Time to abolish the Advertising Standards Authority

Some decades back Bernard Levin lauded the actions, the very existence, of the Advertising Standards Authority. There was a case where one of the crisps companies - Walkers, Smiths perhaps - used the tagline of “Britain’s Crunchiest Crisps” or some such. Another crisps company - Walkers, Smiths perhaps - complained. The ASA ruled that as there was no proof of crunchiest then to assert a fact which was not known to be a fact was in breach of the advertising regulations.

Levin lauded this not so much because having prodnoses determining advertising was wondrous but because of what else this told us about British society. We’d solved all the big problems - which to a large extent we had and have - like poverty, destitution, homelessness, war ravaging the domestic landscape and so on. Therefore we had the resources to place that little slice of cherry on the icing of the societal cake - concerning ourselves with irrelevant claims made by crisps manufacturers.

We now need to abolish the ASA:

HSBC has suffered a fresh blow to its green credentials after the UK advertising watchdog banned a series of misleading adverts and said any future campaigns must disclose the bank’s contribution to the climate crisis.

The ruling by the Advertising Standards Authority (ASA) followed dozens of complaints over posters that appeared on high streets and bus stops in the lead-up to the Cop26 climate change conference in Glasgow last October.

The watchdog said the adverts, which highlighted how the bank had invested $1tn in climate-friendly initiatives such as tree-planting and helping clients hit climate targets, failed to acknowledge HSBC’s own contribution to emissions.

“Despite the initiatives highlighted in the ads … HSBC was continuing to significantly finance investments in businesses and industries that emitted notable levels of carbon dioxide and other greenhouse gasses. We did not consider consumers would know that was the case,” the ASA said. “We concluded that the ads omitted material information and were therefore misleading.”

That’s not a simple ruling upon fact. That’s moving over into censorship of opinion. Therefore we need to remove the people who are able to censor in that manner.

The problem is not, in fact, the existence of the power to censor advertising. It’s that the power has existed for some time. For what happens to any such organisation is that whatever the original goal or strictures upon the deployment of power the existence of the organisation will attract those who wish to both deploy and extend that power. We find ourselves in a Mr. Creosote world, where there is that urging for just the one more, wafer thin, mint. Before, of course, the system explodes in a welter of viscera.

Once an organisation has soured like this there is no hope of reform - precisely and exactly because those who populate it are there so that they gain this power over society. Thus abolition is the only useful action.

There is, after all, a considerable difference between insisting that “as you have not proven “crunchiest” you cannot claim “crunchiest”” and “you must acknowledge your historical guilt before you may say anything”. The ASA has crossed that line - Goodbye ASA.

Ceteram censeo ASA esse delandam.

Always optimise for the scarce resource

It’s a fairly basic idea - a pre-economic one really - that we should always optimise for the scarce resource. Gold, for example, is expensive, so the plating on connectors in computers has gone from perhaps 200nm to 2nm over the past four decades of the personal computer’s existence. We use less gold - which is expensive - to make each computer these days, we have optimised for the scarce resource.

Meat is expensive, every society has a standard carbohydrate sludge to accompany it to fill bellies by optimising for the scarce resource. Human lifetimes are limited thus we desire that things be done faster so we can fit more of them in to our three score and ten - we optimise for that scarce resource.

This is not economics telling us we should do this, this is economics observing that this is what humans do.

At which point: William Hague:

Ideology is dead: it’s competence we need now

Talk of tax cuts and the size of the state should give way to pragmatic plans for education, business and the NHS

We’re not aware of any shortage of ideology. We are not aware, either, of any over-abundance of competence in the political classes. That’s about as mildly as we can put it.

There is that Hayekian point that the centre never will have - cannot possibly have - the information necessary (or, for completists, be able to process the data it can’t get into useful information) to approach competence in managing a society or economy.

There is also the rather milder point that selecting those managers by who kisses babies best is unlikely to be selecting for said managerial competence.

All of which is, of course, ideology. The reason the state should do less is because the state, as directed by politics, is not good at doing things. The advantage of this as an ideology is that it’s clearly factually true as well as merely being a worldview.

