No plan strikes us as being eminently sensible here
This is intended as a criticism:
As for Britain, Rishi Sunak will arrive at the G20 a puzzling figure: the prime minister of a nation without an industrial policy in a global industrial policy race, with no diplomatic focus on minerals when the rest of those assembled are competing ferociously over this.
This is all this “critical minerals” stuff. Essentially, lithium, cobalt and rare earths. Lithium is half the price it was a year back. Given that we know of - and that’s just us knowing of - some 200 prospective lithium miners out there we expect that price to fall again. Rare earths, again, prices are half what they were a year ago. We know of a round dozen (that’s not around, that a round) finds of ionic clays reported to the Australian stock exchange in the last 6 months alone. Three years ago we didn’t even know that ionic clays existed outside China. We expect that price to decline further as well. Finally, the cobalt price is around, or a little under, the production price. That’s not a signal that something’s in short supply.
As we’ve said before, sure we need a system to change, increase, the supply of minerals when demand changes. We’ve got one - free market capitalism. Varied corners of the world’s stock markets are simply packed with exploration miners, even people bringing projects to fruition. We’ve simply no need of anything else.
We would even go so far as to insist on the following. This is not investment advice, of course it isn’t, but we are putting it out there as a general prediction. The prices of lithium and rare earths will be, within the decade, back where they were three and five years ago. Absent any significant scarcity value and around and about what makes normal - not excessive - profits for the miners. It also requires no further intervention for this to happen - capitalist greed will achieve this all on its lonesome.
The British policy of doing nothing therefore seems eminently sensible to us. So, why this insistence in the Sunday Times that there must be a plan?
Working on a think tank report for the Atlantic Council on the new green geopolitics over the past year, I’ve seen expectations move wildly.
Well, yes, we see and appreciate the problem. There’s not a year’s work in “S’all solved already” is there?
Our Word, so Hayek was right then
The Office for National Statistics has found 1.7% of GDP down the back of the sofa. Isn’t that a lovely proof of Hayek’s contention? The centre never will have the data - let alone the information - to be able to plan the economy in detail. Therefore government should not try to plan the economy in detail because it doesn’t, and never will have, the information necessary to be able to do so.
In more detail:
The UK economy shrank less and bounced back faster during the pandemic, official figures show, after the Office for National Statistics (ONS) admitted its previous assumptions were too gloomy.
The revised figures add nearly 2pc to the size of the economy as of the end of 2021, meaning Britain recovered to its pre-pandemic size almost two years ago.
We’ve had several years now of shrieking - sorry, politics - insisting that there’s something fundamentally wrong with the British economy because look, look, slower recovery. This has allowed every gimcrack and shyster to promote their plans to fix what ails. More tax, wealth taxes, harder and faster on renewables, no doubt there’s someone out there who’s used this to argue for more childcare. In fact we’re pretty sure we have seen that one.
All of these using as their supporting crutch the untruth that there has been a relative underperformance by the UK economy. Which, to repeat, has not in fact happened.
This, of course, kills off that idea of Keynesian demand management of the macroeconomy. Which does try to insist that government should be able to fine tune by percentage points and fractions of GDP. If we can find 1.7% in the crevices of a chaise-longue then we really do need to kill off that idea.
But this is also of wider applicability. Because if numbers are this bad and misleading then all finer plans are going to be in error as well. The number of people in the country is not known to any useful - for planning purposes - level of accuracy, the number of women working, the gender pay gap if indeed we even have one and on and on and on. Government simply doesn’t have the data, - again, let alone the information - to be able to plan these things in detail. So, it shouldn’t.
The best we can do is set general rules on incentives, fairness, equity and so on. The structure of the legal system, some interventions on the pricing of pollution and so on. But they do have to be general, given the lack of that data. Then leave be and see what happens.
That this accords with our own desires for how the country is run might seem convenient. We would say that, wouldn’t we? Which is to misundertand. We hold the views we do because we’ve read Hayek’s Nobel speech, grasp the implications of The Pretence of Knowledge.
This finding by ONS is not just a convenient crutch for our views, it’s the reason for our views. Government doesn’t know enough to plan - therefore government should not plan. QED.
