It's strange to see Liberals forget how to be liberal

Perhaps it’s that qualifier, Democrat, that causes the problem:

The Liberal Democrats would force GPs to see every patient within a week, as they say NHS waiting times are a major factor putting voters off the Tories in their target seats.

….

Sir Ed said that his seven day policy would be enshrined into law and added to the NHS constitution to make sure it happens.

The basic authoritarian mindset is that if all the really clever people in government tell everyone else what to do then we’ll gain the best of all possible worlds. The Fat Controllers pass laws, make punishments, shout, pull the policy levers and the wishes of Sir Topham Hatt become reality.

The liberal looks at this same world and these same policy goals and realises that people do not work that way. The way to get people to work like Stakhanov is not to shoot those who don’t but to give a medal - and the bigger assigned flat, reduce the waiting period for a car to only 5 instead of 10 years, etc - to those who do. Even the Soviets worked that out, eventually.

That is, the most basic lesson in all of economics, incentives matter, is true. So, create and mould the incentives to get people to undertake the desired action.

The seven day law, the constitution, this must be backed up by punishment when the appointment doesn’t happen. Who is going to get punished and how? Anyone really see jailing doctors as a cure for anything?

The liberal instead looks at this same situation and notes that doctors currently get paid by the number of patients that they don’t see. GPs are, largely enough, paid the capitation fee, an amount per person who is registered with them for the appointments which do not, in fact, happen. The incentive therefore is to have a large list and few appointments. Lots of patients who produce revenue by not having appointments is the income maximisation strategy here.

To gain the Hatt goal, of GPs actually seeing patients, the solution is to change those incentives. Pay GPs for having appointments, not a list of those they don’t allow to have appointments. Then watch behaviour follow the money as GPs and their systems swivel to maximise incomes under the new set of incentives.

The authoritarian and the liberal both have those visions of the good society, as here the desired outcome might even be shared. The difference is in the method used to gain it - the authoritarian would force, the liberal tempt. The advantage of that second method is that it works - as every priest since at least Aaron has bitterly complained, temptation works really well with human beings.

If we start from abject nonsense then.....

….we’ll end up with abjectly nonsensical policy, won’t we?

Take this from The Guardian:

Agriculture is the world’s largest industry. Pasture and cropland occupy around 50% of the planet’s habitable land and uses about 70% of fresh water supplies.

Agriculture doesn’t use 70% of fresh water supplies. Nothing like, it’s an ingloriously silly thing to say. Having said it of course leads to very silly indeed proposals for doing something about it.

The Guardian’s own link to the FAO to back up the assertion contains this:

On average, agriculture accounts for 70 percent of global freshwater withdrawals.

Which is something wildly different from the first assertion. Of the fresh water that humanity diverts in the system 70% is used by agriculture. Something - as we really do insist - very different from the claim that agriculture uses 70% of fresh water supplies.

We can approach these numbers from the other side. Total rainfall is some 500,000 cubic km a year. 70% of that is over the oceans of course so we might or might not say that’s part of the available supply. River discharge of the 107,000 km3 that falls on land seems to be 37,000 km3. 35% of rain runs into the sea, therefore nothing at all can be abstracting 70% of all (land based) rain from the system.

We can go further too. That oft quoted insistence that it takes two or three tonnes of water to grow a kilo of wheat. Well, OK. Much of that falls from the sky onto the field. That which doesn’t run off into the rivers (see above) returns to the atmosphere through some combination of evaporation, transpiration and, for all we know, perspiration. Whether we’re growing wheat or thistles in that field there’s not much difference in that water cycle. Equally with that 15 tonnes of water to grow a kg of beef. Cows do not turn up at the slaughterhouse as 1 tonne of bovine and 15,000 tonnes of water in a big trailing bag (as a loaf of bread does not have a 3 tonne reservoir attached). That 15,000 tonnes is respirated, transpired, perspired or even pissed out again, back into the cycle. Which would be much the same if we grew bunnies we didn’t eat in that field instead of cows.

Agriculture does use 70% of the water than humans use, that’s the actual truth. It’s also entirely true that some of that is used horrendously inefficiently - irrigation of alfalfa in Southern California being an obvious example. The alfalfa produced is worth less than the alternative uses of the same supplied water. Sure we should do something about that - having an actual and real market in water would solve that particular problem by teatime.

But 70% of water used by humans is an entirely different number from 70% of all water, or all freshwater, or all freshwater supplies, or all freshwater annual availability or any other such construction we’d like to think up. Further, not having agriculture would change the abstraction from the overall system only by a tiny amount at the margin - for whatever plant and animal life replaced agriculture would also use water to something close to the same extent. As also evaporation would still happen.

