Entirely, wholly and completely, missing the point

From one of the little byways of the climate change discussion:

The report, published by food and drink manufacturing consultancy NIRAS, outlines how the brewing industry has a “once in a generation” opportunity to meet demands for sustainability and yet also flags how creating multiple beers with short production runs drains energy resources.

In a deep dive into how to build sustainability into brewing, the contradictions were revealed highlighting how even though the regulations and consumer pressures have led to sustainability fast-becoming a “licence to operate”, rather than a “nice-to-have” novelty, beer trends for variety were contrary to the guidance.

Speaking about the issue, NIRAS vice president Jonas B. Borrit said: “Sustainability is clearly a key consideration for businesses across all sectors and for resource-intensive manufacturers like breweries, it’s no longer a nice to have, but is fast becoming a licence to operate. Stronger consumer appetite for variety over volume has undoubtedly created commercial opportunities for breweries, but producing up to 100 different varieties of beer in a large-scale plant means that short production runs will require more energy and water.”

So, we should have just the one, anodyne, mass produced and lowest common denominator beer - call it “Victory Beer” perhaps - because climate change.

This is to - wholly and entirely - misunderstand the task before us. Leave aside whether climate change matters or not. Just work with the very heart of what economics is about. The universe - unfairly, annoyingly and inevitably - places restraints upon us. Resources are scarce. The addition of the CO2 limits in the atmosphere to those limits doesn’t change the underlying base in the slightest.

We are in a universe of scarce resources. We wish to maximise human utility within those limits. So, how are we to go about that?

Maybe it is some unibeer. Perhaps it is some wide variety of beers. Utility - in near every society we’ve ever had - seems to be increased when there is some socially accepted method of getting somewhere between happy, high and smashed. So, how to decide?

Liberty, obviously - leave people be to find what increases their utility, leave people be to explore what they can produce which increases that utility. Sure, we face limits, those explorations must therefore take place within those limits. But other than that the correct solution is something emergent from that liberty, not something planned by those who do not know, cannot know, the individual utility functions nor therefore the societal one.

It appears that folk like a variety of beers. Observe in any pub how some have a preference for this, others for that. That is, we’ve already our solution - variety not unibeer.

But then this should be obvious to any sentient being. We do not insist upon the one method of getting somewhere between happy, high and smashed, do we? We have the liberty of doing so through dance - from Sufi mysticism through to the nightclub dancefloor - booze, certain drugs (and we should have greater liberty there) to just being drunk on the pure pleasure of another’s presence. That insistence on just the one method, say soma, has been explored but always as a dystopia.

Our task is the maximisation of human utility within what ever constraints the universe insists upon. It is only with the liberty of choice and variety that this is even conceptually possible. Therefore that liberty of choice must be a part of any solution to any of those constraints.

Oooh, that's clever

Very political, we think misleading, but we’ll agree that it’s clever:

Sweden has declared a “system failure” in the country’s free schools, pledging the biggest shake-up in 30 years and calling into question a model in which profit-making companies run state education.

An excellent system that has worked very well but:

A report by Sweden’s biggest teachers’ union, Sveriges Lärare, warned in June of the negative consequences of having become one of the world’s most marketised school systems, including the viewing of pupils and students as customers and a lack of resources resulting in increased dissatisfaction.

Well, yes, obviously, unionised producers aren’t going to take kindly to actually having customers that they must serve and please. All of that’s just obvious. The thing that passed through our minds was, well, how are they going to dress this up?

Edholm also accused some free schools of grade inflation, with teachers awarding children grades that were too high – creating imbalance across the whole system. It is understood to be a particular problem in free schools with a low proportion of qualified teachers and schools run as joint-stock companies.

“Free schools tend to give higher grades than municipal schools. That risks that in the end it could be that the municipal schools give higher grades, and that in turn is very bad,” she said.

“It’s unfair and it leads additionally to students thinking they are much more knowledgable than they are.”

Well, yes, that could be true. It could also be true that the free schools teach better than the municipal ones. We would expect they would too but then that is only our expectation. No doubt there are many who would disagree with us. Which is fine, we just then test the products of free and municipal schools to see which explanation fits better. Grade inflation or better teaching?

They have done that, right? Hmm, they haven’t? We have an evidence free assertion to back a political policy? Well, we’d not say that this is a good idea but it is obviously enough a clever one.

Blow up the TCPA, proper blow up, kablooie

We’re glad to see that we’re not the only people who hold this view:

As John Myers has noted, these estimates imply that the introduction of the 1947 Town and Country Planning Act has done more damage to the British economy than any single event since the Black Death.

Since we don’t like being poor, much prefer to be rich, then we should stop damaging ourselves. Get rid of the Town and Country Planning Act 1947 and successors. Proper get rid of, proper blow up - Kablooie.

