The bit that Polly Toynbee is missing about the energy transformation

Whether there should be an energy transformation isn’t the point here, not at all. What matters is the method used to find out whether there should be one, then the method of deciding upon the detail of how it is done. It is the method, not the goal, that matters that is.

Polly Toynbee talks about fracking disparagingly:

Keeping his Cop26 pledges means rejecting the frackers: Jacob Rees-Mogg in this cabinet, Steve Baker and loud noises off from Nigel Farage. The right’s fracking fascination is a mystery when it would take years for the gas to flow, if it works at all without damage, amid ferocious local opposition. Why aren’t mighty turbines just as excitingly macho? The Renewable Energy Association’s CEO, Nina Skorupska, tells me that the companies she represents, “could construct more than the terawatt-hours imported from Russia within 18 months if the obstacles were unblocked”.

And also of the joy that more windmills would bring. Well, maybe both those points, fracking bad, windmills good, are true and maybe they’re not. Polly’s complaint, as we can see, is that the decision is currently being driven by political prejudice. Or, to be more accurate, that’s what Polly claims is driving the varied people shouting about the decisions.

We can also be less vituperative about it. The political argument above is about whose plan should succeed. But that’s the wrong way to approach the problem in the first place - the plan should be to have no plan.

The grand experiment we call the 20th century showed us that GOSPLAN does not work. That West and East Berlin started from the same point in 1945 - a bombed flat plain of rubble - and the one was 3 to 4 times richer than the other by 1989 was that experiment. Planning by nerds with slide rules - even by today’s spreadsheets - is not the way to build a socioeconomic system that maximises human utility.

What is required is that free market system, where anyone can have a go. Yes, certainly, internalise the externalities with Pigou Taxes. There will be planning laws, of course there will be. But those concerning earthquakes (or seismic tremors, to taste) must be the same for fracking, geothermal and mining operations. Planning laws for fracking pads must be the same as those for windmills and seashore connectors to offshore and oil and gas pipelines.

That is, the system can indeed and should set rules. But those rules need to be neutral as to the technology employed and by whom. Capitalist and socialist of varied forms (consumer or worker coops for example) and government owned and whatever other variation anyone desires to try.

Set the rules in that neutral manner and the outcome of the process will be the correct one. For we have created that correct structure of incentives and therefore the outcome is, by definition, the utility maximising one. That might mean net zero in 2040, might be in 2150. Perhaps electric cars, or hybrids, or fuel cells, or synthetic petrols from green hydrogen by electrolysis, will win out as the preferred technology. Or buses - stranger things have happened in history. Or fracking or solar or wind or fusion or whatever.

Our aim is to maximise human utility over time, as the Stern Review pointed out. This does require setting the general rules as Nordhaus gained the Nobel for saying. 93% of polled economists insisted that rule setting, not plans, was the way to do this. The IPCC’s own economic models point out that a properly priced globalised neoliberalism produces the optimal outcome.

That is, we don’t want to make a decision on what the plan is. We want, instead, a plan not to have a plan. Which is the point that near everyone in politics is failing to grasp - which is also why politics is such a lousy way of solving problems. It’s not that the answers are wrong, it’s the inability to even understand the question in the first place.

An Offer You Can’t Refuse

Russia’s request to China for military supplies opens a Pandora’s box. It’s not clear when this request was made. If some time ago, it tells us that Putin always had a Plan B, and that the Americans have been slow to take pre-emptive action. It is more likely, however, that the request comes to us hot off the press, confirming stories of Russian battlefield discomfiture, with generals dying on the front line; and intelligence deficiencies, with top FSB officers under house arrest. Over the weekend, the US talked up the urgency, but this could be diplomatic dramatics, as Jake Sullivan, the US National Security Advisor had Monday’s date in Rome with Yang Jie Chi, China’s top diplomat, in his diary for some time. Now it looks as though Sullivan’s place in history rests on making an offer which Yang can’t refuse.