If we start believing abjectly stupid claims then we’re going to end up with stupidly abject policies. Farming doesn’t use 70% of the world’s freshwater, nothing like. So, stop believing that it does.

How to Get Growth

If you were suffering from a disease you did not understand, would you consult a doctor with six years training or a quack with no training at all? Translate that metaphor to the economic growth politicians claim to be so necessary for paying inflation-proofed wages and funding the increasing tax take. Should you consult those with long experience of creating business or ministers who have had no training of any kind for their positions? The departmental civil servants are not much help: they just restrain ministers from their dafter ideas as distinct from implementing what might work. That is why nothing happens. Nuclear power stations are identified as essential but work does not start for 20 years. In 2018, the Home Secretary declared that migrants crossing the channel in small boats was “a major incident” and she would put a stop to it at once. The numbers have grown dramatically since, aided and abetted by the judiciary who declare attempts to export them to be illegal. The idea that the illegality could be addressed by changing the law is too subtle for the Home Office.

My point, obviously enough, is that if you want a new shower installed, you should ask a plumber, not a carpenter. Another Think Tank, which should remain nameless, is organising a major event to consider how the UK achieves growth. It has identified the key aspects for discussion as regulation, trade, investment, enterprise, tax and financial services. Getting these aspects wrong undoubtedly impedes growth but does growth automatically follow from getting them right? Or are these just things politicians like to talk about?

One definition of enterprise is taking on financial risks in the hope of making a profit. But that puts the emphasis on risk. I do not know a single successful entrepreneur who started by looking for risks to take on. Yes, of course, new ventures are risky but that’s just an undesirable side effect. The entrepreneur and her banker would rather it wasn’t.

Financial services similarly are side effects. It certainty helps to have access to finance although access to too much finance is dangerous. That is one reason why government sponsored new ventures usually fail. Bernard Matthews told me, and just about everyone else he knew, that in May 1950 he started what became a fabulously successful turkey business by buying 20 eggs and selling the 12 chicks that hatched to a neighbour for half a crown.

Tax is not a thing the successful entrepreneur thinks about at the beginning. You have to be making good profits before it becomes an issue but I do know one exception. The CEO of Gilbeys Ireland was pally with their Finance Minister who, over a boozy dinner, told him that if he launched a successful export brand, the profits would be tax-free for 10 years. Bailey’s Irish Cream was the result. The real point of that story is not that the launch was driven by tax but by human interaction. Innovative new business comes from the people you interact with.

There is not enough time in this blog to debunk all the conventional “wisdom” that rattles round Westminster about how growth should be achieved. Innovation and productivity are the keys and neither word appears in the list above. Ministers should study how growth was, hitherto, achieved in the real world. What brought it about? It is certainly good to remove the obstacles, regulation in particular, but understanding how it is really generated is far more important.

Compared to what?

We are very much in favour of Thomas Sowell’s interesting question - “Compared to what?”

More than one in four children with care worker parents are growing up in poverty, according to a report by Trades Union Congress, with the union warning of “rampant” hardship in households with key workers.

The TUC said that 220,000 children – 28.4% – with at least one social care worker as a parent were in poverty, and said the number was on course to rise to nearly 300,000 by the end of this parliament unless action was taken to improve pay and conditions in the sector.

This is, of course, relative poverty. Living in a household with less than 60% of median household income, adjusted for household size. Given that neither the TUC nor Landman Economics have deigned to actually publish their study we can’t tell whether this is before or after housing costs.

So, to ask Sowell’s question, compared to what?

Child poverty continues to rise. The latest data tells us that almost one in three children in the UK are living in poverty (31%). Nearly half of children in lone parent families live in poverty, compared with one in four of those in couple families.

Oh. So poverty rates among care workers are lower than they are in the general population. Or, care worker incomes are higher than they are in the general population - the same statement.

So, that’s something that seems to be solved then, isn’t it?

There are two ways to look at this

It’s not just in this particular part of the Establishment that this happens:

Government ministers are eight times more likely to have been privately educated than the general population. More than half of the new cabinet (58%), including Sunak himself, attended private schools, compared with only 7% of the British population.

That figure is similar to that for the new prime minister’s two immediate predecessors: 60% of Liz Truss’s cabinet were privately educated, as was the case for about two-thirds of Boris Johnson’s first cabinet and those following his 2021 and 2020 reshuffles.