As to the background, we all know that planned economies don’t work. Well, the sentient among us do at least. Anyone who looked East from the Brandenberg Gate in 1989 was able to work this out very quickly indeed.

The TCPA nationalised land more than it did anything else. Who can do what on a piece of land is now determined by the government. This is indeed planning and is doing to the British economy what GOSPLAN did to the Soviet.

So, let us stop doing this to ourselves. Blow up the TCPA. Proper blow up, no messing around, get rid of - Kablooie.

Why, we might even be able to start housing Britons in houses Britons wish to live in where Britons wish to live. Wouldn’t that be a fun idea?

Why is the government so against cheap nuclear?

One King’s Speech puzzle was the absence of the promised pensions reforms. Small modular reactors (SMRs) are an essential part of the answer to providing electricity when the wind does not blow nor sun shine – especially in winter. Germany, for example, estimates only 50% of its electricity can come from renewables. The UK government announced, in 2021, that Great British Nuclear would steam ahead with SMRs with fancy (but unnecessary) competitions and all that, but the reality is that HM Treasury have been blocking progress ever since, essentially because they do not want to pay for them and the 2050 net zero costs for consumers are already too high. 

Government is committed to Sizewell C, which it estimates should cost £20bn and take 12 years to build by the French company EDF who have warned that the current cost of Sizewell C’s twin (Hinkley Point C) is £32.7 billion and that this is likely to increase to £40 billion on completion. “Stephen Thomas, a professor at Greenwich Business School, said the average forecast  put the cost at £35bn over 15 years.” 

FOAK (first of a kind) SMRs are more expensive but as the UK will need 200 300KW SMRs, we can take a long-term cost of £2M each.  The 3.2GW Sizewell C output is the equivalent of eleven 300MW SMRs. But £22M for eleven SMRs is way less than the £32,700M now expected cost of Sizewell C, never mind £40,000M. 

The projected output costs for Hinkley is about £10.7 per MW compared with £1.8 – £4.3 per MW for SMRs. So why is Whitehall so keen to finance Sizewell C and not SMRs?

Apparently, clearing the way for the private sector to invest in SMRs requires a change in legislation because Regulation 28 of the Pension Funds Act limits the extent to which funds may invest in a particular asset or in particular asset classes, and prevents excessive concentration risk. The Treasury has published final amendments to Regulation 28 of the Pension Funds Act, which protects retirement fund member savings but there was no indication in the King’s speech that the changes would be enacted.  

Treasury cash cows

Motorists, like smokers and drinkers, have long been cash cows for the UK Treasury. The claim that tax monies raised from them pays for the costs they impose has always been spurious. Treasury receipts from motor insurance and fuel duty are claimed to cover the costs of road-building and highway maintenance, but they have always far exceeded those costs and gone into the general Treasury fund that pays for government spending.

It is sometimes claimed that smokers and drinkers impose costs on the NHS that justify the high taxes on their products, but this completely ignores the fact that earlier deaths from unhealthy lifestyles save the government far more in pension payments than the NHS costs they impose.

The impending switch to electric vehicles, delayed though it is now to be, poses problems for the Treasury, as they search for ways to make up for the looming loss of fuel duty revenues. The idea of a ‘tyre tax’ has been floated, with claims that rubber particles from tyres constitute a bigger hazard than the fumes emitted when fossil fuel are used. The thinking behind this is that electric cars have tyres that can be taxed if fuel duty disappears when the switch away from fossil fuels takes place. It is entirely possible that a Treasury desire to plug revenue losses might have supported the 5-year extension for petrol and diesel cars.

The Treasury mindset with its static model of the economy gives little attention to the basic truth that all taxes change behaviour. Increases in tobacco duty motivate people to seek black market, untaxed cigarettes, which are hard to regulate. Increases in income tax will lead more people to seek tax shelters. Limits to tax-free pension saving will lead some to take early retirement. For most taxes there are unsought consequences not envisaged by those who levy them.

The Treasury, looking only at the in-box, seeks to shore up the public finances by raising revenue wherever it can. Government should be looking instead at the out-box, the money that flows out to maintain its spending.

The government is looking to tax vaping, nominally to ‘protect children.’ The reality is that if the aim of abolishing smoking completely is achieved, the Treasury will be looking elsewhere to plug the loss of tobacco duty.

If they looked at the out-box instead of constantly trying to keep the in-box topped up, they might look at how many people are employed as diversity officers, as awareness officers, or the personnel whose salaries pay for language changes that are ‘inclusive.’ It might look at all the non-productive personnel it employs.

In the unlikely event that a government appeared that was prepared to do this, they would not need to milk their cash cows so aggressively.

This is absurd, truly absurd

What are these people thinking?

