the right to say what you wish and the consequent duty to suffer the consequences of having said it. Societal reaction rather than legal is the solution, free speech being that answer to free speech.

After all, history does show us that an alarmingly large number of humanity’s most ghastly mistakes have been immediately preceded by the awarding to some clerisy of a monopoly over answering that “What is Truth?” question.

We agree that this puts us somewhat out of kilter with much of fashionable society, this fundamentalism on this basic civil liberty, but then there are times when we look around and wonder whether we’re the only actual liberals remaining.

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?