Sadly, Autonomy has entirely the wrong end of the stick here

Autonomy wants us to know that a four day week would aid in solving the inflation problem. Sadly, Autonomy has entirely the wrong end of the stick here:

A four-day week with no loss of pay would save parents thousands of pounds a year in childcare and commuting costs, according to a thinktank that suggests the policy could help to alleviate the cost of living crisis.

Someone with a child under two would save £1,440 in childcare and £340 from commuting on average across a year if they did not have to travel to work one day a week, the leftwing think tank Autonomy calculated.

Campaigners and economists in favour of a four-day week have tended to focus on the benefits to workers in the form of increased leisure time and potential improvements in productivity that enable companies to carry out the same amount of work but in less time.

We can have the most lovely arguments about what causes inflation - demand shock, supply shock, modern monetary theory, money printer go brrr - but what inflation is is not in doubt. We have, relatively, more money chasing, relatively, fewer goods and services. The relationship between the amount of money around and the goods and services available has changed - therefore each piece of money is worth less, buys fewer of those goods and services. That’s just what inflation is.

This is not a problem to be solved by maintaining the same amount of money and reducing the number of goods and services. Which is what Autonomy is suggesting. Yes, there’s muttering that we could produce the same in four days that we currently do in five. Well, maybe. But they’re then saying that there should be less commuting, less childcare - less output as a result. So, the end game of the proposal is that inflation increases - we have still that same amount of money but fewer goods and services. So, the relationship between the two gets even further out of whack, each piece of money is worth even less.

The actual solution is to reduce the money supply or to increase the output of goods and services.

At which point we gain a solution. If it is possible to increase productivity then why not do that? Why not, for the same effort we put in now, increase the output of goods and services?

For upon examination that we can produce in four days what currently takes five is not in fact about workers being more rested, happier, more joyously productive. In all of the detailed studies it becomes the lesser time available for work means the killing off of unproductive activities. Those interminable meetings, the discussions in HR about equity and leadership on reaching out and all that malarkey. The increase in productivity actually comes from people stopping doing unproductive things - because there’s not the time left to do them - and only doing productive things during those hours of work.

So, our solution is to do that but to do it for 5 days. Output increases, which makes us all richer anyway. Inflation reduces as we’ve more output to soak up that excess money, the cost of living crisis goes away.

Sure, Autonomy’s right in one sense, the solution is increased productivity. But do that by killing the bureaucracy of modern work anyway rather than reducing time worked.

The actual analysis of these four days week ideas is that everyone entirely wastes one day a week at work on useless irrelevances. So, let’s stop doing that then, eh?

Subject to certain caveats, the NI cut is the right thing to be doing

It’s possible to hold, as we often do, that macroeconomics is largely Woo. Far too much theorising balanced upon a paucity of evidence. The complicated nature of the mathematics used in it reminds us of the gyrations astronomers had to use before heliocentrism became established. The maths being complicated precisely because certain underlying assumptions were wrong, so great effort had to be made to fit observations into the theory. Then there’s that problem with being able to do any fine tuning given Hayek’s points about the knowledge problem. Oh, and the time lags associated with any action.

But that’s us and our biases.

Let us stick exactly within the strictures of the current set of macroeconomic models. Largely New Keynesian - all the Treasury, Fed, ECB and so on models are such. This makes the national insurance cut the right thing to be doing:

Liz Truss's National Insurance cut will take effect in workers' November payslips, Kwasi Kwarteng is expected to announce this week, as he ditches the Coalition-era focus on "sharing the proceeds of growth".

Again, we can put in all sorts of provisos here. Macroeconomics is Woo, we can’t fine tune because knowledge, perhaps the economy doesn’t in fact require stimulus - the inflation rate certainly isn’t suggesting such - and on and on. But accept that we’re working in a Keynesian policy structure, even if now New, that stimulus to households is required, government must do something. The NI cut is the right way to do it - as Keynes himself said:

I am converted to your proposal…for varying rates of contributions in good and bad times. (June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.

…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times. (July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.

Well, there we go, got it from the fountainhead himself. It’s large enough in aggregate to make a difference, small enough individually not to be subject to Ricardian Equivalence and works fast.

The interesting thing about this being that damn near every Keynesian in the country now says reducing NI is the wrong thing to be doing because somethingsomethingmuttermutter.

