A reminder - That basic supply and demand works, yea even for housing

There’s a waiting list for social housing. This could be taken as the number of people sleeping under hedges who desperately require housing at taxpayer expense. This could also be taken as being an exemplar of basic supply and demand. We can even go one stage further and suggest that it’s telling us something about the shape of the demand curve for housing.

The numbers:

There were 1.21 million households on local authority waiting lists on 31 March 2022, an increase of 2% from 1.19 million in 2020/21.

Or more recent numbers from the activists:

1.2 million households in England are currently stuck on waiting lists for a social home, a rise of 5% in the last two years.

The other numbers:

The number of people estimated to be sleeping rough on a single night in autumn 2022 is 3,069, which after 4 years of decreases has risen for the first time since the peak in 2017.

So, the 1.2 million is not those sleeping under hedges. If it isn’t, then what is it?

A reasonable definition of social housing is that housing on offer at lower than market rents. As our basic Econ 101 chart of supply and demand tells us, demand rises as prices fall. 1.2 million (minus the 3,500 if we insist) is therefore the number of people who would be willing to move in return for lower than market rents.

We can go further too. This tells us something about the shape of that demand curve for housing. Affordable housing (one component of social, but let’s run with that) is defined as being at 80% of market rents. So, a 20% price fall seems to increase demand by that 1.2 million of the about 30 million households (we might be blurring UK and England numbers here but the point still stands). A 20% change in price seems to move demand by 4%? That means that housing demand is inelastic with respect to price. Demand changes, as a percentage, by less than the percentage change in price.

That then - again from that supply and demand theory stuff - tells us that an increase in supply will have a significant effect upon price. For the same reason, demand doesn’t change that much with respect to price therefore an increase in supply will move the price more than the demand.

Building more houses therefore will indeed solve the housing affordability problem.

We could also abandon all this economic theory nonsense and just return to basic, plain, common sense. There’s a queue for cheap stuff, is there? Gerraway.

By definition going green reduces productivity

Diane Coyle is suggesting that there needs to be a good, hard and long look at Britain’s productivity problem. Which would be an excellent idea, of course:

But what explains the UK’s specifically dismal productivity problem?

Some culprits will be depressingly familiar. A new report from The Productivity Institute (TPI) documents the consequences of the decade of declining spending per capita on education at all levels above primary school, the way expenditure on research and development as a share of GDP has fallen far behind other G7 economies and the confusing mishmash of small business support schemes. There is no shortage of diagnostic evidence about the wide range of productivity-limiting challenges. But two overarching weaknesses stand out: long-term under-investment and policy churn.

Investment in the UK has been lower, as a share of GDP, than in other G7 countries for decades.

This then leads to this suggestion:

This political economy context is why this week’s report, which captures the views of many of the UK researchers investigating productivity, calls for a new independent and statutory body to monitor, evaluate and report on policies for productivity and growth.

This institution would parallel the Office for Budget Responsibility, with a remit covering supply-side policies. It would co-ordinate across areas of policy and levels of government, with a focus on spatial economic growth, and would involve relevant stakeholders in its assessments. And it would need to be protected from policy churn itself with a statutory footing.

No, we’re not in favour of yet another bureaucracy. But even if we were we’d insist that people get to grips with what is being measured when we talk of productivity. For, by going green, we are deliberately, definitely and with malice aforethought, reducing productivity. This is also by definition, this is not something arguable.

We’ve mentioned this before around here but here’s one we prepared earlier, elsewhere:

We are, by dealing with those externalities, devoting economic energy — and other economic resources, but think just of the human effort here — to solving things which are not included in markets, in prices, in GDP. It’s that last factor that should cause the dawning realisation. It’s entirely true that solar power creates more jobs than nuclear per GWh of ‘leccie produced. The GWh is worth the same from either source, though, and solar requires more human labour — that’s the same statement as “creates more jobs” — so therefore solar power lowers measured productivity.

Sure, sure, we can say that not melting Greenland is important — human utility maximising even — and that’s almost certainly true as well. That’s not in our economic measures, though (externalities, see?), which means that, yes, preventing Lowestoft sinking beneath the waves is actually recorded as a decline in UK productivity.

It could be entirely true that we’re better off by addressing climate change. But it would still also be true - and again by definition - that by addressing climate change and other green externalities we are reducing productivity.