We’ll admit to not having checked this but we’d strongly suspect the Shadow Cabinet has, even if to a lesser degree, rather more than that 7% of the general population. It’s also something of a standing joke that those who write The Guardian are not exactly nor usually the products of that bog standard comp.

Which leads us to those two ways. It’s possible, as many do, to complain about the privilege which comes from those private educations. Then propose that something must be done - abolish the private educations perhaps.

We think that the much more interesting question - much more important too - is what is wrong with the state educations on offer for them to lead to this result? Once we’ve worked that out perhaps we could go to work on fixing whatever those problems are. Which, we would insist, would mean changing how the state schools operate, not abolishing that competition which shows them up.

Observations about the country are all very well. What matters though is what questions you ask about why it is this way. A complaint that private schools seem to produce our rulers is fair enough. But why do they, what’s wrong with the state schooling that leads to this result? As we say, that’s the much more interesting and important thing to be asking.

Don't raise Companies House fees, no, absolutely not

There is a proposal that we should deliberately, with malice aforethought, screw over new company formation because criminals exist. This is not a sensible proposal. Criminals do exist, they need to be dealt with but let’s do this at least, not most, cost to the economy, eh?

Fee for registering a company to increase tenfold under plans to tackle economic crime

Companies House considers charging up to £100 to fund new role fighting flow of dirty money

One little note is that if we make it more expensive to register a company then doing so becomes less attractive to those merely trying to legalise an operating business and makes no difference to the criminals who would abuse the system. We’d deliberately tip the system in favour of the criminals and their vast profit margins that is.

Companies House, the corporate register, is considering the increase in charges as a way of funding new responsibilities to tackle illegal activity that it is gaining under laws going through Parliament. Registration fees currently start at just £10.

The agency is poised to receive beefed-up powers and responsibilities that will require it to police the information submitted by companies and directors, ensuring that it is accurate.

It is part of changes proposed by ministers to stem the tide of dirty money flowing into the UK after new scrutiny in the wake of Russia’s invasion of Ukraine.

Just no.

The deeper point here is that we not just desire we positively gasp for people to both set up new businesses and register them. For this is what produces economic growth - new entrants into the markets. Therefore we want this process to be as simple as possible and as cheap as possible. There is good reason why the time taken, the costs, to register a new business looms so large in the varied economic freedom and ease of doing business listings. For as soon as the costs - whether of time or money - of such formation or registration become appreciable that entire process becomes constipated. To the point that in many economies the process near doesn’t happen at all, there is no movement.

Yes, entirely true, a very simple and very cheap system does indeed allow criminals, money launderers, sanctions busters and the rest to partake. That’s to be dealt with in one of two ways.

The first is simply to shrug and accept it as a cost of having that vibrant new creation system. The second is to treat it as what it is, which is criminals engaging in criminal activity. Something that both can and should be dealt with - but not at that cost of losing the creative vibrancy. If we need a team of accounting sleuths then fine, let’s have a team of accounting sleuths. But let’s charge that cost to where it should be - on policing. Not an extra fee upon the law abiding engaging in this activity, but from the general societal resources we devote to policing.

A second way to approach this is that all economics happens at the margin. So, why do we want to dissuade some - for that’s what margin means, there will be some dissuaded - from setting up legitimate, legal, taxpaying businesses by raising the fee to do so? We don’t, so we shouldn’t. We do want to stop people abusing the system, entirely true. So do that too. But don’t fund the one solution by creating the other problem.

Just no. It is indeed politically appealing to assume that “business” should pay for business. But the people being charged here will not be those abusing the system. Instead we’ll be levying a charge on something we desire to happen - legal registration of business activity - and thereby dissuading it from happening. That’s just not sensible.

So, let’s not do it.

If a little knowledge is a dangerous thing.....

…..then believing the wrong thing is worse:

…..after Mr Hunt's earlier decision to reinstate the planned corporation tax increase from next year.

Writing in this newspaper, Mr Malthouse said that companies simply pass on tax to consumers, stating: "They just price it in as an overhead, so consumers pay tax for them when we buy their goods or services."

This is simply untrue about corporation tax. Now, whether it’s Mr. Malthouse who believes this untrue thing, or the reporters here, Mssrs. Malnick and Diver (respectively, Sunday Political Editor and Whitehall Correspondent of the Telegraph) doesn’t particularly matter. If we’ve such senior establishment types believing something that is wrong then we’ve a problem. For the policy agreement that comes out of an establishment that believes wrong things is going to be, well, wrong, isn’t it?

It is true that corporations don’t pay tax. They might sign or hand over the cheque but any and every tax makes the wallet of some live human being lighter. There are, after all, only us and our wallets out here to carry the burden of a tax. No, a legal person like a corporation is not a live human.

