That Modern Monetary Theory doesn't seem to work so well

These past few years have been an interesting test of Modern Monetary Theory. Don’t worry about the balance between tax and government spending. After all, the actual real spending is financed by simply printing money anyway, tax is that balancing item that comes later. So, why bother with the pretence, just keep printing and spending as much as pleasures politicians’ hearts to fill societal need.

UK households face biggest fall in living standards since 1950s, say experts

Ah, that doesn’t work out so well then.

There being those three reasons why it doesn’t work. One is that the quantity of money does in fact matter. Inflation will come and bite upon the fundament.

The second is that more government spending is not just more money floating around. It’s more direction of more of life by those who are good at kissing babies. Being able to get elected is not, surprise though this may be to some, actually a good qualification for knowing how society should work in any detail. That’s knowledge that resides in us, the populace, not elected representatives. Shifting the power and the chequebook over to those with even less knowledge is not a good strategy.

The final - and to us proof positive - one is that spending other peoples’ money is glorious fun, taking it one of those tricky little things that there’s always a certain hesitancy over. Politicians like to be liked - the kissing babies thing - and they just never will tax to cover their spending desires. That we’ve a national debt at all proves both two and three on our little list. If all government spending were more productive than private such then there would have been the burst of growth from that past spending to pay off the debt which would no longer exist. Also, they’ve not raised taxes in the past in order to finance that spending, have they?

Or, as we might put it, allowing politicians a free hand with a never-empty societal chequebook is about as useful as providing alcoholics with a free bar. Some will eventually learn self-restraint, undoubtedly, but not many and not soon.

The fog of ignorance argument for minarchy

It appears that the decisions about lockdown were not well taken:

Scientists did not have accurate Covid case numbers, and were unsure of hospitalisation and death rates when they published models suggesting that more than 500,000 people could die if Britain took no action in the first wave of the pandemic, it has emerged.

That’s a bit of a blow to the accuracy of any predictions or models.

Yet as Britain’s epidemic begins to fade away, it is becoming increasingly clear that many influential scientists were ignored, ridiculed and shunned for expressing moderate views that the virus could be managed in a way which would cause far less collateral damage.

Instead, a narrow scientific “groupthink” emerged, which sought to cast those questioning draconian policies as unethical, immoral and fringe. That smokescreen is finally starting to dissipate.

We agree that public health policy in the face of a pandemic is not quite the place to be arguing for laissez faire. Something had to be decided after all - that Swedish model is looking ever better, as at least one of us recommended at the time.

However, our point here is something larger. It also involves letting everyone in on a little secret. Every decision about anything is taken in this same fog of ignorance. No one at all knows the entirety of the economy nor society. Everyone is making certain guesses about reality when they make a decision about anything at all.

Which is the argument for minarchy of course. Government is no better - at best, it’s entirely possible to outline ways in which it is worse starting with the quality of the people making the decisions - at this than the private sector. The big difference being that government makes the mistake for everyone. Any business decision makes it for that business alone. Or, to widen a little, any organisation makes it for the staff, suppliers and consumers of that organisation alone, profit is not the defining difference here.

If every decision suffers from the same problems of information lack, groupthink and just plain commonplace incompetence then we would rather each and every decision affect smaller, not all, areas of everything.

The useful argument in favour of minarchy is therefore that decentralisation of power allows mistakes to only cock up part of, not all of, life. Which, given recent governmental performance across the near entirety of the rich world seems like a useful argument in favour of that minarchy, doesn’t it?

Dear Sir Ed Davey - To Whom?

An idea is gaining some credence, that BP must be made to sell its stake in Rosneft. Sir Ed Davey for example:

On Friday Ed Davey, the Liberal Democrat leader, wrote to the Prime Minister urging him to sanction Rosneft and put pressure on BP to divest its stake.

He wrote: “It is unacceptable for a flagship British company like BP to hold such a large stake in a Russian state-backed company.”

It’s worth, perhaps, reminding that the British government no longer owns BP. Therefore what BP does - within the law - is not the concern of the British government.

But over and above that there’s the simple practicality of the idea. We’ve just - rightly so - placed significant sanctions upon the Russian economy. With effect from, we believe at least, 1 March no one may invest further in that economy. Bond issues may not be bought, capital markets are closing and so on. So, who could actually buy that 20% stake? No other oil major can. Private investors cannot. Institutions would be locked out. The only possible buyer would be someone within that Russian and sanctioned economy.