Hague’s insistence seems to be that we should use more of what we’ve not got and less of what we do. This is as with insisting we should up our intake of steak and lobster, economise on potatoes, in order to make our diets cheaper. Or, to plate those computing connectors with trilithium, or unobtanium - useful tricks in science fiction but not wholly sensible in this ‘ere reality.

Setting up the system to use more of what we’ve not much - if any - of just isn’t the way to do things.

Immigrants, they get the job done

The Government needs to rethink and improve their immigration plans to a more liberal system which reduces restrictions and allows a more free movement of migrants.

The UK has notoriously hostile immigration policies. This is hardly surprising for a Conservative government, but their hostility towards migrants were exacerbated during Theresa May’s tenure as Home Secretary: pledging to fulfil Cameron’s manifesto policy to reduce net migration by ‘tens of thousands’. This included the introduction of the Right to Rent Scheme and cutting fundamental services (including the NHS) to illegal immigrants. Since then, the Government has continued to commit to hostile immigration policies: restricting illegal immigrants in ways which have been unduly detrimental to legal asylum seekers and reducing low skilled migration.

Earlier this year, the UK introduced a points-based immigration system which required migrants to have a total of 70 points to be able to work in the UK. The characteristics however are unreasonably stringent and make it excessively difficult for ‘low skilled’ workers to migrate to the UK. Such characteristics include, for instance, having a relevant PhD, having a salary of at least £25,600, meeting English speaking requirements, having a secure job offer in a ‘highly skilled area’ and so on. At Conservative Party Conference, Suella Braverman made a speech in which she pledged ‘to deliver the kind of migration that grows our economy’ and believes the way to do this is by ‘not relying wholly on low skilled foreign workers’. It seems therefore that the Government will continue in their aim to reduce low skilled immigration. 

One of the most fundamental problems with this commitment is largely a result of the misconstrued economics behind their policies. The Government continuously declares themselves as a pro-growth party, but their dedication towards reducing the number of low skilled migrant workers is only restricting their ability to fulfil this. This is because low skilled migrants are needed to fill employment gaps. Despite there being a plentiful number of jobs available, due to the mismatch between these vacancies and the jobs people are looking for, these roles are not being filled. Persistent employment gaps can be hugely detrimental to the economy. This is partly a result of the increased wages firms have to offer to attract workers into these vacancies, ultimately leading to increased business costs which are then passed onto the consumer through higher prices. This then leads to less consumption in the economy as people restrict their spending, leading to economic contraction – going against the Government's initial aims to generate growth. As reported by the Financial Times, ‘UK businesses expect to raise their prices at the fastest pace since records began to offset higher wage costs driven by a tight labour market’. 

Despite these concerns, the Government continues in their justification that by creating a gap in the labour market, wages of workers will rise as companies compete for scarce labour. As a result, business costs will surge and companies will be incentivised to invest in capital rather than labour, thus increasing productivity. However, this assumes that all companies will be able to adapt to inflated wages and act accordingly. In reality, this is not the case. With soaring energy costs, supply chain problems and an increase in inflation, many companies no longer have the ability to pay employees higher wages. At best, this negatively impacts a company's ability to meet output demands and at worse, makes firms go bust. With these risks, businesses are less likely to invest, despite the government’s initial conceptions that with higher business costs, investment will increase. In addition to reduced investment, as firms go bust, job losses will become inevitable and consumers will face significantly less disposable income. This again will lead to a reduction in consumption in the economy. Once more, even when firms have the ability to invest, in certain sectors of the economy such as childcare, investment into capital isn’t cost-efficient as such jobs are difficult to automate. Thus the Government’s assumption that all firms will choose to innovate when wages increase is flawed. 

Moreover, in addition to price increases, job vacancies damage the economy as low skilled workers complement higher skilled workers. By complementing the existing workforce, low skilled immigrants allow for a more effective, functional economy. One such example of this complementarity is ‘the nanny effect’ – this is that low skilled workers provide childcare and house care services such as cleaning which allow high skilled workers the opportunity to return back to work after childbirth. Thus, where there are low skilled immigrants present, more high skilled workers can return to their roles in the labour market. 