China has to choose between imperfect options. It is in the business of challenging America, but Russia presents an unappetising prospect. A sense of Putin’s self-destructive course comes from the attitude of Russia’s neighbours. Poland has taken in half of the 2.5m refugees fleeing Ukraine, adding three percent to its population in two weeks, without, as its prime minister, Andrzej Duda, proudly stated yesterday, putting a single refugee in a camp. Duda went on to express his aversion to Russian influence in the most strident terms. Putin faces the same from all in Russia’s ’hood, who remember their pre-1989 subjugation; his genius has been to add Ukraine to the roster of his irreconcilable neighbours.

If Sullivan needed to take a dark tone when he met Yang, he had plenty of options. For example, China holds around $1tn of US government bonds. This is around one third of its holdings of foreign reserves. These reserves are parked outside China, in counterparty Central Banks or specialist “custodian banks” in New York City. If Biden wishes to sanction China summarily, it only takes an Executive Order to freeze its holdings. The US Treasury would continue to pay interest to the blocked accounts, keeping America’s credit rating, but China would lose the benefit of its reserves. This would have similar effects to the sanctions on Russia two weeks ago. Not what Yang wants to go home with.

On the other hand, for all that Putin may have forgotten that more flies are caught with honey than vinegar, Sullivan need not make the same mistake. He has battlefield intelligence to share, updates which Putin will have glossed over - indeed may not know - and which China cannot get independently. Then he has the open heart of the United States to offer, not to say its open purse.

The terrible exploitation of markets and capitalism

As we all know - for we’re told it often enough - both markets and capitalism simply dreadfully exploit. We agree with this fact, which is good for fact it is and one doesn’t get to argue with facts. We do, however, insist that the exploited and exploiter need to be correctly identified.

Germany has warned that an immediate boycott of Russian gas and oil supplies could hurt its own population more than Vladimir Putin, bringing mass unemployment and poverty.

“If we flip a switch immediately, there will be supply shortages, even supply stops in Germany,” the economic and energy minister Robert Habeck told public broadcaster ARD on Sunday, as Europe’s largest economy intensely searches to diversify its energy supplies in the medium term.

The Green party politician predicted “mass unemployment, poverty, people who can’t heat their homes, people who run out of petrol” if his country stopped using Russian oil and gas.

The normal insistence is that it is the producer that exploits the consumer. That profit that is made over the cost of production. But look now at the effect of not having that production. Mass unemployment and poverty.

So, a reasonable conclusion is that it is the consumption of what is produced which provides the major benefit in the system. Not the production, not even the manner of production, but the consumption.

That is, we can identify those who make out like bandits in this system of market capitalism - it’s us, the consumers.

Jack Monroe has not grasped the correct end of the stick here

We’ve long pointed out that food banks are wondrous things. People would be hungry without them, hunger is bad, therefore food banks which reduce hunger are good things. Unfortunately Monroe gets the expansion of food banks the wrong way around:

The Trussell Trust has consistently reported, for the last 10 years, that more than half the people referred to its food banks for emergency aid are there because they are in debt to the Department for Work and Pensions (DWP). Those numbers have steadily increased year on year; not, as some MPs claim, because availability of food banks has increased. Food banks expand according to the need for them, not the other way around.

No, that’s not how new technologies work nor spread.

And food banks are new technologies. They really didn’t exist back in the year 2000 when the American idea was adopted and copied here. That problem of the state being incompetent at handing out free money was not newly created at that date - we’ve direct personal experience of that truth. What was new was the ability to solve that problem of the state’s incompetence.

Think for a moment how new technologies do spread. Mobile phones have rather increased their market penetration since the 1980s. This is not because the need for communication has increased but because the ability to sate that previous need was invented. Smartphones really started with the iPhone in 2007. The fastest adopted technology in all of human history did not spread because the requirement for cat pictures changed - it was because the ability to sate that previously extant demand for cat pictures was invented.

This was also true of all those domestic technologies which have appeared in the past century and a half. Automobiles sated the desire to travel, not created it. People did wash clothes before the washing machine, that was simply a better way of doing it. Flush toilets were not near universally adopted because there was some new need to go potty but because we had a better technology to suit that fundamental need.

The state has always been incompetent at the details - things like getting the right amount of money to the right benefit claimant at the right time. Food banks are a new technology which aids in solving this extant problem. Jack Monroe simply has this the wrong way around. New technologies - and yes, a method of organising something is a technology - spread because they solve extant problems.