The price would be pretty bargain basement therefore.

The proposal is, therefore, that the largely outside Russia shareholders in BP should lose very large sums of money, someone inside Russia - or the Russian state itself - should be able to buy a large and valuable asset at pennies on the $. This is to be done in the name of punishing Russia and Russians.

Someone here has lost their minds and it isn’t us.

Now, if this sale had been forced through at some point in the past, the money safely banked before the sanctions, we would still be opposed to the idea but could admire the Machiavellian manipulation of selling at full price then slicing the value through sanctions. But to force the sale afterwards? It’s not just what are these people thinking, it’s are they thinking at all?

As is so often the case the proposals of those who rise to senior positions in politics are the finest and purest argument in favour of minarchy.

Nick Stern had it right in his Review

One of the points in the Stern Review is that whatever it is that we do about climate change we’ve got to do it the efficient way. As is obvious about us humans, we do more of cheaper things, less of more expensive. So, if we want to deal with climate change then we’ve got to do it the cheap, efficient, way because that’s how we’ll do more of the dealing with climate change.

The logic there is inescapable. We also though need to mix into this not just the expense and inefficiency of planning by politicians but also the blind idiocy.

We like to think of wood burning as a climate neutral source of energy. This has led to subsidised wood burning for electricity generation and is part of the appeal of an evening around a roaring fire. This idea relies on the carbon released from wood burning being reabsorbed by forests and woodland. Reality is more complex.

Firstly, it takes time for new forests to regrow and absorb the carbon. For large-scale wood burning for power generation using wood imported from North America, it can take decades or perhaps more than a century for forests to reabsorb this additional carbon from our air. This means greater chances of irreversible climate tipping points before any possible benefits accrue.

Sticking American woodchip into Drax increases, not reduces, climate change. We’ve seen one estimate - which we simply mention, not insist upon the veracity of - that says the process, including transport, produces more emissions than simply burning the coal that Drax is built on top of.

We might also note the German idea of reducing emissions by retreating back to using more lignite. Or the EU insistence upon biofuels that produce more emissions in their growing than they save at the tailpipe.

The actual problem with planning to beat climate change is that our ruling classes aren’t competent to do so. By their works shall ye know them….

People do so often get correlation wrong

Slightly old news from the annals of public health research. Food swamps are the cause of obesity. Or at least correlated and then the causation assumed.

Food Swamps Predict Obesity Rates Better Than Food Deserts in the United States

We’ve always had a sneaking desire to call them food desserts given the link with obesity but that “definition” is that it’s a place beyond waddling distance of a supermarket with a fresh veggies section. A food swamp is a place where you cannot move for fast food outlets.

An area stuffed with burger joints and chippies correlates better with obesity than one without cucumber vendors - so, the leap to causation becomes obvious, does it not? Limit the number of fast food outlets and folk will become slimmer.

Except we do have that logical razor that we should use, Occam’s Shaving Kit. Simple explanations are to be preferred where they exist. Obesity is correctly identified in our modern world as being something that poor people suffer from. It’s a glorious sign of how far we’ve come that the poor are fat. Poor people, rather by definition, don’t have much money - they tend to live in the cheap parts of town.

Fast food retailing is not a notably high margin business. The sheer number of outlets is proof of that - you know, the competition thing? So, fast food outlets will be where rents are low - the cheap part of town.

This neatly explains that correlation between obesity and the plethora of fast food outlets.

The lovely thing about science is that it actually works. Put up an hypothesis about why and how something works and the intent is to then shoot it down. Prove it wrong that is. So, grand, we’ll continue with this hypothesis until someone proves it wrong then. Good luck.

Poor people and burger joints are in the same places because that’s where rents are cheap.

Curbing the Mickey Mouse degrees

The government is trying to micromanage university degrees by attempting to cut down on the so-called Mickey Mouse degrees which are largely valueless in terms of career potential. Someone suggested that any university course which has the word “studies” at the end of it should be regarded as deeply suspect, with the notable exception of War Studies at Kings College, London, widely regarded as one of the very best university courses in the UK if not the world.

