If The Guardian can't even grasp GDP then why pay attention to its economics?

The Guardian does try to tell us what we should be doing about the economy. Then there are those acres of paper devoted to telling us how economics is going to kill us all. The problem with this is that if the people who write and edit the paper have no clue of the basics of economics then why should we pay attention to their blatherings?

For example, we have an assitant opinion editor there telling us about Kate Raworth’s Doughnut Economics. Which, when stripped of its verbiage, is simply a statement that economic growth is constrained by reality. Well, yes….

But here we’ve got what The G thinks is the explanation of it all:

Growth, the process by which a country increases the amount of goods and services it produces, is supposed to raise people’s wages and provide governments with an income that can be invested into public services such as schools and hospitals.

And no, that’s not it at all. Growth here is GDP, obviously. And sure, there are problems with GDP, it doesn’t measure distribution, doesn’t include non-monetised transactions like household labour and so on. But at what GDP sets out to do it’s pretty good. And what it doesn’t set out to do is measure the amount of goods and services. In fact it’s entirely nothing to do with that at all.

GDP measures - as best it can - the value added in an economy. Further, by definition value added in production equals all incomes equals all consumption - because our incomes and our consumption are the value added. So, if GDP, value added, rises then by definition total incomes rise.

This is an important distinction. It’s also one all too many fail to make. For if the economy, growth, GDP, are the volume of stuff then sure, we’ll face physical limits pretty quickly. If growth is about value add then the limitation is in knowing how to add value - not something notably constrained by the physical world, rather by the state of knowledge.

This is back to that Herman Daly differentiation between quantitative growth and qualitative. He insists - as does Raworth - that physical limits mean we can only have that qualitative growth. We think the physical limits to quantitative growth - and we do know our minerals and metals around here - are a lot further away than most people do but we’ll agree they exist. The bit that’s being missed is that GDP, that standard measure of growth, includes that qualitative growth. In fact, the majority of growth recorded in GDP is that qualitative, not quantitative.

But the real point we want to hammer home here is that people are critiquing that standard economics without even grasping the basic definitions and terms of art in use. No wonder they’re all so mystified by it.

So, that's Brexit solved then

We’ve been told by everybody and their grandmother that Brexit is a terrible idea because it gums up trade. Those checks on paperwork, goods, at the border simply make us all so much poorer. Our first answer has been well, if the checks make us poorer then let’s not have the checks - why would we want to make ourselves poorer by having them?

A second answer from the Flemish:

Belgium is pitching for British business with a “Gateway2Britain” computer app making it easier for exporters and importers to trade with the Flemish economic heartland.

The claim is that it really is that simple too:

The new app aims to make trade “as frictionless as possible”…Gateway2Britain will allow traders to provide one set of data online, which will be shared with other supply chain and logistics companies.

No, really, that simple. So why not just roll this out - from our side - over all sources and destinations. Making sure, of course, that government has absolutely nothing to do with it. Given UK official IT we’d end up with an app that turned off the taps in Aberystwyth when we wanted to tap a market in Abbeville.

These purported to be grand bureaucratic problems can in fact be solved. And why not learn from the Flemish? They, after all, also don’t want to be in political union with the French.

We're always surprised at the inability of doctors to do science

We shouldn’t be surprised, of course, for it’s a long running problem. This is just the latest instance:

Children’s doctors are calling for an outright ban on disposable vapes to reduce their popularity among young people as the long-term impact on lungs, hearts and brains remains unknown.

The government should ban single-use disposable vapes, which can be bought for just £1.99 and are most popular with young people, the Royal College of Paediatrics and Child Health has said.

This would reduce their environmental impact and discourage children who have never smoked from taking up vaping and risking long-term addiction and lung damage.

As we’ve noted many a time vaping and smoking are substitutes, not complements. More people vaping means fewer people smoking. As we’ve seen with the Snowdon Curve, this is simply one of those things that are true. And as Chris Snowdon notes again. New Zealand has legal, nicotine containing, vaping, Australia does not. Smoking rates in New Zealand have fallen against those in Australia since the legalisation.