Fascinating, yes, but why is it happening?

The Observer treats us to a story on the music scene of car smugglers into Bolivia. No, it is interesting, who can fail to be fascinated by the rich variety of our species?

The one thing we thought a little odd though was that there is no explanation of why there are car smugglers into Bolivia, why there is this subculture which has a music scene? Britain does not have such groupings arguing over Ed Sheeran v Dua Lipa nor even the relative merits of drill or grime to smuggle automobiles to.

The answer being that the groups are - as should be obvious - created by the government.

Since December 2008, Supreme Decree 28963 has gradually reduced the age of vehicles that may be imported. Since December 2014, the maximum age of cars permitted for import is one model year old. Additionally, Bolivia has prohibited the importation of diesel vehicles with engine displacement smaller than 4,000 cubic centimeters, all vehicles that use liquefied petroleum gas, and cars with right side steering.

Immediately making a market for several year old right hand drive small engined diesels. There are also substantial taxes, up to 50% we seem to see. There is local production of precisely and exactly zero vehicles so it’s not even that there’s a local industry being protected.

Someone, somewhere, thought it would be a good idea that Bolivians should not be allowed to have the cars that Bolivians wanted. So, the law was enacted and so Bolivians gain the cars they desire without the law.

We can’t help but think that it might not be simpler, even a better idea, to allow Bolivians their vehicles of choice. But then that would mean being a free and liberal society and apparently that would never do.

One person's discrimination is another's business opportunity

A little note in an obituary this week:

Mary Coombs, pioneering woman programmer on LEO, the world's first business computer – obituary

She joined the computing team at J Lyons in 1952 when there were just three programmers, all men, and went on to write payroll programs

The little note itself:

Family commitments meant that she ceased full-time programming in 1964, but continued to work part-time editing computer manuals

That’s the way it was done back then. Married women with children tended not to work. No, not entirely and wholly the gross sexism of the patriarchy. Household technology was still undeveloped back then and it did take the full time labour of one person to run a household. The sexism was that it was the woman who did so, not that someone had to.

It’s also possible to note that Gary Becker was right about discrimination. If skilled labour is being kept out of the workplace for unreasonable reasons then that’s an opportunity for someone else to gain that labour on the cheap. Which is exactly what Dame Steve Shirley did. (Her TED talk more than makes up for the pompous foolishness of most of the rest of said TED talks.) Deliberately and specifically went off to hire those skilled programmers now stuck at home with the toddlers. Did very well too, making a fortune and also programming Concorde’s black box for example.

One person’s discrimination can be, as Becker said, someone else’s business opportunity.

It’s also possible - and profitable as a logical exercise - to run this back the other way. There are many claims about discrimination today. But if we do not find people deliberately seeking out this discriminated against and therefore cheap labour perhaps it’s not in fact taste discrimination, but rational discrimination that is the issue? In fact, we tend to use this as a filter of such claims ourselves. When such a claim is made we ask, well, where are the people attempting to hire? And if there aren’t any, why not?

The balance of payments is a tricky thing

Larry Elliott takes us through the balance of payments and why the UK is dependent upon oligarch money. Sadly, it’s not quite and wholly correct.

There was a time – many decades ago – when trade deficits were a big deal. Politicians used to fret about them. They were front-page news. Famously, a bad set of trade figures was supposed to have cost Labour the 1970 general election (although they probably didn’t). But since the early 1980s, Britain’s trade deficit has got bigger and we have worried about it less.

There’s a fairly obvious reason for us worrying less these days - we have a floating exchange rate. Back then we had a fixed exchange rate - well, until events proved too much and it had to be changed, as it was several times. The advantage of these markets things being that if the deficit does become impossible to finance then the exchange rate - without planning or government action - simply does change so that the balance of payments does balance.

In a fixed FX system you have to worry about the trade deficit because having the FX rate fixed means you’ve just lost your automatic stabiliser.

But there’s a deeper problem with the analysis:

The point about the balance of payments is that it has to balance. Countries such as the UK that run permanent trade deficits have to sell assets to foreign buyers to raise the cash to balance the books. Over time, Britain has run a cumulative trade deficit in goods and services of £1.3tn. But in the pink book that outflow has been matched by financial surpluses – cash – of the same amount. Money we got selling British assets to foreign buyers.