The study of whose wallet gets lighter is that of tax incidence. With corporation tax there are the usual three groups who might get their wallets lightened. The capitalists, the consumers and the workers. Those are the three groups in play here, so it’s some combination or mixture of them.

To try to pin corporation tax upon consumers we have to assume that corporations both set prices and also leave profit on the table when they do so. For it is only possible to raise your prices if you have the power to do so and also that you’ve not done so already.

Players in a competitive market do not have the power to raise their prices unilaterally, viciously greedy capitalists who do have that power in uncompetitive markets will already have done so. A change in corporation tax rates does not, directly, lead to a change in prices to the cost of consumers.

The most obvious and most immediately important result of this is that it is landlords who pay business rates, not tenants. Therefore all this talk about changing rates so that tenants have their burden alleviated is nonsense.

Corporation tax though - we’re now left with capitalists (ie, shareholders) and workers. In the first instance obviously the tax impacts upon the capitalists. They’re gaining a smaller percentage of the value add, the profit. It’s what happens next that matters.

For as Adam Smith pointed out there is an average level of profit. Mathematically there must be, obviously. Capitalists chase higher than that level - except when they don’t, investing at home anyway, that one mention of “invisible hand” in Wealth of Nations - and so if, by taxation, we’ve lowered the return in one jurisdiction then more of that capital will be invested elsewhere.

The determinant of the general level of wages in an economy is the productivity of labour - that in turn determined by the amount of capital added to labour in that economy. Less capital leads to lower productivity, to lower wages across the entire economy. The workers carry some part of the burden of the corporation tax therefore. Entirely reasonable estimates for the UK economy have that worker part of the burden at 50% or so of the weight of the tax.

The only even slightly arguable point - among economists that is - in the above is that 50%. Some will argue it is lower, some, including us, possibly higher. The Nobel Laureate, Joe Stiglitz (along with Tony Atkinson) once determined that for small economies and concerning foreign investment the rate is well over 100% - the wages losses to workers are greater than the tax raised. But the general logical process there is simply standard, known and true.

It is also true that we here have a slightly different version of the Good Society to tout than many others out there. But this isn’t about what makes a free and liberal society, that desirable end goal. This is a simple and factual point and if our rulers just aren’t in accord with reality then they’re not going to rule well.

The burden of corporation tax falls first on capitalists and then on workers. Only once we get simple things like that straight will we be able to create a sensible taxation system.

In which we disagree with Stella Creasy

Ms. Creasy wants to tell us all that we must invest in more childcare.

……but because our economy and our society won’t thrive if we don’t end the motherhood penalty that is keeping women stuck in a nightmare. Childcare is a vital part of the national infrastructure, and those failing to invest in it are the real anti-growth coalition: there can be no solution to the cost of living crisis engulfing the UK until the problem is tackled.

At which point we repeat the point we’ve made earlier. It does not grow the economy, nor in fact change anything very much, if one group of women go to work not caring for children and another group of women come into work to care for those children. Yes, more money is moved around but that’s all - we’ve still the fact that x number of children are being taken care of by y number of women.

We can replace the word “women” with “people” if we wish it still doesn’t change anything.

It is only if the work done by the women not caring for their children is worth more than the childcare that this process is generally wealth or value enhancing for the society as a whole. Fortunately, we have a method of working out the value of work - the wages paid for it.

If the wages paid to those women who work while parking their children are greater than the costs of the parking then this is indeed value enhancing. If those wages aren’t then it is not - indeed, can be value subtractive.

The end result of this is that far from Ms. Creasy’s call, that society as a whole must subsidise childcare we want to do this the other way around - entirely abolish all subsidies to any childcare whatsoever.

Well, that’s the economic answer at least. We agree that social considerations and so on could arrive at a different answer. But it is indeed true that the economic arguments around childcare are that there should be, must be, no subsidy. Precisely because the childcare that requires subsidy is value destroying for society as a whole. The work being done instead of the childcare isn’t worth enough to pay for the necessary childcare for that work to be done. Therefore it is the childcare that should be done, not the work. By, of course, those economic arguments.