Headline air fares could rise by £80 if a law to ban “drip pricing” is introduced.

The government announced a consumers’ bill in the King’s Speech, granting new powers to enable “growing consumer harms” to be tackled.

Drip pricing is the practice in which businesses advertise only part of a product’s price upfront and reveal other charges later in the buying process.

It would ban airlines from charging extra for luggage, seat selection, travel insurance or food and drink vouchers at the point of purchase.

Breaking out the prices of the varied parts enables greater consumer choice. Greater consumer choice is a good thing. Insisting on rebundling the unbundled is therefore a decrease in consumer utility. And why would any government try to do that?

As it happens one of us is making regular short haul trips for family reasons. We are, therefore, intimately acquainted with the routine. Buy the ticket, agree to nothing additional and get to see Dear Old Mum for peanuts. Why would - again - any government want to insist that payment must also be made for a seat reservation, hold bag and even a cup of airline coffee?

This is a nonsense. Perhaps it is time for someone else to have a go if this is the new legislative agenda.

Now we've got to teach people about exports, do we?

The latest complaint about the North Sea:

Up to half of the oil produced in the North Sea will be incompatible with UK refineries by 2035, campaigners have warned.

Britain’s refineries are geared up to handle what is known as light oil, rather than heavy crude.

Around 25pc of domestically produced crude oil is already classed as heavy, with this proportion expected to rise to as much as 50pc in the next decade, according to an analysis by Global Witness.

It means Britain will be forced to ship an ever growing proportion of oil from the North Sea abroad unless new refineries are built.

Alice Harrison, of Global Witness, said: “Rishi Sunak’s obsession with oil is a red herring.

“The UK can’t process the oil we produce, and fresh analysis today shows the situation is only getting worse.”

Taking something produced in Britain and sending it abroad to be consumed by foreigners is known as an “export”. We generally tend to think they’re an interesting idea. With that lovely foreign money we get from these “exports” it is possible to buy things made by foreigners that we ourselves get to consume. These are known as “imports”. The whole process, swapping - intermediated by that money stuff - of swapping exports for imports is known as “trade”.

It’s the way the world gets rich, David Ricardo as well as Adam Smith wrote about it extensively some two and more centuries back. It comes as something of a shock that it’s necessary to educate “Global Witness” on such simplicities. But some are a little more simple about reality than they think they are, obviously.

We’d also add one more little detail. Currently the government gains 75% of those profits from that process of producing oil in the North Sea. True, we think that percentage is a little high but we also insist that resource rents should be taxed until the pips squeak. Still, we’re really not sure why Global Witness is so against money flowing into the Treasury. Are they against it being used to buy nice things for British voters?

AI must be biased or it will be valueless

We’re all seeing those insistences around and about that artificial intelligence must be free from bias. We can only build that glorious new world of equity if this is so. Sadly, the actual truth is entirely the other way around. AI must be biased.

No, really.

We do need to distinguish a little here. As with that division into taste discrimination and rational discrimination. It is rational to rationally discriminate, obviously - someone numerate to do the accounts is an aid to getting the accounts done. But insisting that the numerate person is male or female - or other variation - or not is an irrelevance.

However, with AI the distinction has to be a little different. Not between rational and irrational beliefs at all - but between those held and those not held. We wish to use AI to make real world decisions. Therefore the model AI incorporates must describe the real world.

We don’t have to go far to find claims that Britain is institutionally racist, or grossly sexist, or biased in favour of property owners and many other such insistences. To the extent that any of those claims are true then our AI models have to be as racist, gendered and propertarian as the population and system is itself. Otherwise we’ll not be describing Britain. An AI that did not describe us in all our irrationality would be like the GOSPLAN executive pencilling in ten million pairs of leather shoes when only three cows have been planted to provide the materials for next year.

Say, for example, that the population believed all capitalists were top hatted cigar chompers (not true, some gnaw their cigars) and also that all socialists were wastrels about to run out of other peoples’ money (true, obviously). It’s not the truth or not of either statement which means that the AI must believe the same thing. It’s that Britons believe those things therefore an AI describing or prescribing for Britons must also do so.

The only useful AI is one as biased as the people it is being an AI for. Demands to examine the AI entrails to make sure that it does not incorporate population biases are therefore futile. For that very insistence upon not describing people means that the AI is worthless in making decisions for people.

It is possible to insist that AI not be racist, gender biased, but only if the insistence is equally that society itself is neither of those things. Which isn’t something that those shouting about making sure AI is not racist nor gender biased are going to agree to, are they? For the usual insistence is that we’ve got to make sure that AI does not incorporate these biases of society at large. Exactly the thing which will make AI useless.