After expanding university admissions during the Blair years, the government now wishes to act against institutions that charge full fees for comparatively worthless qualifications. It now proposes that students who lack English and maths GCSEs, or two A-levels at grade E, should not qualify for a student loan in England. Their point is perhaps that students who graduate in courses such as “inequality studies” will go tens of thousands of pounds into debt for a qualification that will not help them into a job, except perhaps in an NGO promoting class division and conflict.

This is typical of government micromanagement, adding details in order to alleviate a problem that they themselves caused in the first place. The alternative to stepping deeply into more detail might be to step back and go into less detail. The government allows university students to take out loans, thereby giving its approval to university education as opposed to other career pathways that people might otherwise follow. Now it wants to specify which students shall be entitled to those loans.

It might instead seriously consider extending the availability of loans to all those reaching the age of 18 whether or not they choose to use those loans to pay for university education. Some of them might want to use that money to pay for equipment with which to build a career, or to go into business as budding entrepreneurs. Some of them might want to finance training schemes that will give them a qualification other than a university degree that might be more valuable to them in future employment. Instead of specifying the details of what they approve of and are prepared to sanction, the government might leave that to the individuals aged 18 to decide for themselves if they wish to take out a loan and how they might choose to use it.

The Civil Service, nearly all university educated, might recoil from the idea that individuals might want to decide things for themselves instead of being channeled into approved directions, but they might consider the effect such a move might have on social and economic inequality. The claim is often made that concentration on academic success holds back those from disadvantaged backgrounds, whereas such a move might allow them the opportunities to get ahead in fields that do not necessarily require the academic skills

To make loans available to all 18-year-olds would be a startling reform, but sometimes a system that doesn’t work needs to be replaced by one that does, instead of being merely tinkered with at the edges.

Is John Vidal merely ill-informed or is he actually this dim?

We think this is an interesting question. John Vidal complains about ghost flights by the airlines:

Flying empty or near-empty planes around just to hold on to landing slots at airports now seems close to “ecocide” – an act of deliberate destruction of the environment. A staggering 15,000 ghost flights flew from UK airports between March 2020 and September 2021.

We’d not say ecocide ourselves, emissions from flights are about 2% of whatever problem there is so not a major factor. But yes, flying empty planes in and out of airports merely to hold on to the right to fly in and out of an airport is somewhere between silly and daft. But it’s the next bit that makes us fear for Mr. Vidal’s intellect:

These flights are a symptom of an unregulated, highly protected industry encouraged to keep growing without responsibility.

It’s that word “unregulated”. Airlines would obviously prefer not to be flying ‘planes with no passengers - that’s costs with no revenue. So why do they do it? Because in order to maintain the right to fly in and out of an airport - to maintain the “landing slot” - you must maintain the flights in and out of that airport in that landing slot. The law states that you must do this. Even if you’ve no passengers in order to maintain that scarce resource, the right to fly, you must fly an empty ‘plane.

Ghost flights are a product of regulation, not a sign of an unregulated industry.

Which brings us to that headline question, is John Vidal merely grossly ill-informed or is he actually dim enough not to understand? We can’t, without looking it up, recall whether Vidal’s career was at The Guardian or Greenpeace. Not that it’s worth looking up because either answer wouldn’t in fact resolve that headline question, would it?

We agree, we really should be getting excited about this four-day week thing

This strikes us as a little unfair:

Wales has plenty of genuine problems it should be fixing. Instead it is embarking on a series of half-baked socialist experiments that are doomed to inevitably fail.

Certainly this is when we consider this plan:

Last week, Wales's “Future Generations Commissioner” (nope, don't ask me why as-yet-unborn Welsh children need a no doubt generously paid commissioner to look after them, I haven’t the foggiest) published a report arguing a four-day week should be the norm.

Sophie Howe suggests that the public sector should move to a four-day week to start with, and after that it could spread to what little remains of private industry.

We do agree that there can be problems in government, the state, running an economy for a population of 3.1 million. Observing national politics does not tell us that actual ability at running things is common. So, the talent that will rise up out of a 3.1 million pool is not - necessarily at least - going to be of such stellar quality that we’d want to hand over management of everything to them.

Perhaps this is why those who have so risen haven’t quite understood the issue under discussion.

The basic idea of working time falling as the society becomes richer, yes, of course. This has been happening for a couple of centuries now and we see no reason for it to stop. A richer population will take some of those greater riches as more leisure. We do insist that everyone has to grasp that this includes unpaid work in the household as well as paid work in the marketplace though. The truly massive workload drop of the 20th century took place as we automated that household. But once that’s done then yes, less work, more leisure, lead on!