We did say that we consider macroeconomics to be largely Woo, didn’t we?

Price fixing and free markets

We’d just like to commend The Guardian for noting an important economic point here:

The timing could hardly have been more appropriate. On the 30th anniversary of sterling being ejected from Europe’s exchange rate mechanism, the pound came under renewed pressure on the currency markets and hit its lowest level against the US dollar in 37 years.

Black Wednesday – 16 September 1992 – has a special place in British postwar economic history: a moment in which the Treasury and the Bank of England took on speculators led by George Soros – and lost.

There will be no such dramatic shootout this time because the ERM debacle marked the end of Britain’s attempts to maintain the pound at a fixed rate against other currencies. Ever since, sterling has been allowed to find its own level.

Quite so. When we tried to fix the price of the pound that caused repeated problems over the many decades we tried to do it. Churchill’s fixing the rate post-WWI at the pre-WWI rate was a gross mistake, matters improved when the pound came off the gold standard in the 1930s.

Fixing again post-WWII led to repeated problems and forced devaluations and that most recent disaster of that Black Wednesday. Since then we’ve not had sterling crises because we’ve not tried to fix the price of sterling.

Of course, this lesson is incomplete, for all too many fail to grasp the significance of this issue. Which is, don’t fix prices. Markets always will out, markets always will win. So it’s something of a pity that near the entirety of all public debate these days is which prices shall we fix, at what level? When the correct answer is none, at none.

It’s entirely fine to then say that we should compensate, or subsidise, or alleviate the pains of, the effects of those market prices upon individuals. If we wish to that is.

But the correct policy is always to subsidise people, not things. Don’t mess with markets, don’t fix prices, even if we then deal with the results of those uncomfortable facts about the universe we inhabit.

Minimum wages, maximum wages, rent control, energy price caps and on and on. The correct answer is simply “No”.

Capitalist greed for the win once again

There’s a rather larger story behind this little tale:

But after a once-in-a-generation shake-up of the supermarket rankings saw Morrisons ejected from the “Big Four” club, executives at CD&R may be wishing they’d swallowed their pride and walked away.

For two decades, Britain’s supermarket industry has been dominated by the same quartet: Tesco; Sainsbury’s; Asda; and Bradford-based Morrisons. However, in a stunning changing of the guard that will rock the sector, Aldi has toppled Morrisons to take fourth spot, according to the last figures from data provider Kantar.

Go back just a little more than a couple of decades and there were interminable inquiries into the supermarket oligopoly. Highly paid consultants placing little triangles over maps to see where local monopolies existed. Where one or t’other of the Big Four owned not just the shops but all the likely places where a shop could be put.

There was good reason to at least think about the problem too. For margins for supermarkets were some of the highest in the world. We seem to recall 6% being bandied about as a number.

Today those same Big Four are lucky to be making 2 or 3%. Share prices have - relative to their earlier real values - declined sharply. Why?

Because some foreigners saw those profit margins and saw that they were good. Aldi and Lidl invaded and competed. The effect has been to lower the returns to those - possibly - oligopolistic capitalists who used to own the system. The beneficiaries have been the consumers.

We don’t know of a specific study on the effects of Aldi’s irruption but by analogy. The “Amazon Effect” has been studied and it applies to the online irruption rather than just to that one company. But it’s said that it has led to a 0.1% to 0.2% shaving off the inflation rate each year for a couple of decades now in the US. That’s 2 to 4% lower prices now, against what they would be without that irruption.

Note that’s of all prices across the economy - the impact upon those things actually supplied or delivered by online sellers is higher.

Now, we’d not say that Aldi and Lidl have had exactly the same effects as online but just for the want of some other number to use, imagine that it has been. That’s somewhere between, in the £2.2 trillion economy here, a £44 and £88 billion saving a year to British households.

The cost has been to the capitalists of the earlier generation of groceries suppliers. The benefit has been partly to the new capitalists and hugely greater to consumers. For no one at all is thinking that Aldi and Lidl shareholders have been enriched to the tune of £44 billion by their British adventures alone. That even before we get to the point that the benefit to consumers is an annual £44 billion saving, while any valuation of A & L is a capitalised one, a once off sum instead of an annual one.

What was the solution to the earlier supposed supermarket oligopoly and their high margins? Competition. Competition driven by capitalist greed to appropriate some of those profits to the incomers.