Well, there we are, actual science, vaping reduces smoking rates. Therefore doctors who wish to reduce smoking rates should support vaping. Rather than try to ban it. Because that’s what science tells us is true.

Ho hum. Still, there is always that silver cloud. That latest proposal to bring in half-trained doctors has its merits. Maybe they’ll take due regard of science as the full doctors don’t?

Burying the death tax

Benjamin Franklin famously said, “In this world nothing can be said to be certain, except death and taxes.” Unfortunately, in the UK they arrive simultaneously in the form of what is called “Inheritance Tax,” but is in fact a Death Tax.

 There is a moral case and an economic case for abolishing the Death Tax (IHT). Both are valid.

 The moral case is that people have already paid tax on their income and capital gains during their lifetime. To tax those assets again is double taxation, akin to taxing people who buy spirits VAT on the excise duty they have paid.

One of the strongest human motives is the love for our children and the desire to improve their lot in life. We want the freedom to pass on to them the saving we’ve accrued in our own lives so that theirs might be better, and we want to do so without the state seizing a large part of that wealth before it reaches them.

Abolishing the Death Tax will incentivize investment and economic growth. When individuals know that their assets will be subject to significant taxation upon their death, they are less inclined to accumulate wealth or invest in long-term ventures. Removing this tax burden could thus encourage entrepreneurship, risk-taking, and investment, leading to economic expansion and job creation.

The UK tax system, including the Death Tax, can be complex and burdensome to navigate. It is estimated that IHT accounts for 10 percent of the tax code, while generating only 0.2 percent of revenues. Abolishing it would simplify the system and reduce administrative costs for individuals and families. The time and resources currently spent on estate planning and tax avoidance strategies could be redirected to more productive activities, benefiting the economy as a whole.

Abolishing the tax will help reduce tax avoidance and evasion. Wealthy individuals often employ complex legal structures or transfer assets to offshore entities to mitigate their exposure to IHT. Its abolition would reduce the incentive to engage in these practices, leading to a more transparent and fairer tax system overall.

The Death Tax puts a significant burden on family businesses and assets, potentially leading to their liquidation or breakup to meet tax obligations. Abolishing the tax could help preserve intergenerational businesses and assets, allowing families to continue their legacies without the fear of hefty tax bills.

It is likely that abolishing the tax could incentivize charitable giving. When individuals are not burdened by the prospect of a significant tax liability on their estates, they may be more ready to donate to charitable causes.

Given all of this, it is not surprising that IHT is reckoned to be the least popular tax levied in the UK. The Adam Smith Institute has been publishing papers against it for decades, and it now senses a rising tide of hostility to it. The time is long overdue for the Death Tax to be quietly put down and given a decent burial.

Well, of course, a union would say this

From the GMB General Secretary (via press release):

“But, our future requires a mix of energy sources – new nuclear, renewables, hydrogen, and oil and gas.

“It would be a huge mistake to put all the nation’s eggs in one energy basket.“

We can’t say we disagree with that and we do indeed think that the replacement for fossil fuels is going to be a bit of this and a bit of that. The grand joys of fossils is that they are general purpose, the problem with so many of the mooted replacements is that they solve specialist problems. So, we’ll need a number of solutions. Assuming there’s a problem that needs to be solved, of course.

However, we vehemently disagree with this:

“They believe in plans not bans.

“Plans built around unionised, decent jobs.”

We don’t want any jobs associated with these plans at all. Think on it. If someone invented a magic box that provided the nation’s energy desires with the labour of just the one bloke turning the knob every Monday morning we’d be overjoyed. We’d have hundreds of thousands of people who could go do ballet, teach kids, work in the NHS, play footie and prepare puddings for us to enjoy rather than labouring in the electricity mines.

Jobs, that is, are a cost, not a benefit.

Unionised, decent, jobs are even worse as they cost us even more.