Political planning should not apply to stock markets
A litte story from the frontlines of day to day capitalism. Back a couple of years a Chinese lithium processing company, Ganfeng, decided to take over a London listed lithium miner, Bacanora Lithium. There was much huffing and puffing about the Heathen Chinee taking over a good and stoutly British company and so on, echoes of Yellow Peril and all that. We noted it at the time and insisted that it should be left be.
The thing is the potential mine that Bacanora owned was in Mexico, the Sonora deposit.
Ganfeng was left be, did take over Bacanora. Now the Mexican Government has cancelled all the mining licences at Sonora. Other than the most wonderful shrieking argument to come there’s little to no value there, therefore.
British shareholders, who were left be, therefore are now cashed out and paid, their money fructifying in their pockets. The Chinese have that argument to come. From the point of view of the British Government, of British politics, this is about as a good a result as it is possible to gain. This being the result of exactly the opposite of what the government was urged to do of course.
The correct policy to have over stock markets is, once we’ve ensured the basic rule of law, leave it be. Things will sort themselves out. For markets in the ownership of assets really do work.
If intervention had happened then it would be assets owned by Britons made valueless. The policy of benign intervention means it’s foreigners losing their money in foreign. And really, isn’t that the best possible outcome?
Revisions
Following the Office for National Statistics’ revision of GDP figures by 1.7% today, we thought it would be important to illustrate this precedent through satirical historical examples and the damage such sloppiness could cause.
1. Edward Gibbon revised his figures to find that the Roman Empire did not in fact collapse, but instead expanded its border size by 2%, in the year that it was alleged to have fallen.
2. It has been found that Vladimir Lenin celebrated prematurely at the fall of the Tzar and the rise of the Soviet Union by around 2 years, according to new revisions by historians.
3. The great Khan, Genghis, has been found to have saved 100,000,000 lives, rather than prematurely ending them, as statisticians had confused the + and - signs in their calculations.
4. New research by Historic England has found that Henry VIII had more wives than previously thought, which could result in a serious change in the way the Church of England functions.
5. Abraham Wald’s Bullet Hole Problem, according to new estimates, has been found to be misplaced. Armour was incorrectly applied to airplanes, leading an increase of 2% of casualties.
6. The number of Popes has been revised by the Vatican. The Great Western Schism has been corrected to the Somewhat Discord, reducing the number of overall number of pontiffs.
7. Protestants are in shock, as Martin Luther’s 99 Theses has been revised to 97, fundamentally shaking the Western Order and theology as clerics and theologians know it. Indulgences are back on the table for the Church of England, plugging their fiscal gaps.
8. Famous rapper Jay-Z has miscalculated how many problems he has, sending shockwaves through the charts.
9. After new documents came to light, the 1922 Committee has discovered that it was founded in 1925, undermining a great deal of its power.
10. The number of Disciples has reduced by 1, following a late night meeting of the ONS (the Office of Nazarene Studies).
The revisions by the (actual) ONS are, of course, welcome news for all of us. However, this is a severe blow in confidence in the machinery of government - hopefully the ONS can take more accountability for its statistics, given how much they influence day-to-day government decision making.
Memo for the FT - double taxation of interest is a seriously bad idea
The FT has tried to think about how the corporate taxation system should be changed:
First, the UK should make “full expensing” permanent.
Second, a wider range of capital investments should qualify for full expensing.
One option would be to gradually curb the amount of interest that can be deducted, which would help cushion the short-term outlay of extending allowances too.
The first and second are simply reductions in the extant distortions of the tax system. You get to expense all of your, umm, expenses, but only over time - depreciation rates, and so on. Full expensing just brings that ability to claim something as an expense forward in time to when you’ve actually spent the money. The only reason we have the system we do is because Chancellors like to get the money to spend now rather than wait for actual profits to turn up. Reversing this seems like a perfectly sensible idea.
Interest though, this seems to be when the thinking stopped. Because interest is currently taxed when it gets to the recipient of it. The interest is paid out on the bond or loan or whatever and that’s then income to said recipient and it’s taxed at whatever income tax rates apply to the recipient. OK, that’s fine.