Entirely correct.

The structure of our economy is simple. For decades Britons have consumed more than they have produced.

Tht’s not, or that’s not necessarily so. Because those assets that are sold on that capital account, to finance the deficit on the current account, they’re also things that are produced. If we build a house and sell it to a foreigner then that’s on the capital account. But it’s still making something and selling it to a foreigner, it’s an export in its way. Building a company which is sold to a foreigner - capital account again but it’s the selling of something made in Britain to said foreigner again.

Warren Buffett described the extreme outcome in his Squanderville essay. If you keep selling all the capital assets then the foreigners own the country. But this depends upon the rate at which those assets are sold as against the rate at which they are created.

For the American economy, to switch instances, that sale of capital assets is around the $500 billion a year mark in order to finance the trade deficit. But in recent years the US has been creating wealth (we’re using household wealth as our measure here, perhaps not exactly right but a good proxy) at $2 trillion a quarter. The US is progressively selling off that capital base to the foreigners and the foreigners are ending up owning an ever smaller fraction of the American capital base.

So, the UK has run up that cumulative £1.3 trillion in trade deficits. Or, a £1.3 trillion surplus on the capital account. How much has the stock of wealth in Britain risen over that same period? With household wealth at £15 trillion and counting currently we’d insist that the stock of wealth has grown more than the portion we’ve sold to foreigners.

The British economy produces capital assets and sells some of them to foreigners. Yes, this finances the trade deficit but that’s something of a phantasm of national accounting. Flogging things we’ve made to foreigners is still flogging things to foreigners whether we record it as a current or capital transaction.

Houses, companies, football clubs, they are things that are made - they’re manufactures. Selling them to foreigners is an export and don;t let the accounting fool you into believing otherwise.

Some ancient wisdom for modern society

The online magazine Vice is terribly excited by some archaeological news:

The Secret to This Ancient City’s Success Was Collectivism, Study Says

Well, there are collectivisms and collectivisms:

Archaeologists Linda Nicholas and Gary Feinman suggest that the secret of Monte Albán’s success and longevity was a collectivist governing approach and relatively low levels of social inequality, an argument that is supported by multiple lines of evidence from its ruins, according to a study published on Tuesday in Frontiers in Political Science. In this way, Monte Albán rose to power with a “bottom-up” political structure, in contrast to its more autocratic contemporaries, which makes it a useful case study, even for modern societies.

Well, OK, we’re listening:

“When we say this was a relatively collective governance, we're not saying this was utopian or entirely egalitarian, and everyone was equal in a commune,” he noted. “There were clearly people who were somewhat better off than others and there were clearly people who were office holders or leaders or coordinators even from the outset, because he could not you could not have that many people making a decision without some kind of leadership. But our view is that the power was not concentrated in one individual or even one family; it was more what we would call distributed power.”

OK

“We know, based on this dense settlement pattern, that these adjacent households were like a neighborhood where they were mutually interdependent,” Feinman said. “We also know from excavations of those households that they were economically interdependent, because different households tended to engage in different craft activities.”

“There must have been some economic interdependence that bound together the houses at Monte Albán, and even houses in the region around Monte Albán, because the city may have had a hard time feeding itself in very dry agricultural years, which are not that rare in the Valley of Oaxaca,” he continued. “Whether you look at the bottom up or the top down, the picture on governance suggests that it was relatively cooperative and collective.”

These days we call that the division and specialisation of labour and trade in the resultant higher production. It’s the pin factory all over again, with that basic human economic unit, the household, as the economic and market participant.

So, what is being said is that an economy based on mutual interdependence, that itself being the result of the division and specialisation of labour, the trade that follows it, leads to a flatter power structure and a more egalitarian society? As opposed to the more authoritarian type of society where an aristocracy or clerisy tells everyone what to do?

Hunh. Colour us surprised there.

The lesson for our modern society of course being obvious. Get rid of the clerisy telling us what sort of houses we may live in, where, the size of our gardens, how we may heat them, cook in them, and we’ll be freer, that’s obvious. But more of just this voluntary cooperation, rather than enforced, also produces a more egalitarian society with a flatter power structure? Free markets produce a free society?