Now, of course, a union leader would say the above, obviously. But that doesn’t mean that the rest of the society needs to be taken in by the special pleading. Whatever it is that we do about climate change - or any other thing - we want to employ the minimum of human labour possible in doing that thing.

After all, the art of economic advance is in working out how to destroy jobs, kill ‘em stone dead.

The difference between the Stern and Nordhaus approaches

One of the joys of economics - as with any science, social or other - is that it is possible to draw rules from one example. Those rules are then generalisable across other examples. This means we can use the difference between the Stern and Nordhaus approaches to climate change to opine on the size of the Irish dairy herd.

Irish farmers are rebelling against a proposal to cull tens of thousands of cattle a year to help Ireland meet its climate change targets.

The Irish government wants to reduce emissions from farming by a quarter by 2030. Media reports last week suggested that one option being considered was to reduce the national dairy herd by 10 per cent – meaning a cull of 65,000 cows a year for three years, at a cost of €200 million (£170 million) annually.

When considering climate change a number of different responses are possible - it’s not happening, it’s not us, it doesn’t matter etc among them. But leaping over all of that consider the difference in construction between the Review and the Nobel on the subject.

Stern tells us to have a relatively high carbon tax now - $80 per tonne CO2-e. Nordhaus that we should have a low one now (“now” being when these plans were suggested) of perhaps $20, rising much higher, to $240, in some decades. The difference is that Stern is saying we should deliberately kick start the capital replacement cycle, Nordhaus that we should work with it.

We’ve got bits and pieces of perfectly good kit lying around the economy, it has cost money to make them, they’ll carry on working well for years to decades. We can rip those all up and replace them with non-emitting kits at some cost- Stern. Or, we can wait until they fall part, as kit does, then replace them with non-emitting kit - Nordhaus.

It will clearly be cheaper to do this the Nordhaus way. For the cost of the non-emissions part will only be the marginal costs of making it non-emittive, rather than the total cost of the kit - because we’re waiting until we’ve got to build a new one anyway. We’re doing this with cars (however badly etc) by not banning petrol cars from the road, but not allowing new ones and letting the fleet age into obsolescence.

It’s also true that within Stern’s Review is an intriguing insistence that Nordhaus is right. For Stern points out that humans do more of things which are cheaper, less of things which are more expensive. We must therefore be efficient in our approach to emissions reduction. For, by being efficient we make the change cheaper, therefore we do more dealing with climate change. Yes, this does produce the odd result that Stern should be in favour of the Nordhaus approach but then demanding an entire and perfect consistency from an economist really is asking a bit much.

So, we’ve a generalisable rule - working with the capital cycle is cheaper, more efficient, than trying to force it. Therefore it is also preferable as it means we have more resources to do more about climate change, we do more climate change dealing with.

As we understand it, admitting that our rural knowledge is pretty limited, dairy cows have a working life of 6 or 7 years in Ireland. The capital stock is therefore going to be entirely replaced by 2030 anyway. Which means that this Stern approach - let’s start reducing that capital stock right now! - is contraindicated. We should use the Nordhaus. As the dairy herd turns over simply don’t allow the full replacement.

This will cost nothing, saving the €200 million to reduce climate change elsewhere. Or even fructify in the pockets of the people.

Sounds like a plan really. Work with the capital cycle, not against it. Then again this is a suggestion that politics doesn’t pay money to farmers, something that doesn’t have a good track record.

Renewable energy and the very basics of trade

As David Ricardo pointed out, if we all do what we’re least bad at and trade the results then we’ll be better off. That is what the lesson of comparative advantage is, yes. Forget the cloth and wine, that it’s between countries and all that. Whatever assets there are lying around should be put to their best - least bad - uses and then we swap around the resultant higher production. Division and specialisation of labour and the resultant trade from Smith, Ricardo telling us how that division should be logically underpinned.

At which point, something about Morocco wanting to become a renewables superpower or something:

Morocco also plans to harvest bright Saharan sun through conventional solar panels. These can generate three times as much power in the North African country than they would in the UK.