But to insist that interest should not be deductible at the corporate level is the imposition of a tax upon the interest being paid out. So now we’ve double taxed interest.
Profits paid out as dividends might seem to be double taxed but they’re, in fact, not. The corporation pays corporation tax, the dividend is paid with corporation tax already paid. The recipients then pay dividend tax. But the combination of both corporation tax and the dividend tax amounts to (something like at least) the marginal income tax rate of the recipient. This is quite deliberate. It’s convenient to collect taxes on dividends at the level of the company. But we also want to tax the flow of money only the once.
If interest were not to be a deductible business expense then we’d have to bring in some such system - interest payments that are franked as already tax paid in some manner, given their non-deductibility. Or, we’d end up taxing the interest flow twice, once at the level of the corporation and then again at the level of the recipient.
We could, of course, simply make interest received tax free and also make it non-deductible to the payor. But we tend to think that would not be politically viable. Or stick with the current system of interest being a deductible business expense and a taxable income to the recipient.
That middle road of two types of interest, that which has been taxed at the corporate level, that which has not, along with different tax rates to the recipient well, yes, it could be done. But is anyone’s analysis of the British tax system really that it should be made more complex?
Were the Levelling-up and Regeneration Bill amendments an appropriate choice?
The Government’s Levelling Up & Regeneration Bill includes substantial planning reforms, setting out frameworks for the levelling up missions and introducing a range of devolution measures. The amendment of its “nutrient neutrality” rules was under fire from rebels and Tories, with the bill currently in the House of Lords, for blocking much-needed housebuilding. As housing targets are made advisory only and a reduction in housing requirements over the next few years, 100,000 more houses will be able to be built thanks to Michael Gove's agreement to the amendment (NC77). On the other hand, environmentalist groups are outraged by the amendment as they claim it would further increase water pollution, despite the fact that this new road has opened up the property market and will benefit the economy by approximately £18 billion.
Over its 13 years in power, the Conservative Party has continuously been divided over the subject of housing. This recent change is undoubtedly a huge victory for rebels led by former cabinet minister Theresa Villiers. “It will enable thousands of new homes to be built which are currently blocked, while also securing real progress on cleaning up our waterways” according to Villiers. It has been obvious that a retreat was coming since the first sign of mutiny emerged a few weeks ago when Gove postponed a Commons vote out of fear of losing. Additionally, several of the leading Tories were furious. During Liz Truss' brief office, Sir Jake Berry, the former party chairman, fumed: "Conservatives need to deliver for the next generation if we ever expect them to vote for us." It was a key pledge in the Tories’ 2019 manifesto and supporters claimed it was in keeping with Margaret Thatcher’s crusade for a property-owning democracy and new homes for younger voters. Thus, Truss’s Levelling Up Secretary Sir Simon Clarke blamed the failure to build more homes for the Tory vote in London collapsing, accusing the party of “pulling up the ladder” for younger voters. Contrastingly, Labour's shadow housing secretary Lisa Nandy further accused the government of being "weak", calling the move "unconscionable in the middle of a housing crisis".
In accordance with regulatory requirements, Natural England and the Government are collaborating with local planning authorities (LPAs) to ensure that wastewater produced by new homes does not increase pollution in our rivers and coasts while also allowing for quicker decisions that enable the construction of the homes the nation needs. To establish the legal context for this matter, it is necessary to go back in time to 1974 when the Control of Pollution Act initially seized control of waste disposal. When it took effect, a lot of old landfills were discreetly shut down and, for the most part, forgotten about—perhaps by residents of the area. The Government now also plans to cooperate with the housing sector to make sure that larger developers contribute fairly and appropriately to this programme during the ensuing years. In order to put protected sites on the road to recovery in the most affected catchments with the highest housing demand, Natural England will develop new Protected Site Strategies, and the government will then accelerate work on full site restoration.