We’re sorry about this but it is all true. The only useful AI is one that accurately describes the people it is being applied to - intellectual warts and all. Anything else is just a repeat of designing a system that requires New Soviet Man to turn up to make it work.

Deadwood and Downturns

It’s often said that recessions clear the deadwood out of an economy.

We’re not exactly in recession in the UK (as Germany, unfortunately, is, and as around 20 EU economies were last winter). But things are pretty bad, with high interest rates, a severe monetary squeeze and business being (to put it mildly) less than great all round. So what does that bode for the clear-the-deadwood metaphor? Are all those deadwood companies, still upright thanks only to years of ultra-low interest rates, finally going to perish and give their ground to thrusting green-shoot enterprises?

Unfortunately, I think the opposite may be true.

What really makes unemployment peak in economic downturns is not so much the result of established firms sacking workers. Firms never like laying people off. It looks bad, and in countries like the UK and those of the EU, tightly regulated labour markets make it hard and expensive to sack employees. A much more important factor is that downturns make firms of all sorts more cautious, and more reluctant to take on new workers (especially, again, when employment regulation makes it hard to lay them off again if that proves necessary).

The result of that is that people who do lose their jobs spend longer looking for new ones, and those entering the labour market for the first find themselves competing for fewer openings, so they too join the ranks of the unemployed.

But it is younger, more entrepreneurial firms which are likely to contribute most to the unemployment, because they have not yet built up the confidence, the capital and the other resources needed for them to be sure they can survive a downturn, far less expand while one is in progress. In fact, precisely because they do lack that firm foundation, a greater number of new ventures fail during downturns than do established ones.

Unfortunately, therefore, the mature, deep-rooted deadwood companies are more likely to be standing at the end of a downturn than are the new, green-shoot thrusting ones. It’s the very opposite of what the ‘forest fire’ analogy predicts.

What are the policy implications of that?

First, if we want to speed recovery, we have to encourage newer, smaller entrepreneurial companies and start-ups. That means keeping entry barriers (like regulations) low, but most importantly, keeping taxes on businesses and on capital low. People who are starting or trying to grow businesses always cite taxation as their biggest obstacle: they are taking big risks, probably borrowing money from friends or mortgaging their homes to invest in their new venture, and the government’s tax collectors cutting themselves in for a large slice of any possible future product raises that risk even more. There is even a case for having lower taxes and regulations on small firms and start-ups, just to even up the risks when economic times are hard.

Second, we need a flexible labour market, free of employment regulation that makes firms reluctant to take on workers in the first place. A large part of that is making it easier and less costly for firms to scale back employment when market conditions dictate.

Only such an enterprise-friendly approach, especially a new and growing enterprise-friendly approach, is likely to keep unemployment down, strengthen government and private-sector revenues, capture the innovative capacities of entrepreneurs, and create the new, sometimes revolutionary, businesses that will pull us out of a downturn.

This is entirely logical - so what's the solution?

We are supposed, we think, to gasp in horror at this. Yet it seems entirely logical to us:

Almost twice as many working mothers as fathers have considered leaving their jobs because of the burden of childcare, research reveals.

A survey of 3,000 parents with children under four, commissioned by women’s rights group the Fawcett Society and Totaljobs, shows that new mothers disproportionately feel the strain of juggling childcare and work, and that it affects their finances, work-life balance, careers and aspirations.

One in five (19%) mothers of young children have considered leaving the workforce temporarily or permanently due to the challenges of balancing childcare and their career, the research by Opinium found. For fathers, this figure was one in 10.

As we’ve noted a number of times over the decades someone, somewhere, has to take care of the children. Given the mammalian nature of our species for at least some of the necessary time that will be the female part of the household. We’re also not surprised if - given that mammal thing - there’s some preference in the split of that part of the overall household labour burden in further years too.

Note that we don’t say there should be anything at all. Only that we’re not surprised by a possible divergence in average preferences.

However, since that’s not how the current zeitgeist views it we should move on to possible solutions here. So, what are they?

Well, given that the children do need caring for clearly the only possibility is that some other people work to care for the children while the parent (s) work doing something else. But unless there’s some distinct - and large - economy of scale in child care it’s not obvious that that drives society forward in any grand sense. The same number of labour hours will be spent caring for children, just by different people. That division and specialisation of labour thing does rest upon the assumption of greater labour productivity after all.

The idea of tax subsidy - whether by making childcare a tax relief, or direct subsidy of the costs - doesn’t change this either. We’ll still have a largely female workforce spending their time caring for children whichever way this is done. Parents care for their own or others work their lives caring for the children of others.

We think we’ve got one of those problems that doesn’t, in fact, have a solution. Children need to be cared for so the only argument being had here is who should it be doing that? We don’t reduce the costs, nor increase productivity, either way. So perhaps there just isn’t that solution to be had?