So, the solar panels should be in Morocco not on the north facing roof of some building in Hebden Bridge then. For whatever amount of money - or subsidy - spent on solar panels we’d get three times the electricity, we’re richer.

This is not, clearly not, how public policy actually works currently. We’re bombarded with insistences that Britain must produce the power that Britain consumes. That local power delivered locally is better.

Note that this is nothing, nothing at all, to do with renewables or fossil fuels. The logic is that whatever it is that we use as a power source should come from whoever, wherever, is most efficient at producing the power we intend to use. Local makes us poorer, trade makes us richer.

So, to be richer we should trade. Given that that is the opposite of the current political and cultural insistence we are left with the one big question. How on Earth did the entire society end up getting this so wrong?

Introducing the Snowdon Curve

We are all familiar with the Laffer Curve, the insistence that there is a tax rate - dependent upon the tax, the structure of the society and so on - which maximises tax revenue. Other rates, either higher or lower, gain less yield. When put like that the observation is unarguable. It’s only when the insistence is that we’re above that rate is made that the arguments start. We can have analogues of this, perhaps the Scully Curve which gives us the growth maximising tax rate. Going wider, the Tabarrok Curve for patent strength and innovation rates.

Or, as we think we’re coining today, the Snowdon Curve. As Chris Snowdon of the IEA notes:

New data from Australia, which pioneered plain packaging and has the highest cigarette taxes in the world and has always banned nicotine vapes, shows that youth smoking has increased six-fold since 2019.

There is an optimal amount of regulation, taxation, meant to discourage an activity. Going further than this actually increases the amount of the undesired activity, not decreases it.

If, for example, spirits were taxed so highly that it was near impossible to afford them then how much would home distillation rise? It’s possible to think by more than the drinking discouraged. We do not insist on that particular example, it is just an example.

But here with smoking the thing that everyone wants to discourage most is the teen smoking of cigarettes. On the logical grounds that it is addictive, those who become addicted are likely to shorten their lives as a result and yes, probably the world would be a better place without such. But that doesn’t mean that really strict regulation and really high taxation actually achieve that goal.

We are, after all, dealing with human beings. Who do have a propensity to lying, cheating, tax dodging, if they think the impositions of the killjoys and anal retentives are too high to be bourne. Prohibition did not stop booze consumption after all. High brandy taxes in the past just led to Poldark.

Australia, as the news keeps reminding us, does have a large illegal tobacco sector. The taxes, the restrictions, are worth people working in and supplying it - which leads to the real price of smokes and baccy to be considerably lower - thus consumption higher, than the legal status would suggest.

There really is a curve here. Restrictions can be so onerous that the society simply declares “Bugrit, millennium hand an' shrimp” as with this example of teen smoking and Australian tobacco restrictions.

It’s possible to generalise this further too. Some of us have lived in societies where everything is so tediously regulated that no one bothers to obey any of the laws. This explains the Soviet economy and Italian driving.

There really is this Snowdon Curve, it is possible to have non-optimal levels of tax and regulation which end up increasing the amount of the undesired activity. As with the base Laffer contention, this is unarguable. That we are now beyond this point in many aspects of society, well, let the arguments begin.

If only people would bother to get recycling right

News from the depths of the stock market.

The success of the latest trials support Primobius' goal of being the first to achieve the proposed recycling recovery requirements in the pending EU Battery Regulations. These regulations will mandate recycling of all batteries placed on the EU market. Once legislated, authorised recyclers will be required to recover at least 90% of contained nickel, cobalt, and copper by 2026, increasing to 95% in 2030, 35% for lithium in 2026 increasing to 75% by 2030.