Now, given that the person recommending a Productivity Institute - or as far as we’re aware, actually runs one - isn’t mentioning this point we’d assume they’re not thinking of it. Which means we’re really most unsure of the merits of the thinking being done. And we’d certainly not recommend entombing that thinking into the bureaucracy.

It really is true that going green reduces labour productivity. By definition. A conversation about productivity that doesn’t even mention this isn’t one worth having.

Shouldn't the CMA know this?

The Competition and Markets Authority tells us that increased prices - beyond increased inpout prices - on branded goods increased inflation. This is not obviously true.

But they claim it:

But the evidence collected by the CMA indicates that, over the last 2 years, around three-quarters of branded suppliers in products such as infant formula, baked beans, mayonnaise, and pet food have increased their unit profitability and, in doing so, have contributed to higher food price inflation.

The problem here is that they also claim the following:

However, own label products often provide cheaper alternatives with suppliers of these products earning lower profit margins and competing to win and retain contracts from retailers. In all but one of the relevant product categories the CMA looked at, as food prices have risen, many consumers have switched away from brands towards own label alternatives, or reduced their consumption, leading to a decline in brands’ market shares and profits. This switching is positive for competition and allows those able to switch, to lessen the impact of high food price inflation.

Aaaah. No. For that second is substitution. The price of one good - branded baked beans - rises so consumers substitute away to unbranded or supermarket own. So much so, as they say, that total profits and sales by the branded goods have fallen.

Now, if inflation was the counting of the same goods over the years then this makes no difference. But inflation isn’t that for inflation takes account of substitution.

From the ONS:

Within each calendar year, the basket contents are fixed so that changes in the indices from month to month reflect only changes in prices, and not variations in the quality and quantity of items purchased.

However, the contents of the basket and associated expenditure weights are updated annually. This is important in helping to avoid potential biases that might otherwise develop, for example, because of the development of entirely new goods and services. These procedures also help ensure that the indices reflect longer-term trends in consumer spending.

The substitution away from those higher priced branded goods (now priced even higher) to own brand is already included in our inflation statistics. Because the consumer basket has changed in order to reflect those changes in buying habits.

Just one of those things that bolsters our long running insistence that it’s not possible to have enough knowledge to run an economy in detail. Hayek got there before us of course. But this is a good example of the point. The very people trying to work out the effects of inflation upon food prices aren;t accounting for one of the effects of inflation upon food prices.

This isn’t going to then produce the information necessary for detailed economic management, is it?

Another one of those ideas that just doesn't work

No, this wouldn’t do what is claimed:

All businesses should be forced to embrace the environmental, social and governance (ESG) movement, New Labour’s favourite think tank has argued in an attack on the profit motive.

A report by Demos, viewed as a key source of Labour policy in the Blair years, claimed that changing company law to “insert purpose into the heart of directors’ duties” would add £149bn to the economy.

If business were forced to do everything that is currently trendy then the world would be a better place. Well, by the standards of those who support what is trendy that’s no doubt true. But the claim is more than that. It is that businesses which do this grow faster, are more profitable, do better.

Just chew on that for a moment. The shareholder interest is in businesses which grow faster, are more profitable, do better. Therefore, a system of company law which prioritises the shareholder interest already forces companies to do those things which make the company grow faster, be more profitable, do better.

It is only if all of these other things - the stakeholder interests, the promotion of diversity, recycling and who knows, reparations for slavery and whatever - do not promote growth, profitability, better, is it necessary to have a law forcing a company to consider these things.

The very insistence that there outta be a law ‘baht it is all the proof we need that those promises of growth, profits, better, are not true. In fact, the insistence upon the forcing is an insistence upon shareholder interests being subsumed into what is trendy, with less growth, lower profits and not better.

That is, the new suggested law would make us all poorer. And why would we want to do that?

This is also a more general feature of such desires for new laws, new forcings. We often are presented with evidence - well claims, at least - that this or that will make the world a better place. Often enough backed by how it would be better for suppliers, producers, if these things were done. To which the correct response is, well, thanks for the information. If the claims are true then in the face of the new evidence people will adopt the new ways. But the moment there’s an insistence upon forcing this new and better way we gain the evidence that not even those promoting it do believe it’s better. For, they’re not willing to allow the betterness to be evident, even after their explanation, they’re insisting upon the forcing. And you don’t have to force people to make themselves better off. Explain to them how, maybe yes, but force, no.