It is clear therefore that low skilled immigration isn’t as detrimental to the economy as the Government makes it out to be- and the only benefit of introducing such anti-growth policies is because they believe it is what the British public want and thus, what will keep them in power. However, even this seems counterintuitive, particularly as statistics show a warming of public attitudes towards immigration. In fact, support for reducing immigration is at the lowest it has been since 2015 with only 4 in 10 people in the general public preferring a reduction in immigration. Moreover, latest findings conclude that 46% of people believe that immigration has had a positive impact on Britain, in contrast to a mere 29% of people believing it has had a negative impact.

The Government ought to understand that, however politically controversial they deem immigration to be amongst the electorate, there is no denying that it brings economic benefits. Now that the public don’t have particularly negative views on immigration, rather than pursuing a policy that reduces long term growth and living standards, the Government needs to rethink and improve their immigration plans to a more liberal system which reduces restrictions and allows a more free movement of migrants, including low skilled migrants. It would also be economically beneficial for the Government to better communicate the benefits of free movement to the British people rather than blaming migrants for Britain's economic downfalls, this in turn will further reduce people’s support for hostile immigration policies and thus will support economic growth aims.

Fire NIMBYs into the Sun

It has been reported that Liz Truss and the environment secretary, Ranil Jayawardena are going to end the distinction between 3A and 3B farmland— effectively banning solar panels from 58% of farmland in the UK. For someone who models herself on ‘growth growth growth’, this decision can only be described as bizarre. 

There are several reasons why this policy is damaging to the UK’s growth prospects. When left to the free market, the decision between the use of farmland for solar or agriculture comes down to which option provides the farmer with greater profit. By removing this choice, the government is introducing inefficiencies. In some circumstances, farmers are forced into the choice which provides a lower return. Ultimately, this means the decision to effectively ban solar has a net negative impact on the productive capacity of the UK economy. 

In the recent Mini Budget the most expensive policy was by far the ‘Energy Price Guarantee’, which in extreme scenarios could cost up to £140 billion. This works by capping the unit price consumers have to pay, while the government covers the difference. As such, a decrease in the market price of energy could have a significant impact on the price of the EPG and as a result the overall affordability of the Government’s (not so mini) mini budget. 

With demand for energy likely to rise through the winter months and uncertainty about the situation in 2023, any boost to supply (putting downward pressure on the price of energy) could be a saving grace for the Government. Solar is quick to build, generally only taking a few months, and by some estimates is nine times cheaper than gas, although that figure is slightly inflated due to government price guarantees. Unlocking investment into solar energy should be near the top of the Government's priority list. 

The cost of this policy suggestion goes further than the economics though. The Conservative Government committed to a fully decarbonised power sector by 2035 - requiring significant investment to replace the energy currently coming from gas, and other low carbon energy sources. 

However it was estimated by the Financial Times that this policy would threaten £20 billion in investment from the private sector, corresponding with lost production of 30 GW of solar energy which could have reduced carbon emissions by 12 million tonnes. This is incredibly damaging to the environmental goals set by the Government as their initial forecast of a 5 fold increase to 70 GW now appears unlikely. 

The policy also poses significant threats to the UK’s energy security. It was estimated by the Carbon Brief that 5 GW of new domestic energy supply could mean that the Government could cut UK gas imports by 2%. When adjusted to the 30 GW which is currently at risk, the UK could therefore cut gas imports by 12%.

So why does Liz Truss and the current Conservative Government wish to do this? The official line is that it would protect the UK’s food security. But 80% of the UK's food is already imported. It is estimated that even if solar is scaled up in line with the Government’s net zero target, it would still only cover 0.3% of the UK's land area, or 0.5% of farmland, less than the amount of land used for golf courses. 

Solar panels can also be used simultaneously with agricultural practices creating agrivoltaic systems: shade provided by the panels can contribute to create a kind of microclimate, resulting in lower water requirements due to protection from evaporation, as such helping protect farmland from the biggest threat - climate change. Such systems have seen great success in Japan where there are nearly 2,000, growing more than 120 different types of crops. All things considered the Government's reasoning seems questionable at best and a tactical misdirection at worst. 