Who would have thought it? Well, everyone except that clerisy that rules us perhaps although perhaps they do know and just don’t want to give up that power, eh? After all, what’s the point of being High Priest of a religion that no one cares about any more?

The only thing wrong with adult social care is government

The government published two contrasting adult social care papers on 22nd February 2022, responding to the House of Lords and Lady Cavendish’s report. The government’s response, though it does include some benefits, fails to address the core problems.  The government’s muddle has five main components: 

• There is no central adult social care HQ equivalent to the NHS, i.e. there is inadequate central direction and they do not even provide the funding. 

• Total funding is inadequate and central government tries to micromanage with dribs and drabs instead of letting the 151 local authorities who actually manage adult social care do what is most needed. The primary target for funding should be the professional carers. Underpayment, lack of empowerment and too little professional recognition are causing a shortage of carers, likely to reach 35 percent by 2025. The second priority should be making care affordable for those self-funding. The least important is yet more spending on bureaucracy. Central government’s priorities are the reverse.  

• The Department of Health and Social Care (DHSC) is unbalanced. Apart from health overall and the Care Quality Commission (CQC), it is almost entirely concerned with the NHS and only minimally with adult social care. Yet the numbers employed in the NHS and adult social care are about the same (1.5M) and the need for improvement is probably greater for the latter. 

• The CQC causes data duplication, waste and fails to learn from the private sector.  It needs reform. 

• The White Paper’s “10 year vision” is idealistic but also unrealistic, bureaucratic and the numbers fall far short of the rhetoric.  

The DHSC only got around to responding to the Lords’ report two and a half years after  publication. The fifth is probably the most important of its 25 recommendations: “around £8 billion a year in additional funding will be required for adult social care. More will be required in subsequent years as the population of older and working-age people with care needs continues to grow. Roughly half of all public funding for social care is spent on the working-age population.” 

The DHSC response was a bit devious: 

• “...the Social Care Grant, worth £1.7billion in 2021-22 for adults and children’s social care.”  Is this extra or just the usual? 

• “...an increased Better Care Fund of £6.9bn in 2021-22”.  The Better Care Fund publishes no annual report showing objectives or achievements; it appears to be a fund for closer working of NHS and local authority bureaucracies with no benefits for front-line carers or those who should be cared for. It is bureaucracy. 

• Covid subsidies. Necessary but transient. 

• “...new investment totalling £5.4 billion between 2022-23 and 2024-25 to reform and transform the adult social care system.”  In other words, £1.8bn per annum on “investment”. If that means recruiting more carers and rewarding them better, why not say so? 

• “Beyond 2024-25, an increasing share of the Health and Social Care Levy will be spent on social care in England.” Unspecific. 

In other words, the commitment is just a share (half?) of £1.7bn, not the £8bn which the Lords reckoned was needed for carers and the cared for. This inadequate response is consistent with the disappointing December 2021 White Paper: “People at the Heart of Care: Adult Social Care Reform.” The new money was in seven categories: improving social care housing (£300M), IT (£500M), £25M (sweeteners for unpaid carers who certainly deserve whatever they can be given), £30M (local innovation), £70M (local authority admin) and £5M (new website). Social care in England is bedeviled by central micromanagement and the paperwork needed to get any of the funding. 

Secondly, the White Paper funding only totals £1.43bn, even lower than the response to the Lords. Then a revised White Paper was published two months later, i.e. 24th February. The DHSC press office was unable to explain what the differences between the two White Papers were. Even the publication date at the beginning remained December 2021 and the url was the same - a bit sneaky that!  “Ah ha!” I surmised, they must have corrected the discrepancies noted above.  But no, they worsened them: the total funding had further declined to £1.05bn, due to IT dropping to £150M and the £30M local innovation being removed. 

The Better Care Fund (£6.9bn more) does not finance carers or the cared for but a bureaucracy issuing instructions and demanding reports. Of course, the NHS and social care should work better together but that should be at the front-line professional level without interminable committees. The best thing the NHS can do is to stick to its last, namely treatment and cure, and leave patient feedback and regulation to the CQC. Front-line professionals can and should liaise directly. The NHS would like to increase its remit to include adult social care but Lady Cavendish rightly endorses the need to keep the NHS and social care (p.6) separate. The tricky issue, to which I will return, is who pays for intermediate care: the NHS or the local authority (social care). 