That very insistence upon forcing ESG on all is all the proof we require to know that even Demos thinks ESG is a crock. So, err, why would we do that?

The UK's financing of inequality

We think this is gorgeous. No, really, an absolutely excellent, beautiful and gorgeous piece of research:

The UK spends more than anywhere else in Europe subsidising the cost of structural inequality in favour of the rich, according to an analysis of 23 OECD countries.

Well, it’s in The Guardian so it must be true. The report is from The Equality Trust. Yep, Wilkinson and Pickett of The Spirit Level. And some half or so of their costs are to do with health care and lifespans.

The UK’s healthy life expectancy was 70.1 years in 2019,5 ranking it 21st out of the 22 assessed countries.

We found that in a more equal UK, we could expect to live longer and healthier lives. If the UK were as equal as the average for the developed OECD countries, we would expect to live another: 12.8 months of healthy life. If the UK were as equal as the top five most equal developed OECD countries, we would expect to live another: 17.8 months. NICE guidelines indicate that the UK health system will pay £20,000-30,000 for a drug that increases healthy life expectancy (Quality Adjusted Life Year). This cost-effectiveness threshold hasn’t been uprated with inflation since 2004; research in mid 2021 found that the range should be increased to £28,584- £42,786, although this won’t take into account the rapid increase in inflation the UK has experienced since 2022. With that in mind, we’ve used the upper limit of £30,000 as our basis. Therefore, we estimate: The cost of inequality for physical health, compared to the average for the developed OECD countries, is: £34,337,869,367 yearly. The cost of inequality for physical health, compared to the top five most equal developed OECD countries, is: £47,751,099,588 yearly.

The five most equal countries are Finland, Belgium, Holland, Norway and Denmark. The links there are to descriptions of their health care systems. None of which is anywhere near as equal and equitable as our own NHS, Wonder of the World that it is. They are all also more efficacious than our more equal and equitable system.

Which is, we think, simply gorgeous of them. The place we’re more equal than them is in health care. That’s the entire driving ethos of the NHS itself. Equity. So, we die earlier, suffer problems longer, because equity, equality, and yet the blame is to be placed upon inequity, inequality?

No, no, you can’t get around it that way. They do not mention - even to dismiss it as a possible cause - the relative inefficiency of the NHS at actually treating people. That “mortality amenable to health care” measure the NHS has always done so badly at. Nope. It’s entirely inequality kills and the hell with whatever the health care system is.

Which is how they do manage to make this ludicrously absurd claim. That the poor performance of this very issue where we are most equal - health care through the NHS - is evidence of the costs of inequality.

At which point there’s really no possible answer other than guffaws of laughter, is there? Mere giggles just won’t do it at all.

Confused Civil Service Reform

When Sir Jacob Rees-Mogg, had responsibility for the civil service, it was agreed that the numbers would be cut down to pre-Brexit levels,  i.e. 65,000 or 13%.  In October, “Chancellor Jeremy Hunt announced civil service ‘expansion’ would be ‘frozen’ and a plan would be put in place to return to its size before the Covid-19 pandemic.” Apparently it would be the ‘most ambitious public sector productivity review ever’. 

The reality is that the civil service continues to increase in size. Footnote 25 in the Chancellor’s 2023 Autumn Statement says “According to the latest ONS official statistics on public sector employment in the UK, there were 457k FTE in June 2023, compared to 391k in March 2019, excluding devolved administrations. If the size of the civil service remained at June 2023 levels, instead of increasing at the average 2016-2023 growth rate, up to £1bn could be saved by March 2025.”

The word “could” is significant here as we currently don’t know how the government plans to achieve this. He has asked departments to come up with some ideas for reductions sometime next year- probably through ceasing new hires and using artificial intelligence. But in last year’s Autumn Statement when he declared that was not the way to do things. 

Meanwhile, in July 2022, Government announced that a civil service "Governance and Accountability review will be led by former Cabinet Office Minister Lord Maude, who will chair the work and recommend ways to make government more efficient in autumn."  

This 140 page document was sneaked out earlier this month with so little fanfare that most of us failed to notice it.  The more controversial aspects seem to have been removed. In particular, the aim now seems to be efficiency, rather than a reduction in the size of the civil service.  In fact, the size of the civil service and number of civil servants are not mentioned in the published report. The 57 main recommendations are about structure and HR. 