So why else would the Tories decide to ‘effectively ban’ solar panels across much of the British farmland? The problem is that a lot of the public find them unsightly: particularly older generations, who vote at higher rates and, more importantly, vote Conservative at higher rates. So this, as it often does, boils down to politics trumping economics. The Government is making decisions to try to appease their core voting base rather than taking decisions which are the best for the UK’s future energy security and economy. How pleased will pensioners be if they can't heat their homes because energy supply was curtailed in the name of pretty fields ?

The Conservatives need to to throw out the silly notion that policy decisions should be based on trying to protect specific voter bases, and instead focus on trying to make economically sound decisions that benefit us all in the long-run. 

There's a very, very, simple solution here

It could be that research and development is not concentrated in the right sectors, says Roger McKinlay, head of the government’s Quantum Technologies programme. “We need an industrial strategy, not just targets,” he says.

No, that’s not it, that’s idiocy. People who can’t choose who should be Prime Minister this week are not to be put in charge of what technologies should be developed over the next decade.

The Office for National Statistics has just admitted it has wildly underestimated private sector R&D spending, which it now reckons was £43 billion in 2020, almost 60 per cent more than thought. If true, this paints a very different picture. No longer a woeful laggard in this area, the UK is roughly average and slightly ahead of France.

But is it true? The ONS thinks its original numbers, derived from surveys, are less accurate than Treasury figures from R&D tax credit claims. Some economists are sceptical, suspecting that the Treasury numbers are too high because companies over-claimed.

We’d just remind of that Hayekian point, that the economy is really complicated, the centre never is going to know what’s happening so detailed planning is impossible.

But there is more here:

Many economists point to the weakness of all business investment, not only R&D. Spending on plant and machinery has been anaemic, despite the cut in corporation tax over the past decade. Yet for Britain’s services-heavy economy it is investment in intangibles that is increasingly key. And here too the figures are dodgy. The Bank of England said the “puzzling” weakness of UK investment data may be due to underestimates of spending on intangibles.

Investment is, by definition, spending that is amortised over more than one accounting period. That’s just what it is. Whatever is a simple cost in this period, right now, is a simple cost and current spending. Whatever is the buying of something that will be used over time is investment.

Which leads to two different observations.

Heard of SaaS? Software as a service? Microsoft Office or Microsoft 365? Same software, same usage, same producer same customer list- people have been migrating. Office is investment, you buy a licence and wait for the next upgrade cycle - a couple of years - to buy another. That’s amortised over the usage period, it’s investment. 365 is a monthly subscription fee. That’s current spending.

There’s more than just this Office thing as well. SaaS seems to be about $10 billion a year in revenue from the UK. $10 billion is an important number when we’re talking of £45 billion in investment. Yes, of course they’re slightly different things, the point is that measuring what is investment is difficult because it’s actually a rather arbitrary definition and tech is moving things across that divide.

This also being true in another sense. Write code these days and it’s considered very odd indeed to capitalise that. The cost of writing the code is - almost always - treated as a current expense, not an investment to be amortised.

That is, the more we invest in such intangibles then the less investment is actually counted as being investment. Again, this is not a perfect mapping, software and intangibles, but the point still stands.

The real answer here is not that the UK invests enough, too little, too much, is inefficient or efficient at doing so. It’s that we’ve no idea of even the number, let alone what it should be. Therefore we should stop faffing around with trying to tweak the number. On the very sensible basis that even all those really clever people who know how to kiss babies have no damn clue.

That’s the solution.

Is the UK in a Sovereign Debt Crisis?

The dramatic political reaction to former Chancellor Kwasi Kwarteng’s ‘fiscal event’ on 23 September was entirely predictable. Less predictable, however, was the scale of the fallout in the UK’s sovereign bond market.

 Yields on gilts of every maturity jumped frenetically, with 10-year and 30-year borrowing rates rising by 0.7 and over 1 percentage points, respectively, in the wake of the announcements. The size of these moves led many financial and economic commentators to interpret them as a sign that asset managers and capital markets more generally were losing faith in the British government’s ability or inclination to continue paying its debt.

 This view held that the size of Downing Street’s tax cuts – combined with the lack of any corresponding spending reductions, the existing borrowing commitments and the hollowness of the government’s growth strategy – had prompted investors to seriously reassess the default risk of UK government bonds. 