She is quite critical of the CQC, or perhaps of the role of the CQC. For example, it provides no guidance on the training of carers, nor the quality thereof, because “there is no national rating of [training] providers or quality assurance mechanism” (6.4.2). The CQC should be looking at health and care quality as a whole, not nit-picking. 

“The [CQC’s] failure to understand business has another consequence: a surprising lack of interest in self-funders who do not rely on government help. About 45% of care home residents pay all their own costs. Overall, around a third of social care is paid for by consumers entirely from their own savings. Yet government has almost no data about this group, and there are few attempts to learn from what choices these consumers make. The CEO of one award winning domiciliary care provider with numerous outstanding ratings from Care Quality Commission told me that he has never received a call from CQC seeking to learn from how his organisation has achieved this performance.” (This paragraph was removed from the second version of Lady Cavendish’s report, published a few days later) 

In summary, Lady Cavendish sets out admirable proposals for adult social care (p.12) mostly recognising and paying carers as true professionals and giving them the freedom to do what needs to be done, i.e. empowerment.  

Government departments justify themselves by saying they will be “working with” a huge range of other bureaucracies, rather than providing the resources for front-line professionals or taxpayers.  For example, the introduction to the White Paper concludes (p.8): “We will also engage with a diverse range of organisations and people, including those who draw on care and support or provide unpaid care, to consider how we can measure success of our 10-year vision.”  

Although DHSC is responsible for adult social care, the funding, mostly if not entirely, transits the Department for Levelling up, Housing and Communities. The DHSC’s Michelle Dyson is director general of adult social care but her statistics seem to be just about Covid. It is hard to see how she, and her small team, can be actively managing adult social care nationwide, given the width of the “vision” portrayed in the White Paper. 

We are left with the difficult problem of who pays what proportion of the costs of those needing intermediate care, i.e. local authority and medical: the NHS, local authority or the cared-for. Lady Cavendish (pp.9 on) reviews various systems without coming to any simple conclusion.  The current system of having NHS and local authority committees haggling for hours over each case is definitely a bad idea. So is the NHS bribing local authorities to get patients into cheaper home-care or care homes. 

According to the King’s Fund, the White Paper proposals “add up to something well short of a full picnic”. It aims to be utopian but is unrealistic, bureaucratic and the numbers fall far short of the rhetoric. It can only perpetuate the mess that government has made of adult social care. Responsibilities need to be streamlined and such resources as can be assembled should be directed first towards better training, rewards and recognition for carers, secondly toward helping those who can, fully or partially, self-fund do so in ways that satisfy the cared-for. This includes home and technological improvements. Only then should resources be made available for essential management and bureaucracy. This would reverse what appears to be the government’s current priorities.

Prices don't lie, they inform

Apparently childcare is expensive:

According to data from the Organisation for Economic Co-operation and Development, the UK has the third most expensive childcare system in the world, behind only Slovakia and Switzerland; a full-time place costs £12,376 a year on average.

That cost doesn’t change simply because different people are asked to pay it. Whether it is parents handing over the money or taxpayers coughing up, it’s still that price. Because moving costs doesn’t change costs.

It’s also true that child care for two children costs around and about the median wage of £25k a year or so. Meaning that half - that’s what median means - of those putting two children into child care to go to work are costing society (again, whoever is actually paying that bill) not adding to the general wealth.

Do note that this is not the end of the story. Of course we can discuss further items - child care requirements are a stage in life, not a permanent feature for decades of it. Perhaps career interruption should be minimised, there are many factors here and the pure and simple cost of child care isn’t the end of it by any means.

But that cost of child care is still information that must inform our decisions. Simply because it is that factual information that prices are telling us. In terms of pure and simple economic value add child care, for many people, makes society poorer.

What matters is what we do with the information that prices tell us. As we say, shifting those costs over to taxpayers doesn’t change the costs nor the information. We ourselves would probably run with the idea that the first thing to do is to reduce - no, not shift, reduce - those costs by deregulating the sector. Then, and only then, start discussing the rest of it.