This is nonsense. We have a perfectly good system to work out how much of, to what level of metals recovery, the lithium battery market should be recycled. That method is called “prices”. If copper, nickel, cobalt and lithium are valuable then they will be extracted from batteries to be used again. After all, those millions of tonnes of them would just be money lying around the countryside. There is no barrier to people doing said recycling. The world recycles some 99.9% of all gold ever used (the usual exception noted is that which weathers off gilt onion domes on certain churches) and perhaps 90% of copper and 60% of iron and so on. The decision to recycle is on whether the process of doing so makes a profit - profit being the value added by undertaking the activity.

There are no externalities here that need to be incorporated, the pure market system, driven by prices alone, takes care of everything. So, why do we have an EU target for the recovery rate that must be achieved?

The asnwer being that the EU - and, to be fair, near all other governmental organisations - thinks that there’s some looming shortage of metals about to arrive. This is untrue, it is simply wrong. But they’re planning on the basis of their ignorance - which is one of the reasons why state planning is such a bad way to run the world. That state planning is done by the ignorant, usually in the grips of some fashionable fad. We out here all get poorer as resources are devoted to sating the plans created by that lack of knowledge of the real world.

The optimal recycling and recovery rates are those the free market would arrive at unaided.

Yes, it does get worse too:

… the process flowsheet to meet the ambitious new 2030 recovery targets of the EU Battery Regulations. The goal post shift from 85% to 95% during the drafting of the legislation was challenging

Even if we accept that the bureaucrats knew what they were doing (no, we’ve met many, they don’t) the political process then moved from that bureaucratically determined optimum to one defined purely by the fantasies of babykissers.

This is not an efficient method of running the world. We’re fine with the idea that where markets don’t work then use other methods of management. But we do insist that where markets unaided work just fine, even optimally, then we should use markets unaided. That markets don’t work for everything is entirely true, but let's use them where they do.

This message brought to you by Extinction Rebellion

Just to widen the information gathering network for us all:

Why We Need to Abandon Industrial Farming

Many will argue that chemicals are needed to feed the population, but this is a false dilemma.

Well, that’s not a dilemma, it’s an assertion. So, perhaps it is a false assertion and if it is why is it so?

It doesn’t have to be this way. There are other futures we can choose.

OK, so, tell us, what is that - or those - alternatives?

Something much more likely to succeed would be a return to our roots. The share of people employed by agriculture has dropped precipitously since 1800. U.S. agriculture has gone from almost 60% of the workforce to 1.36% in 2019. In Britain, barely 1% help to satiate hunger. Globally—since 1991—the share of agricultural employment dropped from 43.7% to 26.76% in 2019. As artificial intelligence begins to strip humans of their worth, imagine if humans began working the land once again. What could be earthlier than returning to the land and reconnecting human animals with the natural world that gives them life?

Ah, yes, we thought it might be something like this. We all get to be peasants again, working those 12 hour days in the fields in order to scrape a living from the recalcitrant soil.

by our switch to plant-based diets

Ah, yes, we forgot, vegan peasants.

Simon Whalley is an educator in Japan, the co-founder of Extinction Rebellion Japan,

Well, there we have it, there’s the plan. Forward to the Middle Ages!

Here’s the bit that is always forgotten in these pastoral fantasies. We all consume the labour of others. The NHS is 10 or 12% of the total labour force of the united Kingdoms. And so on and on - everything we get to consume was created by the labour of someone else, just as our own labour goes off to be something that others can then enjoy. So, if we stick 60% of the population back on the land, as opposed to the current 1%, we then lose 59% of everything that is currently created and that we then consume and enjoy.

We are not just vegan peasants that is, we are poor vegan peasants.

We don’t want to be entirely negative though. It is, as we were taught, necessary to find something positive to say about everyone and every situation. Yes, that is lovely and so on.

Around the world, whether the U.S., U.K., or Japan much of the population living in urban areas tends to be more progressive than those in rural areas. As we have seen with the polarization of the United States, this divide desperately needs to be bridged. What better way than for progressives to move back to the heartlands and get their hands dirty along with those with more conservative leanings?

We’re not sure if the countryside is going to agree but if everyone to the left of, say, us is going to be moving there then it’s sure going to improve urban life, isn’t it?