Other observers, like Steven Major, head of fixed income research at HSBC, writes that the spike in yields was “not because there are serious questions about the creditworthiness of the UK government.”

 Because the UK’s underlying borrowing capacity depends on a range of deeply uncertain factors, it is impossible to say with certainty whether perceived default risk is part of what initially drove investors to revalue UK debt. However, a key data point, as Bank of England veteran and National Institute of Economic and Social Research president Paul Tucker noted, is the change in the spread between yields on nominal and inflation-indexed or real bonds. Or rather, the lack of any discernible change.

 For an investor to forgo protection from the possibility of unanticipated inflation eroding the real value of their bond before it reaches maturity, they’ll insist on a higher rate of return. This makes the gap between nominal and real yields a reliable measure of the bond market’s inflation expectations.

 Under conventional assumptions about productivity growth, demographics and interest rates, the current path of UK fiscal policy is unsustainable over the long run. This makes a future debt default distinctly possible. Such a scenario would take one of two forms.

 First, a future government might engage in a legal default, meaning it officially refuses to comply with the terms it agreed to when it initially issued its debts. Second, it could force the Bank of England to break from its 2% inflation mandate and engineer a period of unexpectedly rapid inflation, reducing the real value of the government’s liabilities and thereby transferring resources from bondholders to taxpayers.

 This scenario, sometimes known as an economic or inflationary default, involves ‘fiscal dominance’, wherein monetary objectives become subordinate to fiscal objectives. It occurs when the debt-to-GDP ratio grows large enough that two of the government’s core macroeconomic objectives – low inflation, i.e. stability in the value of government liabilities, and debt sustainability, i.e. full nominal repayment of those liabilities – are no longer compatible.

 The legal route is likely to be messier, more abrupt and significantly more damaging to the UK’s long-term economic prospects. As a result, a future government is much more likely to opt for the inflationary route. The implication is that if investors begin to lose faith in the treasury’s credit-worthiness, the initial signal will be a rise in inflation expectations.

 An investor demanding a default-risk premium on nominal bonds without simultaneously raising their inflation expectations is one expressing near certainty that a future government would opt for the more economically and politically costly type of default. Such investors might well exist, given the recent rise in UK sovereign credit default swap rates, but they are rare.

 Another important data point is the nature and effect of the intervention launched by the Bank of England on 28 September. For many, unconventional monetary policy operations, as Ricardo Reis puts it, possess a certain mystique. Central banks are sometimes seen as a sort of angel investor, able to draw on separate and perhaps deeper pockets than other parts of the government.

Central bankers have been in no rush to dispel this perception, and most of the time it’s not relevant. But when financial markets suddenly seize up, it can obscure the underlying accounting. Put simply, when a government’s borrowing costs rise because of an increase in perceived default risk, its central bank can’t ‘bail-out’ its treasury. The government’s budget constraint jointly limits both institutions’ financial capabilities; the central bank can purchase the treasury’s debt, but the Monetary Policy Committee borrows from commercial banks to fund these operations, by issuing interest-bearing reserves.

 This matters, of course, because in a situation where a spike in bond yields reflects larger default risk, the Bank of England couldn’t reduce that risk simply by buying more of them. The only way to reduce default risk is for the treasury to succeed in altering market expectations about the size of future expenditures relative to tax revenues.

 In the eurozone the European Central Bank represents member states collectively, and so its asset purchases can affect an individual member state’s default risk. But in a country like the UK with its own central bank, although the average maturity is important, the division of liabilities between the treasury and the central bank is irrelevant for debt dynamics. 

 Now, when the Bank of England announced its willingness to purchase long-term bonds on September 28, its role was that of a market-maker of last resort, as Walter Bagehot famously advocated in the mid 19th century. When the news broke, the reason yields immediately fell was that the spike was being greatly amplified by a serious liquidity shortage on the part of some of the largest holders of UK bonds.

 The FT has some great reporting on this, but simplifying a little, the basic issue is that the pension fund sector relies on a pile of interest rate swaps to hedge against the risk that falling interest rates would raise the present value of their mostly long-term liabilities over their assets, some of which are much less sensitive to rate changes.