Entirely true but not going far enough

Emma Duncan tells us something that is entirely true but which also doesn’t go far enough:

Using the WID to compare us with our peers produces an even more surprising result. Britain is less equal than France on four of the key indicators, but on all six it is more equal than Germany, the country that most of our progressive elite (people I tend to agree with) want us to emulate. When you look at the wider picture, we do remarkably well. Take the world’s largest economies: America, China, Japan, Germany and Britain. Our country is the most equal on all measures except the share of wealth owned by the bottom 50 per cent. On that one we are in the middle, with Japan and China more equal than us. (I’m leaving out India, the world’s fifth-largest economy, because it’s too poor to be a useful comparator. Even so, by five of the six key indicators, India is more unequal than Britain is.)

Britain is most certainly not uniquely unequal that is. But we do need to go further than this in two particular ways.

The first is a general issue which applies across many to most economies. We do not include the provision of government services in our estimations of inequality. Yes, we measure income inequality by market incomes, by post tax and post benefit ones. But it’s very rare to see calculations of post tax, benefit and government services. When we do - both the TUC and the ONS have reported the same sort of number - we see the difference in household consumption between the top 10% of households and the bottom 10% falls to perhaps 4 to 1. That may be too much inequality still, may not be enough to taste, but it’s certainly different from the generally accepted numbers.

The point here being that free at the point of use healthcare, education and so on are sources of consumption. They’re also equally provided across the income cohorts. Thus they equalise consumption possibilities.

This issue being even more important when we consider wealth inequality where even the existence of the state pension is usually not included.

The other issue is specific to the UK. London looms very much larger in the British economy than any one city does in near all others. London wages (and wealth, think house prices) are significantly higher than the rest of the country. London living costs are also significantly higher and it’s not just house prices there - even a pint tends to fall in price as one travels away from the Great Wen.

Measuring UK inequality purely by market incomes, or even by incomes adjusted for tax, benefits and government services, doesn’t capture this feature. We should, really, measure using an internal to the country purchasing power parity adjustment. We all know that £30,000 a year (about the median wage or household income, not accurate but about) buys a very different lifestyle in London than it does in Llareggub. Given that it is consumption inequality which is the only type that can possibly be of any relevance that’s something that should also be included in our calculations. Doing so removes another layer of that inequality that so many complain about.

Ms. Duncan is quite right in her observations. The only problem is that they don’t go far enough.

Some notes on Stop the Squeeze

The latest shouting that taxes must rise - from the highest levels since the 1950s - and there must be more government and we should be as babes in the arms of bureaucrats. Just three points that leap out at us:

Between 2014 and 2019 the number of children living in poverty in the UK increased by 500,000 to 4.3 million, while the number of emergency food parcels distributed by the Trussell Trust charity reached 1.9m in 2019/20 (up from 61,000 in 2010/11).

Both of those cannot be true. Or, at least, are most unlikely to be so. Free food is a reduction in poverty, so more free food means that poverty is lessened. But that count of poverty is being made without including the effect of more free food.

No, really, whatever you think of whether there should be food parcels, food banks - we think they’re an excellent idea, filling in the gaps caused by the incompetence of the State - or not, it’s undeniable that their existence reduces inequality and poverty. So, as here, using their expansion as an indicator of an increase in poverty simply ain’t right.

One option would be to set a goal to reach £15 per hour as soon as possible. The Progressive Economy Forum suggests this can be achieved by 2024/5, with the extra tax revenue government would receive used to compensate small businesses to ensure that the higher wage remains affordable

As we’ve suggested before arguing for an increase in the minimum wage by cackling over how much tax will be lifted from the wallets of the poor disgusts us. Whatever the level that minimum wage should be we think it unarguable that it should be untaxable. Simply because the argument for that minimum wage, whatever level it is, is that this is the minimum that someone should receive for their labour. So, it should be the minimum received then, shouldn’t it? That is, the personal allowance and the minimum wage should be the same number.

This is simply buffoonery:

Wealth has risen from three to eight times national income since the 1980s. Whilst, as outlined above, household income has undergone the largest squeeze since the Napoleonic wars, wealth increased from £8.9 trillion in 2008/10 by £6 trillion to £15.2 trillion in 2018/20, with more than half of the gain in wealth accruing to the top ten per cent of individuals.

The reason why it is is this: expected lifespan has increased from 73 years to 81. Therefore people are, quite rationally, converting more of current income into pensions savings. Which leads to this:

Median wealth was highest for households whose head was aged 55 years to under State Pension age (£553,400); the wealth of this group was 25 times higher than those aged 16 to 24 years.

People are putting more aside to fund their gloriously longer lives and this is now some problem that has to be taxed away?

Actually, that’s not simply buffoonery, that’s a vileness which should be met with a substantial display of the Anglo Saxon Wave. As, in fact, with that idea that the minimum wage should rise so it can be taxed more.

No, we don’t think any of this is a good idea.