The report does, at least, make many good, often amusing, criticisms of the civil service institution, as distinct from the civil servants themselves. And he is right to say that ministers and their special advisers are part of the problem.  Churn is excessive and neither receive any training for their roles. Recommendation 45 says: “Ministers should generally stay in post for longer and there should be an element of continuous professional development (CPD) for all serving ministers.” But otherwise, the report complicates matters.

In February 1988, the government approved the Ibbs Next Steps report which proposed that the civil service be reduced “to a small ‘core’ of policy makers and ‘transferring’ other officials to work under free-standing agency boards” which we would now call “Executive Agencies”. In other words, the civil service structure would be simplified to two types of unit: each department would have one small team advising ministers on policy and as many Executive Agencies as were necessary to ensure policies took affect.  The latter would have annual reports showing performance against objectives. Needless to say, it never happened.

There is no doubt that this model of the civil service would produce better government than the new more complex one, especially if Maude’s recommendation 45, reducing ministerial churn and adding training for ministers and social advisers, was included. 

What will actually happen? Frankly, probably very little.

There might be a reason we don't allow the creatives near numbers

An attempt at describing the difference between machines and workers:

But Nicola Solomon, chief executive of the Society of Authors, warned such measures could have harmful consequences for humans and urged the Government to level the playing field.

She said: “If you buy in large amounts of machinery or software you will get capital allowances for that. If you take on real people, you have to pay their tax, their National Insurance and so on.

“So it actually becomes cheaper to buy and use machinery than to buy and use people, even if the base costs were the same.”

Umm, no. Not no as in the sense of not really, there’s a subtlety being missed here. No as in just no, wrong.

Under the old system the entire and whole costs of hiring people were allowable against tax - that is, they were costs deducted from revenues before profit calculated - in the year of the paying of the workers. The buying of machinery costs were only so allowed over time. Thus the machinery was more expensive by whatever the time value of that money was as set against the tax allowed depreciation schedule.

The new system, full expensing, treats paying for machines exactly the same as paying for workers. It is not a new bias in favour of machines, it’s the removal of an old bias against them.

Presumably there are members of the Society of Authors who understand tax, economics, equally presumably they’re off writing books about tax and or economics. Leaving no one who does to run the Society. Pity but there we are.

Of course, it gets worse:

The creative industries have called for an overhaul of the UK’s tax regime for the artificial intelligence (AI) era amid concerns it will be cheaper to buy machines than hire humans.

Err, yes, applying more machinery to human labour is also known as “increasing productivity”. True, as Paul Krugman has said, productivity isn’t everything. But in the long run it’s pretty much everything. That is the aim and purpose of all economic advance is to destroy jobs - to make it cheaper to hire machines than humans.

This isn't the way to decide things

Perhaps it’s important who owns the Telegraph group and perhaps it isn’t. We tend to go with the idea that a free press does mean that government doesn’t get to decide who can be part of that free press but maybe that’s just us.

However, we really don’t think this is the way that the decision should be taken:

A Whitehall battle over the sale of the Telegraph newspapers could break out owing to a power vacuum created by the absence of the cabinet secretary, the Guardian understands.

Efforts by the culture department to investigate an Abu Dhabi-backed bid for the newspaper group risk being steamrolled by the Foreign Office, which is eager to bolster Britain’s relations with the United Arab Emirates, sources said.

Senior figures at the Foreign Office had already sought to “take the edge off” a letter from Lucy Frazer, the culture secretary, in which she laid out her intention to have the bid examined by Ofcom, sources claimed.

But with no cabinet secretary to intervene in a potential squabble between departments, as Simon Case is on medical leave, scrutiny of the deal could “fall through the cracks”, it has been claimed.

A clash of competing egos really might not be that optimal decision making method.

But then that’s what politics is, isn’t it. Therefore, politics isn;t the optimal decision making method except forthose very few decisions that can be taken no other way. Like, say, deciding whow makes sure the bins get collected. Therefore the influence of politics, of government, which takes decisions in this manner should be limited to only those things that cannot be done any other way - like said bins.

The world would such a better place if only politics were put back into its box and limited to where it is actually necessary. The rest of it we can all get on with ourselves, free and at liberty. No?