 The former Chancellor’s announcements on 23 September raised market expectations about the path of the Bank of England’s policy rate due to higher expected aggregate demand, and more importantly, injected a lot of uncertainty into the trajectory of fiscal policy.

 The ensuing rise in yields meant that pension schemes had to keep their swap positions collateralised, in the case of those operating through centralised clearing houses, using cash. To generate it, schemes began selling gilts. 

Because the wave of selling was both sudden and sector-wide, this rapidly drove prices further down, which meant more collateral had to be posted, necessitating more selling. Liability-driven investment (LDI) strategies are nothing new, but their fragility pushed much of the UK’s pension industry into a doom loop, hugely amplifying the initial spike in yields.

Meanwhile, the widening of the bid-ask spread eroded some of the liquidity or ‘convenience yield’ on UK bonds, a significant factor behind many investor’s appetite for sovereign debt.

So, while the Bank of England’s offer was simply to swap one form of government liability for another, cash was what the pension sector needed to meet its margin calls.

Of course, a no less striking feature of the market reaction was the fall in sterling’s exchange rate against both a generally buoyant dollar and against the euro. Rising interest rate expectations, in isolation, would have appreciated the pound, but that effect was overwhelmed by the enormous uncertainty that the former Chancellor’s announcements had injected into fiscal and therefore monetary policy, sparking a flight into foreign currencies.

Other aspects of the market shifts since 23 September remain somewhat mysterious. The gap that has opened up between long-run government bond yields and long-run OIS forward rates, for example, has not yet been explained. Overall, however, from an investor’s perspective, the key thing the new Chancellor has to ‘deliver’ in his expedited announcements is concrete forward guidance on the trajectory of fiscal policy.

It's not the subsidies that are the problem, it's the lobbying for them

We are not, in general, in favour of subsidies. This is probably fairly generally known too. What is possibly less understood is why we’re not.

Yes, of course, subsidies are the government picking losers. Things that would not happen without baby kissing champions lavishing them with cash are things that probably shouldn’t happen. But what truly harms and costs is the competition to receive those subsidies:

The great hydrogen gamble: hot air or net zero’s holy grail?

An army of lobbyists is trying to persuade the government of the case for the combustible gas as a valuable weapon in the climate crisis, but questions remain

That army of lobbyists.

There are at least 120 paid lobbyists for hydrogen operating in parliament at present, according to estimates from the MCS Charitable Foundation. In the EU, a vast network of fossil fuel companies, trade associations and other interested parties are putting the case for hydrogen.

That vast effort to put the case.

Precisely and exactly because government has taken upon itself that power to subsidise - to pick losers - therefore there is this negative sum competition to capture those subsidies. Even, the permissions.

As it happens we’re very much in favour of hydrogen as part of the energy mix. If - and agreed, it’s an if - green hydrogen does become cheap then we’ve that climate change problem largely licked. Renewables through electrolysis to hydrogen to fuel cells solves the storage and battery problem. Green hydrogen combined with atmospheric CO2 then also solves - to the extent that fuel cells don’t - the automobile challenge, by producing synthetic petrol. And synthetic jetfuel entirely solves flying. That last already around and about economic as it happens. Cheap green hydrogen also entirely solves steel making emissions via DRI.

Sounds like a plan - except it shouldn’t be a plan at all of course. Not from government at least. For the government plan should be that here’s the problem - CO2 emissions - therefore any technology that solves that problem is to be treated equally. We would prefer by not being treated by government at all but at a minimum it should be that any method is treated the same. That is, it’s the result that matters, not the method by which it is achieved.

Because this process of submitting everything to politics as to method does indeed lead to the picking of losers - wood chip burning, E15 and all the other horrors - while also loading society with the costs of the scramble for those choices and subsidies.

We think hydrogen will in fact work for all the opinion of a few wonks matters. What we insist upon is that we must stop using political favour to either calculate that or encourage it. Instead use the one system we have that is absolutely and wholly fact based. If it works in the market then it works - so, leave the market to do the calculating. Any tipping one way or the other is by technology neutral and simple actions, not detailed planning.

The added advantage of this being that all those lobbyists would have to go get a real job, one that adds, not subtracts, societal value. Shame, eh?