London councils who support the amendment see it as a method for them to set their own planning fees to cover the cost of the service provided, improve performance, and solve
resource and capacity shortages in local planning departments as well as to cover costs associated with the service. However, the proposal might result in a new infrastructure levy rather than more affordable housing, which would mean fewer new affordable houses. However, it would provide local authorities the authority to demand that a certain amount of the infrastructure charge be delivered on-site. In a time when there is widespread concern that poverty and health disparities have gotten worse, housing policy can either help to increase disparities in society or be a method to reduce them. According to a source in the housing sector, “This is undoubtedly good news for Britain’s housing supply. The only question is why it has taken so long for the government to get around to doing something about this”. The District Local Network, meanwhile, welcomed the news and pointed out that in some local areas, nutrient neutrality regulations have limited the supply of affordable homes and raised the price of new homes for purchasers.
Local authorities in hundreds of protected regions across England have been encouraged to not approve any new construction that is anticipated to increase river nutrients like phosphates and nitrates, either through wastewater from new residences or runoff from construction sites. The EU first imposed such rules in an effort to stop the growth of harmful algae and other plants that can suffocate aquatic life. Existing regulations required builders to reduce increasing nutrient loads brought on by expanding populations in homes, either on-site or in other parts of the same catchment. By making investments in new wetlands or by establishing buffer zones along rivers and other watercourses, they can achieve this. This has been criticised by builders as being expensive and time-consuming. Former cabinet minister and ASI Patron Sir Brandon Lewis, MP for Great Yarmouth, told PoliticsHome Gove’s proposals were welcome and a “really good move”. As opposed to theoretical proposals for a long-term plan, Lewis said scrapping nutrient neutrality would allow the Government and developers to build more homes very quickly.“It's not a solution to everything, but it releases 100,000 to 140,000 homes. That's a lot of homes, a lot of jobs, and a lot of opportunity.” The neutrality announcement also included a £280 million increase in support in Natural England's nutrient reduction programme, which helps builders reduce the impact of developments on water pollution. Additionally, farmers and water businesses will receive incentives totaling £166 million for slurry infrastructure.
Katie-Jo Luxton, director of conservation at the Royal Society for the Protection of Birds, said: “If nutrient neutrality rules are scrapped, pollution will accumulate unchecked and our rivers face total ecological collapse.” In agreement with Luxton, Doug Parr, policy director at Greenpeace UK said “Who would look at our sickly, sewage-infested rivers and conclude that what they need is weaker pollution rules?”. He acknowledged that it would necessitate requiring water companies and home builders to utilise their revenues to upgrade treatment facilities and pipes to the level that a modern, functional nation would demand. Developers contend that farming is a considerably greater source to the pollution in question while asserting that Natural England is enforcing the regulations in such a severe manner that they have been compelled to halt the construction of up to 120,000 new houses. In response to protests from developers, ministers introduced a mitigation programme in 2022 that allowed builders to purchase "credits" in order to obtain clearance for their projects. However, according to those developers, the procedure for buying such credits has occasionally resulted in unforeseen repercussions, such as the acquisition of farmland to put it out of production in an effort to lessen water run-off. In order to reduce the likelihood of slurry leaks, they will provide payments totaling around £400 million to farmers and water
businesses. They will also spend about an additional £300 million assisting developers in reducing the effects of their projects.
According to the Dasgupta review, investing in nature leads to wealth since it serves as the foundation for all we do. Leonardo Da Vinci once remarked that "water is the driving force of all nature" and that no society can function effectively without it. Nutrient pollution does not affect the bulk of house projects nationwide, but in 74 of England's 333 Local Authorities, pollution levels in some areas with abundant natural beauty are so high that additional mitigation measures are required. However, along with the elimination of the nutrient neutrality rules, new environmental measures will be implemented, such as increasing investment in and developing Natural England's "Nutrient Mitigation Scheme" (NMS), a programme that enables developers to purchase credits to offset nutrient pollution from housing development. Therefore, while the government moves forward with its housing ambitions, the neutrality statement has in fact slowed down environmental initiatives. To improve opportunity and the nation's environment, however, a number of mechanisms have been adopted to absorb the loss when pollutants and houses are built.
In conclusion, despite objections from environmental groups, the amendment that was agreed upon was generally a good decision. Mr. Gove thanked backbenchers in a statement for "their hard work and support to drive forward these much-needed changes to create a planning system that works for all". More affordable housing offers a respite from the dark clouds of rising interest rates and inflation. So, while still investing in a healthy environment, we can see how the removal of the "nutrient neutrality" laws will be good for the economy and for the people in the long term.