So, once again, capitalist greed in markets with free entry for the win then. Funny how reality has this neoliberal bias, isn’t it?

If this is true then the climate change problem is solved, isn't it

Green hydrogen could counter energy crisis, says British firm

ITM Power, which makes electrolyser machines, says splitting water using renewable energy has become more cost-effective than gas

Now, of course, that’s a company touting their own products so take with the appropriate amount of salt.

But if true - if true - then that solves the entire problem. We don’t have to rebuild the grid to charge electric vehicles, we don’t have to insulate every house in the country - trying to put cavity wall insulation in a house with no cavity walls is difficult - and we can stop worrying about aviation entirely.

Not because hydrogen can or even should be used in all of those sectors. But because if we’ve got cheap and green hydrogen then we already have the technology - have had for a century - to formulate that up into the sort of liquid fuels that all those extant technologies can use. Cheap green hydrogen - again, if it’s true - plus Fischer Tropsch gives us cheap, carbon neutral, hydrocarbons. Which we can then feed into our extant networks of fueling stations and into our extant technologies of cars, ‘planes and, if we prefer methane, into the gas network.

We’re then done.

Which is why it’s so lucky that we dealt with the problems of climate change in the right way. We didn’t go out trying to pick technologies. No bans on anything, we just set the incentives - anything carbon neutral works that is - and allowed the market to get on with sorting it out.

We did do that, right?

Safety rules need to be technologically neutral

We might sometimes give the impression that we’re entirely against any form of public regulation. This is not so. We’re pretty happy about the effective ban on private armies for example - no one really did enjoy the Wars of the Roses, the last time such were generally allowed. Our arguments are more about we don’t want this regulation, or that type of them.

Within this is an insistence that any form of regulation must be technologically neutral. For example, one of the messes being made over climate change is that bans and subsidies and so on are not neutral. Certain methods of doing something are preferred, others lambasted, rather than what should be done - certain results being preferred or lambasted. It’s energy/emissions that is the importance, not whether this is done by windmills, solar, biofuels or whatever else. The structure of the system should be, should have been, technologically neutral as to what produced the energy/emissions trade off set.

So it is here with seismic issues:

Truss told to increase earthquake limits to kickstart fracking revolution

Current restrictions prevent ‘a proper test’ on whether the UK's resources are commercially exploitable

No, we don’t need to increase limits. We just need to have the one set of limits for all technologies which might produce quakes - or, more likely given the subject, quakelets.

Current rules require drilling to stop if it causes tremors of 0.5 or more on the Richter scale.

Experts say tremors at this level occur naturally and often, at a magnitude so low it is imperceptible to people above ground. The current limit blocks any realistic possibility of exploiting shale resources commercially.

Fracking companies want parity with other industries, for example geothermal energy, which is allowed to create earthquakes of higher magnitudes than 0.5. In the US, fracking-related tremors of up to 4-magnitude are allowed.

Yes:

Professor Richard Davies, a leading petroleum geologist at Newcastle University, said fracking had thus far “not been a major source of earthquakes” and that coal mining had caused “many times more”.

And yes and quite so.

The perceived problem is earthquakes. OK, so there should be a limit on activities which produce earthquakes. We’re fine with that. But that limit should be technologically neutral. It matters not whether the quake is produced by the Eden Project going geothermal (and they did produce a quake which blew through that fracking limit), Cornish Lithium extracting that metal from geothermal waters, someone mining for copper or tin, any other form of underground mining or fracking. Earthquakes are earthquakes, they’re what should be regulated.

At which point, if we stick with this 0.5 limit for all activities then we have no mining - no, none at all of the underground type - nor geothermal. And, clearly, no fracking. Or, we have a limit that allows those possibly “good” things like geothermal but that necessarily means that the limit will also allow fracking.

Whatever the rules are they need to be technologically neutral. Otherwise they’re just politics playing that favourite game of picking losers.

Growing alfalfa in the desert just isn't sensible

One of us here was writing about this very problem 25 years ago. The solution being obvious, simple, correct and politically impossible:

Agriculture – mainly alfalfa – consumes 80% of the Colorado River’s dwindling water supply, prompting calls for conservation efforts

Alfalfa is a distinctly low value crop. It’s glorified hay. It’s worth very much less than the water used to grow it.

The solution is, obviously and correctly, to have a market in water. People buying and selling the rights to that irrigation water from the Colorado River. The water will thus be sent off to its highest value use. Perhaps almonds, maybe for Angelinos to have showers.