To make the same old point again about income tax and the minimum wage

So, the national living wage is to rise in the spring to £11.44 an hour. With a 37.5 hour working week, about the average for a full time worker, this is £22,308 a year.

The income tax (and NI) allowance is £12,570. Roughly enough you pay 12% NI and 20% income tax on the gap between those two - 32%. Or £3,116.

Something we regard as monstrous. The entire point of the minimum wage - not that there should be one at all - is that this is the minimum just and righteous amount that someone should gain for their labour. Nicking three grand of it - or 15% or so of the total amount - is monstrous.

Or as Sophy Ridge has noted:

Number of people David Cameron’s Coalition Gvt took out of paying income tax: 3.2m (Treasury, 2015)

Number of people the current Gvt brought back into paying income tax: 4 million (OBR, today)

We spent the period 2004 to 2010 shouting about this and our shouting, along with more measured tones from the CPS, led to that personal allowance rising to this current £12,500. Which was, as our demand was, that the allowance and the full year minimum wage should be the same. The reason for that specific sum is that’s what the minimum wage was in the year the government announced the target.

Our original desire, our original insistence, was that the personal allowance and the minimum wage should be the same amount and that no Chancellor be allowed to diverge from that. We repeat that.

For here we are a decade later and someone on the minimum wage pays 15% of their income in incomes taxes. Further, someone working 22 hours a week - part time we’d call that - on that minimum wage is facing that dual burst of incomes taxation. Monstrous, stop it immediately.

Odd to get this from a philosopher

Our memory of philosphy is that all the really hard work comes at the beginning, with the definition of terms. Only once it is clear that we are using words to describe things both accurately and precisely is it possible to then go on to use words to walk through a discussion of those things. Admittedly, some here have a deeper understanding of the subject than that but even so we really are sure that definitions are vital to the subject.

We are therefore surprised to see this from a philosopher:

Common to both approaches is a wrongheaded presumption that we can carry on growing while managing to hold off the floods and fires of growth-driven capitalism. Both also take it for granted that the consumerist lifestyle is essential to the wellbeing of rich societies and the ideal to which less developed economies should aspire.

It is true that measures to alleviate poverty will be an integral part of any national or international green transition. And some economic growth will be required in areas such as renewable energy, housing, care and education. But overall growth is not, as many of its advocates seem to presuppose, essential to any effective economy.

Nothing much wrong with that. Growth isn’t essential, it’s merely something humans desire. Of course we don’t want growth that then consumes us - sustainable growth is indeed a desire. And so on - we might not agree with what’s said there but it’s all defensible. This isn’t:

Conversely, there is much to recommend a slower-paced, less work-centred and more community-oriented way of living. A work culture less dominated by profit-driven ideas of efficiency would free time for other activities.

The first sentence, sure, why not? None of us do work every hour God gave therefore we all agree, to greater or lesser extent, with the idea. How much we agree, 70 hours a week or 10 is something probably best left to the individual - as long as they’re willing to accept the corollary, the living standard, rich though it is in other compensations, that will accompany the associated income.

The second sentence is simply nonsense. Profit is the value added in an activity. Inputs are this, outputs that, profit is the difference between them. The greater the efficiency with which we do things then yes, the greater the profit. But then that means that the greater the efficiency the more value we gain from any specific amount of effort or resource use. Which means, for any specific amount of value to be enjoyed by us all collectively, greater efficiency means more time for other activities.

Start this simply, we’re growing wheat for the daily bread. If we sow by hand, plough with a stick, scythe the stalks and hand sort the chaff then there’s an enormous amount of human effort in a slice. Effort that cannot be used for other activities at risk of not gaining our necessary 2k calories a day.

So, now we do this more efficiently. We spend less time on the bread, we have more time for everything else. As we’ve noted before it’s the invention of the tractor which allows civilisation - the NHS, ballet, libraries, schools, would not exist if 90% of all human labour had to be in fields.

Efficiency in the use of human time is exactly what allows all those other things which lead to a greater richness of human existence. Profit-driven efficiency is not what prevents us from having that richer and less grubbing life, it’s exactly the thing which allows it.

As we say, philosophy really does start with the definitions of terms. Profit, efficiency, these are desirable things. Clearly so, for without them we’d not have the societal surplus to enable the existence of philosophers emerita.