The reason markets work and politics doesn't
As we’ve noted before yes, of course markets are a lovely way to organise life. People who want to do things are, with free markets, at liberty to go and try doing those things. Liberty and freedom being the aim of the society of course. But there’s another merit here too - which is that markets are very brutal at shutting down those things that do not work. Folk run out of money and stop - huzzah, the waste of resources on something that doesn’t work ends.
That’s not how politics works:
Alcohol deaths in Scotland have surged to their highest level in 14 years, according to official figures, despite the SNP claiming that minimum alcohol pricing is working.
Statistics from National Records of Scotland showed that 1,276 people died from alcohol-related conditions last year, 31 more than in 2021 and the highest total since 2008.
It comes as the SNP faces claims that it “manipulated” research that backed its flagship minimum alcohol pricing policy aimed at reducing problem alcoholics and saving lives.
The current call in Scottish politics is, we understand, that the minimum price should be raised.
We have to admit that we’ve never understood why the minimum price policy was undertaken in the first place. The profits from the higher prices go to the booze makers - wouldn’t it have been more sensible to raise the tax rate instead? But that aside it’s also obvious that the policy doesn’t work. The response of politics to failure is to do more of that thing but harder.
Which is why markets do work so much better than politics. It’s not just the liberty they allow it’s also that markets kill off mistakes. Which, as we can see, is something politics does not do.
It's astonishing how long people can remain wrong
Robert Reich wants to tell us that free trade’s just old hat, that David Ricardo isn’t always right and, well, let’s have some of that old time protectionism:
The age-old economic doctrine of “comparative advantage” assumes that more trade is good for all nations because each trading partner specializes in what it does best. But what if a country’s comparative advantage comes in allowing its workers to labor under dangerous or exploitative conditions?
Why shouldn’t the US’s trading partners be required to have the same level of worker safety as that of the United States or give their own workers the same rights to organize unions?
One answer is that therefore all the dangerous jobs will be done elsewhere which would be pretty good for American workers and their lifespans. But the really argument is that comparative advantage does not assume that more trade is good, it proves it. We are not working with a petitio principii that must be proven, we are using the proof itself. Comparative advantage is what proves that more trade is good, not something that assumes it.
But much more fun is to point out that Paul Krugman dealt with exactly this some 30 years ago:
The same principle applies to international economics. Comparative advantage is an old idea; intellectuals who want to read about international trade want to hear radical new ideas, not boring old doctrines, even if they are quite blurry about what those doctrines actually say. Robert Reich, now Secretary of Labor, understood this point perfectly when he wrote an essay for Foreign Affairs entitled "Beyond free trade". (Reich 1983). The article received wide attention, even though it was fairly unclear exactly how Reich proposed to go beyond free trade (there is a certain similarity between Reich and Gould in this respect: they make a great show of offering new ideas, but it is quite hard to pin down just what those new ideas really are). The great selling point was, clearly, the article's title: free trade is old hat, it is something we must go beyond. In this sort of intellectual environment, it is quite hard to get anyone other than an economics student to sit still for an explanation of the concept of comparative advantage. Just imagine trying to tell an ambitious, energetic, forward-looking intellectual who is interested in economics -- William Jefferson Clinton comes to mind -- that before he can start talking knowledgeably about globalization and the information economy he must wrap his mind around a difficult concept that was devised by a frock-coated banker 180 years ago!
As we say, amazing how long some people can persist in being wrong. Paul Krugman’s expertise is in trade too - this isn’t just the repetition by rote from the textbooks. We’d certainly consider our prejudices if a Nobel Laureate addressed us by name and pointed out that, well, actually, you’re wrong. We do think Reich should have done the same.
Abject nonsense on ultra processed food again
As the modern world shows us it’s not, in fact, necessary to be religious in order to be a Puritan. So they’re trying again, everyone in the country must live on raw turnip to appease the liberal and modern thinkers:
Britain faces a “tidal wave” of heart disease due to a dependence on ultra-processed food which is causing harm similar to smoking, research shows.