Or, in a more theoretical analysis, you cannot have a shortage if you’ve a free market. Because, by definition, that free market price will be the one which balances supply and demand. Of course there will be plenty of people who would have demand if the price were lower - but that very action of allowing the price to, erm, float is what ensures that what water there is is devoted to its highest value use.

California water rights were allocated largely on a first come first served basis a century and more back. It can be illegal for people to buy and sell such rights at that market value. The problem is not the lack of water, it’s idiot public policy over the allocation of it.

Just allow those - for one of those proofs is that it doesn’t matter what the initial allocation is, markets still optimise distribution - who own the current rights to sell if they wish at whatever they can get.

Of course, there are people who get entirely the wrong end of this stick. Here’s The Guardian, on the same day, talking about largely the same place (locals would insist that the Inland Empire and Imperial Valley are entirely different, from this distance that’s just locals being locals):

Over the past decade, once bucolic Ontario has become one of the biggest US hubs for the e-commerce industry. In addition to the 4.1m-square-foot Amazon facility under construction, three other Amazon facilities as well as a sprawl of warehouses for FedEx, Nike, and other companies stretch to the east of Jaime’s farm. Another 5.1m-square-foot logistics center will soon be constructed down the road.

Mucky fields and cattle feedlots around Jaime’s home have been paved over to make way for clean, gray box buildings and herds of 18-wheeler delivery trucks. “You can hardly smell the cow manure in the air any more,” he said.

Folk not farming with the limited local water supplies is bad too apparently. But that land issue is that resource being applied to its highest valued use. If the same were done for the water then that problem would be solved too.

We really do insist that prices work

As with our insistence yesterday, prices really do work.

We don’t need a government plan simply because we’ve already got a plan. Those prices work because prices do work. If soaring energy bills hitting wallet by wallet don’t incentivise people to insulate the loft - those few who haven’t done that already - then nothing will. It’s precisely because energy bills are soaring that we don’t need any more or other government plan.

Today’s example runs the other way:

Soaring energy costs could threaten future of electric cars, experts warn

Well, yes. One of the things we know about humans is that they, we, do less of more expensive things and more of cheaper.

Until recently ownership of electric cars had been gaining in attractiveness as the cost of petrol rose. But since recent rises in electricity prices – in Germany of around a third compared with a year ago – the price differential has shrunk.

That is the way the world, we inhabitants of it, work. It is entirely true that as electricity prices rise then electric cars become less enticing and so fewer will buy them. Just as it is also true that as energy prices rise then people will undertake actions to reduce their energy consumption. Turn down the thermostat, wear a jumper, insulate the house, fiddle with the boiler and all the rest.

It really is true that prices work - which is why we do not, in fact, need grand plans forcing action upon people. Because prices have already changed to incentivise exactly those changes.

We may well need to do some work on aiding people dealing with the extremes of those incentives and prices - but the rush to change behaviour is already underway.

Queen Elizabeth- the one constant in a changing world

During a history class in my first year at a state grammar school, the imposing headmaster, Colonel Thomas, swept in wearing his gown and mortar board. He announced to the class, “I think you should know that at six o’clock this morning, His Majesty King George VI passed away. I think we should all rise for a minute’s silence.” We duly did so, and Colonel Thomas left us. As we sat down, one boy asked the teacher, “Please Sir, who’s dead?”

For the next 70 turbulent and changing years, his successor, Queen Elizabeth II, was the one constant that kept the nation united when it faced different challenges and new opportunities. It was under her first prime minister, Winston Churchill, that many of the wartime restrictions were abolished, including rationing and identity cards. I remember the glee with which I threw away my hated rationing books, though I kept my ID card for years as a souvenir.

After the Suez crisis of 1956, the country realised that it was no longer powerful enough to exercise sway in the world without allies. We used to tune in to half-hourly news bulletins and the BBC, then the monopoly radio broadcaster, introduced them for the first time to cover the crisis. 

The Queen then presided over a remarkable shift away from a British Empire and into a diverse Commonwealth of Nations which cooperated together to achieve joint objectives. It said much for the nation and its monarch that this was one of the few empires in history which achieved its dissolution largely peacefully. Queen Elizabeth was very much the cement that held the Commonwealth together. She valued her role as its head and exercised her influence to have it as far as possible share common values. I kept my school geography book that showed large parts of the world coloured pink, memories of a bygone age.