We do not, for a moment, believe these wealth figures

The admirable Timothy Taylor has a piece looking at the racial wealth gap in the United States. We disagree, vehemently, with it. Not with what Taylor is saying, he’s outlining the current accepted wisdom. But with that current accepted wisdom. We’d probably want to mutter something about single parent incidence being an obvious enough thing to look at when considering inherited wealth for example. Something that none of this literature, to our knowledge at least, does do. Children who inherit from two parents are likely to have more wealth than those who inherit from one.

But our real disagreement is in the definition of wealth that is used in all of this literature. Which means that we disagree, vehemently, with this conclusion:

There’s a lot that can be said about all this, but I’ll limit myself to the obvious: Four decades–call it two generations–of no progress on the white-to-black wealth ratio is a long, long time.

We disagree that that is true.

Now, given what is measured it is true. But our disagreement is that what is measured isn’t the correct thing to be measuring. Wealth is measured as the stock of what can be sold off, for cash, over and above any associated debt. So, housing equity, private pensions provision and the two very much smaller categories of financial investments and personal possessions. That’s pretty much what does make up the wealth being considered. Those are, after all, the four groups that household wealth is normally broken up into.

We insist this is the wrong measure. The policy important - assuming that we are trying to craft some policy here - measure is a wider definition of wealth. Which we’d put at something like the ability to consume without having an income. No job, no labour income, yet still being able to consume - that’s wealth.

Now to be naughty and switch to UK figures - just because the Office for National Statistics does calculate this, in a way that Census, BEA and BLS seem not to.

Taxes and benefits lead to income being shared more equally in financial year ending 2021

In the financial year ending (FYE) 2021 which covered the first year of the coronavirus (COVID-19) pandemic, the median household income in the UK before taxes and benefits was £34,000, increasing to £37,600 after taxes and benefits. The richest fifth had an average income before taxes and benefits of £107,600, over 13 times larger than the poorest fifth (£8,200).

After cash benefits and direct taxes, the richest fifth of people had an average disposable income of £78,100, 5.9 times larger than the poorest fifth (£13,200). After considering all taxes and benefits, this gap reduced to 3.7, with average final income of £79,200 and £21,400 for richest and poorest people, respectively.

We often do calculate (as the Americans often do not) income inequality after taxes and those cash benefits. The point we insist upon is that it needs to be after all benefits. The NHS may not be the finest health care system in the world but the access of all to its ministrations is worth something. State schooling isn’t - Lord Knows - perfect but free at the point of use is worth something.

Given that those two - and many other things - are the ability to consume without a labour income then those are also wealth. Wealth being a stock which allows consumption without a labour income. So, given that healthcare, education - and many other things - can be consumed in the absence of a labour income thanks to the Welfare State then the Welfare State is a source of wealth.

Having made the point using UK figures we’d go on to point out that yes, the US does have a welfare state. They spend $trillions a year on it in fact. Everyone in the US does get healthcare treatment, for example. It’s healthcare insurance that’s patchy and even there the poor do get that too - Medicaid and CHIPS. It’s the poor to middling who fall into the insurance gap, even as turning up at any hospital in the country gains treatment. American schools are indeed free at the point of use. There’re Section 8 vouchers (largely equivalent to Housing Benefit) and on and on to including free cellphones for some - all the ability to consume without the possession of a labour income. They’re wealth that is.

Now, that the black part of the population relies more on the welfare state part of that wealth than the white does could indeed be an historical crime calling out for reparatory vengeance. But, we insist, it’s not actually a wealth inequality. Or, at least, wealth inequality isn’t as wide as portrayed, simply because things are already done to lower both income and wealth inequality.

To put this all another way. There are those who insist that we must plan society in order to make it better. Could be, could be, although we’d be willing to have a stand-up screaming match about even that assertion. But if we are to plan society hadn’t we best understand how it currently works, first? Work out how much actual income and wealth inequality there is before trying to change it?

And a third way to make the point. If we don’t include the effects of government policy upon the wealth distribution then how can we employ government policy to change the wealth distribution?

Solving budget problems - Cancel HS2 now

As has long, long, been pointed out the basic cost benefit analysis of HS2 is fatally flawed. The benefit is that those business class - first class - passengers get to their destination faster. That time saved is valued at their pay rate. An entirely normal manner of calculation by the way.