Two landmark studies have revealed that ultra-processed food significantly increases the risk of high blood pressure, heart attacks and strokes. Even “healthy” processed options, such as protein bars, breakfast cereals, low-fat yoghurts and supermarket sliced bread were linked to worse heart health.
Gosh, well, yes. We’re certainly willing to examine such claims. They go on:
More than half of the typical British daily diet is made up of ultra-processed food, more than any other country in Europe. The products, made using a series of industrial processes, include breakfast cereals, ready meals, frozen pizzas, sweets and biscuits.
So, if the British eat more of these UPFs and UPF causes these medical horrors then the British must suffer more from such medical horrors. Certainly, if the effect is large enough that we need to do anything - move back to the raw turnips say - then this would be readily apparent in the population health statistics.
Hmm. Deaths by heart attack we’re middling across Europe. Stroke incidence we appear to be low (with our internal ranking going Oxford, South London, Scotland, the last being the lowest. Which isn’t what we’d expect if it’s a diet high in UPFs as a cause).
Britain has the lowest rates of high blood pressure in Europe, with around one in eight women and one in five men with high blood pressure, compared to more than a third of men in several central and eastern European countries.
Oh.
Now we all do know that correlation is not causation. But if you ain’t even got correlation then you ain’t got nuttin’. Recall, the claim is UPF causes these diseases, the British eat more UPF therefore these diseases should be worse here. They’re not. Collapse of the theory then.
Oh well, luckily the major purveyor of this idea still has a back up career as a purveyor of fish finger sandwiches at his fast food chain. And the rest of us don’t have to subsist on raw turnips.
Sorry but we've already spent all the money
Robert Colville picks up on a point we’ve made more than once over the years. We can’t ask government to do anything more for us. Because we’ve already spent all the money:
“The UK’s ageing population will effectively confront policymakers with a choice in coming decades,” wrote the authors. “Increase levels of tax substantially to fund higher spending or substantially reduce the scope of the public services that the British state provides.”
We’ve already promised ourselves that the State will support us as we dodder to the grave. Therefore we simply cannot have anything else from said State - all the money’s already been promised to pay for that doddering.
So what can we actually do about it? Well, part of the problem is that most previous attempts to restrain spending have been fiscal rather than philosophical — that is, they have started with the amount we need to save rather than asking the question: should government actually really be doing this?
That’s true. If we were to bin many of the things currently done then we could free the resources for that social state we’ve promised ourselves. Strip government back to the FCO - J Foreigner’s still going to be there whatever - and the MoD - J Foreigner etc - and the chequebook to pay for the social. Simply stop doing everything else.
We have to admit that we’d not be averse to such an outcome. We might be argued into police and courts as well. But culture, energy, communities, education, planning and on and on as central powers they’re to go.
Quite joyous actually.
However, there is an alternative to stripping back to a dotagewatch state. Which is to get richer and so be able to afford all these things - if that is indeed what we desire. The trick there will be to stop government actively preventing us from getting richer. Sam Dumitriu’s recent finding that the paperwork application for a tunnel was one page of bureaucratese for every 2.5 inches of tunnel (yes, we have checked the orders of magnitude there, that is correct) is a useful example here.
That is, let’s have that Singapore on Thames that so horrifies all too many. At the 3 and 5% growth per annum possible when we’ve not got the State deliberately killing off initiative then we can have nice things. We could even point out to Polly that this is the way Sweden does it. More free market, more capitalist, than even the US let alone the UK - but with a swinging slice of those riches taken for said nice things.
Now, we would prefer that minimal state simply because we insist that leaves more room for liberty and human flourishing - the two things we think important in this world. But the important insistence is that even for those who don’t want that, who want that larger state which can deliver more pressies, we still must have that free market vibrancy. Because that’s the only way to produce the growth which will pay for it.
Get the State out of the economy and it might be possible to produce the money to pay for the rest of the State.
There are three viable choices. We go bust trying to pay for what we’ve already promised ourselves. We strip the State back to only paying for those promises. We strip the State of power and influence over the economy - go wildly free market and capitalist - and thereby generate the wealth to pay for it all.
There are alternatives, indeed there are, but the status quo isn’t one of them.