The monarchy was one of the few bright spots in Britain’s long slow decline into the economic chaos of the 1960s and 70s. The country sought to halt this decline by joining the European Economic Community, which it saw as a free trade area. The Queen visited many of the European capitals and leaders, and became a very popular figure on the European continent. 

Queen Elizabeth had an easy relationship with most of her 15 Prime Ministers, including Margaret Thatcher, the one who overturned the postwar consensus, and turned Britain around from being the sick man of Europe into being one its powerful and leading members. The retaking of the Falklands after the Argentinian seizure gave the nation a new feeling of self-confidence. I was in Covent Garden when I saw on a TV screen in a shop window that the Union Jack was now flying over Port Stanley. The Queen was now at the head of a nation that felt it had a new role defending freedom and democracy, and which was prepared to commit resources to that end.

The Queen presided over the dismal years of the 1970s when trade union leaders seemed to exercise more power than the monarch, or, indeed, Parliament. That ceased when Mrs Thatcher brought the unions within the law, so they were now subject to the rule of the Queen in Parliament. I still have the portable gas cooker and gas lamp that I used during the power cuts to which we were subjected by the union bosses.

Throughout her reign, the Queen took a delicate apolitical stance, wishing to be seen to not be interfering in politics. This was a major factor in having the whole country unite behind her, regardless of any individual views they might hold. Twice she gave a discrete but delicate nudge that may have indicated her own position. Just before the Scottish referendum on independence, she said that she hoped the people “would think carefully” before they voted. 

Just before the Brexit referendum, the Sun newspaper ran a story provided by someone at a private dinner party attended by the Queen that she had allegedly expressed support for Britain regaining its independence. The Palace, as usual, declined to comment on such matters. Having seen the United Kingdom enter into the European Economic Community some 40 years earlier, she now presided over its departure from the European Union.

She intervened personally during the Covid pandemic with a speech to the nation, reminding her subjects that normality would return, and that in the wartime words of Vera Lynn, ‘We will meet again.’ I took the vaccines at the first possible opportunity, and welcomed and agreed with her reassurances. 

I saw the Queen many times, but only met her once to shake hands and talk briefly. It was when I was an Edinburgh councillor and we held a civic reception for her, Prince Philip, the now King Charles and Princess Anne. She admired my Edinburgh graduate tie, and we all talked briefly about university life since Charles had also just graduated.

The nation must now move into an unknown and uncertain future, without the bedrock of stability that she offered during her reign of 70 years in which the modern world took shape. I was present throughout those years and the changes they brought. She was the one constant factor throughout them, bringing an aura of calm and stability to sometimes chaotic times. She will be sadly missed, but remembered with much affection and appreciation. 

Can we just remind, again, that prices do work?

Demands that the government must do something:

UK must insulate homes or face a worse energy crisis in 2023, say experts

Cutting heat loss from houses will be more effective in the long term than subsidising bills, according to analysis

The report itself:

An area that could make a real difference, but was entirely absent in the prime minister’s plan, would be tackling the UK’s energy efficiency problem. The UK’s homes and buildings are among the least efficient in Europe, which is making the crisis especially painful for households and businesses. Yet remarkably the Johnson government and now seemingly the Truss government have ignored this so far in their responses. The case for action is even stronger now that the government will be taking such large energy costs directly on to its balance sheet.

We agree, up to a point. Better insulation will reduce heat loss, of course. We would point out that a great deal of this has already been done. For example, the vast majority of houses without cavity wall insulation are those without cavity walls to insulate.

But the point where we disagree - that the case for government action is stronger now. No, it isn’t, the case for government action is ended. Because we’ve already that solution to hand - prices.

It is not true that if something needs to be done then government must do it. It is true that if something must be done then the incentives to do it must be properly aligned. So, the nation faces possibly bankrupting energy bills now and in the near future. They’re faced household by household too. Which means that every household in the country now has the finest incentive possible to find out about - and do - whatever insulation is possible.

We don’t need a government plan simply because we’ve already got a plan. Those prices work because prices do work. If soaring energy bills hitting wallet by wallet don’t incentivise people to insulate the loft - those few who haven’t done that already - then nothing will. It’s precisely because energy bills are soaring that we don’t need any more or other government plan.