But that case contains the terrible flaw that we’ve invented mobile internet. Therefore time spent on a train is not valueless in terms of work done, the assumption made. In fact, given the interruptions of modern office life the time lost to Gavin announcing that the train will be departing soon is less, umm, interrupting than being in said office. Given the dependence of the HS2 numbers on that value of first class passengers’ time this blows that hole in that cost benefit analysis.

We can also do something entirely different and look elsewhere for guidance. Given that so many things do start in California, to then spread, their experience:

The infamous, $113-billion-and-counting California high-speed rail line between San Francisco and Los Angeles, which was supposed to be completed by 2020 for a cost of $33 billion yet has only begun tinkering on a 171-mile stretch in the Central Valley, is not really "an existing project," says former California High-Speed Rail Authority (CHSRA) Chair Quentin Kopp. "It is a loser."

Added ex-chair Michael Tennenbaum: "I don't know how they can build it now." And California State Assembly Speaker Anthony Rendon (D–Lakewood): "There is nothing but problems on the project."

Quite. Given that California is indeed providing that experience of the future to us we really should be taking note.

Government needs - so it says - to find significant savings in spending currently. Great, cancel HS2. It always was a dog of an idea and it’s time to put it down.

We can even approach this in a third manner, one that’s wholly, exactly and entirely conclusive. Back 12 years George Monbiot was able to spot the economic flaw in the plan. And let’s be serious about this, wholly, exactly and entirely. If even George Monbiot can spot the error in your economics then you’re really howling at the Moon.

Save money, kill a train set today.

No, a public information campaign is not 'nanny-statism'

There seems to be a common misconception that free-market neoliberals must be firmly against the idea of a public information campaign on saving energy, on the basis that this is pure nanny-statism. In fairness, this is a view which has been propagated by our Prime Minister, who is said to be ‘ideologically opposed’ to the idea, and the Minister for Climate, who reminded Sky News that they are ‘not a nanny-state government.’

It’s worth quickly setting out here why they are wrong- and why Liz Truss’ announcement at PMQs this week that BEIS will be looking into a public information campaign after all is welcome news. 

1. Information Campaigns are not a symptom of a nanny-state

It’s hardly a secret that the Adam Smith Institute is no fan of the nanny-state. Fundamentally,  the nanny state materially impacts the ability of individuals to make choices. However, it is not nanny-statism to offer public advice. In fact, one of the central principles of a free market economy is that consumers should be fully informed in order to make decisions which are most appropriate to their individual needs. 

2. It makes economic sense

Another criticism of the proposed information campaign is that £15 million is a waste of taxpayer’s money, which could be better spent during a cost of living crisis, a view exemplified here by Maria Caulfied. Whilst it is fair to question where taxpayer money is going, this misses a key point. Household energy bills are being subsidised by just under a third, at cost of approximately £150 billion. The public would not have to reduce their energy consumption by much in order for the information campaign to save the Government money. Anyway, compared to £150 billion, £15 million is hardly a small drop in the ocean. 

3. It will help people to reduce their energy bills

There are surely few people who believe that Brits aren’t sensible enough to cut back down on their energy consumption. However, the Government’s communications around the energy price guarantee have been woeful. On her now infamous local radio round, Liz Truss asserted that no-one will be paying over £2,500 for their energy bills- when in fact the energy price guarantee is simply a price cap by another name, meaning that the typical household bill will come to around £2,500. At the end of September, polls suggested that two in five households thought that the guarantee prevented bills from going over £2,500 and the Government has done little work to correct this. 

4. It is necessary to prevent blackouts

As many free-marketeers have been at pains to point out, one of the principal problems with Liz Truss’ energy subsidy scheme is that it has distorted the price signal. Freezing energy bills at a lower rate has created an artificial price signal for users, reducing the incentive to reduce consumption to a level optimal to prevent energy blackouts this winter. Moreover, considering that well-off households will be getting the largest subsidy and will be using the most energy, reminding them that, even if they are financially cushioned from the energy price rises, they still have a part to play in preventing blackouts is surely sensible.