Even so, there is significant misunderstanding here. The let’s all go do this urge in government these days is being fed by the Icelandic experience. A report on which is here.

Output remained static while working hours fell 10%. OK. But why did this happen?

To be able to work less while providing the same level of service, changes in the organisation of work therefore had to be implemented. Most commonly, this was done by rethinking how tasks were completed: shortening meetings, cutting out unnecessary tasks, and shifts arrangements

So the actual finding was that if the bureaucracy pulled their thumbs out they could do the work with 10% less labour. Which produces some interesting options for us. Most obviously, instead of each bureaucrat working 10% fewer hours it might be possible to have, instead, 10% fewer bureaucrats. Along with a 10% reduction in the tax bill necessary to support the bureaucracy.

For the maintenance of output wasn’t, in fact, because all workers were so joyous at having the time off. It was that the shock to the system allowed the identification of how working practices could be improved. It’s the shock that mattered, not the length of the work-week.

Which is a much more interesting finding than the one usually assumed. It also leads to possibly interesting plans for Wales other than that insistence upon the four-day week.

But, you know, that does depend upon that Welsh talent pool producing those who can understand the reports they’re using to guide their policies. Here’s hoping….

Student loans, Aussie style

It seems that, currently, Australia does cricket better than we do. It also seems that their system of healthcare outclasses ours in terms of quality of outcomes, costs, and access to treatment when needed. To complete their hat-trick, they also finance higher education significantly better than we do. It scores far higher in terms of student satisfaction, and a much smaller proportion of debt has to be written off.

Students accepted at Australian universities have their fees paid, and incur an obligation to repay that sum once they are earning sufficient salary. There are differences, however, between their system and the UK system of student loans.One big difference is that, while the total default rate of non-repayment in the UK is nearly 50%, in Australia it is closer to 15%. There are two reasons that probably account for this.

The first is that there is no interest added to student loans in Australia. They are topped up each year only in line with inflation meaning there is no increase in real terms. In the UK, by contrast, 3% is added to the rate of inflation. This currently means that the outstanding loans in the UK are increasing by 8% per year and the debt is piling up.

A second reason is that the salary at which repayment has to start is set lower in Australia than it is in the UK. This means that Australian students start to repay their loans earlier. These two factors probably account for a default rate which is less than one third of that in the UK. The Australian system of university finance is not a graduate tax because repayments cease once the entire cost has been repaid. A graduate tax, by contrast, would continue as long as the graduate were earning.

As we have urged several times before, the abolition of the interest surcharge in the UK would almost certainly be self-financing because of the very much lower default rate that would result. It would also be very popular with students, a factor that makes it politically attractive as well as making economic sense.

If we were to adopt elements of the Australian system of student finance, this would undoubtedly improve our own outcomes. The same is true of the Australian health system, which also has much to teach us. Alas, the problem of improving our cricket outcomes to match those of Australia’s is much more challenging, but two out of three wouldn’t be a bad score.

On the subject of linen shirts

Adam Smith pointed out that a linen shirt is not a necessity. However, if you live in a society where not being able to afford a linen shirt is taken as a sign of poverty, then if you cannot afford a linen shirt then in that society you can - possibly will be - regarded as poor.

Furniture poverty: the price of moving in to an empty house

We will admit this is a new one on us but there’s an interesting point here:

“Household appliances are not luxuries – they are essentials;”

An example used is a washing machine. Which is a fairly new definition of necessity. The washing machine itself - as opposed to the copper tub and mangles - is less than a century old as anything like a common appliance. As Hans Rosling liked to point out. It’s also possible to point to the post-WWII boom in launderettes and their gradual disappearance in more recent times as evidence in the same direction. The idea that a washing machine is an essential - and we do not doubt that given where we are now that this is true - is very modern.

All of which can and should be taken as a measure of how much richer we are. There’s that ever growing list of things that are now taken to be essentials - fuel poverty today includes the normal middle class lifestyle of the 1970s, certainly that of the 1960s - which people are defined as being poor for being without. That very list itself is proof of how much richer we all are than our forbears.

We can indeed continue to shout about how awful it is that some still do not have these now essentials. But it is worth the occasional nod in the direction of the opposite, a little consideration of how rich we are to consider these those essentials.