That poverty gets dealt with is apparently problematic

We are, around here, near pure pragmatists. If it works, it works, if it don’t then don’t do it. Apparently this isn’t how some others see the world:

Independent Food Aid Network warns of normalising charity as an answer to poverty after Princess of Wales volunteers at Berkshire centre

Yes, they really are saying that charity is a bad thing.

Sabine Goodwin, director of the Independent Food Aid Network, said: “There’s a fine line between soliciting donations with a positive spin and normalising a charitable response to poverty.

As we say, charity’s a bad thing to some people.

“The Princess of Wales’s heart is undoubtedly in the right place but we can’t afford to see royal patronage through rose-tinted glasses. We need to be collectively shouting from the rooftops that baby banks, like warm banks, fuel banks and food banks, shouldn’t be needed.

“If we are to put the baby bank genie back in its bottle, combining calls for systemic change with much needed efforts to fill the gap is critical.”

Graham Whitham, chief executive of Greater Manchester Poverty Action, agreed, saying “it is vital we don’t further normalise charitable responses to poverty”.

We’d just like to point out that the major cause of visits to food banks - as an example - seems to be the inability of the State to hand out free money on time to the right people. Therefore an insistence that the State must be exclusively responsible for what it is patently incapable of does seem to us to be a very strange insistence.

As we’ve also pointed out more than once we are insistent that food banks - to use the same example again - have not expanded because the need is greater than it was 30 and 50 years ago. Rather, because around the turn of the millennium this country imported that American technology of alleviating poverty through food banks. The expansion is not an expansion of need, it’s an expansion of efficient supply.

Charity makes the world a better place. As we’re in favour of better place we’re in favour of charity.

We’d also mutter along the lines of how Soviet this demand of systemic solution is. Sure, Comrade, you’re hungry, cold, dwelling in a shack. But rather than allowing any alleviation of that, first we build socialism, Da?

Bureaucracy kills productivity growth

Now, of course, this is a boss complaining that the bureaucracy won’t allow him to do what he wants to do:

The UK competition regulator is stifling innovation and entrepreneurship by taking too long to make decisions, according to a senior Adobe executive who is overseeing its $20 billion takeover of Figma.

In an interview with The Times, David Wadhwani, president of Adobe’s Digital Media business, said: “The process should not take 15 months to get to this stage. I think we can all agree that expediting these kinds of decisions is important for innovation and for doing the right thing by consumers and customers to make these decisions faster and move more quickly.”

In November, the Competition and Markets Authority (CMA) said it was minded to block Adobe’s multibillion-dollar takeover of the app interface design business Figma because it could harm competition in product design, image editing and illustration. A final decision will be made by the end of February next year.

We’re even prepared to accept, for the moment and for this argument only, that the concerns of the CMA are valid. Maybe it will cause problems in some corner of this market. You know, maybe.

But now the point we’ve made before. There are two types of economic growth, there’s simply processing more economic resources into more output. Not very green, it’s also how all of the Soviet Union’s growth turned up. More iron ore and coal to make the steel for the machines to dig up more iron ore and coal. There’s also becoming more efficient at our use of economic resources. This is what produced about 80% of the economic growth in the market economies in that long 20th century.

Becoming more efficient is also known as increasing productivity. We can talk about total factor productivity (how efficient we become at using everything) or the one that politics currently whines about, labour productivity. How much more value do we gain from an hour of human labour?

This productivity increase - it comes from either doing new things, or doing old things in new ways. As above, this has historically been 80% of total growth. The speed of GDP growth is the speed at which we do those new things or things the new way. This is also the same, in concept, as the speed of productivity growth.

So, now we’ve a bureaucracy taking 15 months to even decide whether they might have a concern about someone suggesting a new arrangement for doing something or other.

Sure, that new thing might be bad. Might be good too. But at some rate of bureaucratic cogitation the time spent to think through it causes as much damage to economic and productivity growth as simply allowing a bad thing to happen.

We’re not getting richer precisely and exactly because we’ve a bureaucracy deciding how we should be getting richer.

The answer is obvious - simply abolish the Competition and Markets Authority. Replace it, perhaps, with something efficient, that doesn’t, by definition, make us poorer. Or a coin toss, likely to do less harm.

Given that example we have of a sensible political reaction to bureaucracy in Argentina, so, where’s that chainsaw gone?

PPE costs more at a time of high demand, does it?

We note that the Good Law Project is having another tilt at the government:

PPE was on average 80% more expensive when the government bought it from firms referred through a special “VIP lane” by Conservative ministers, MPs and officials, new information has revealed.

The Good Law Project, which has long been investigating PPE deals during the Covid pandemic, said internal government documents showed that the unit price paid for items under VIP lane contracts was up to four times higher than average.

We agree, this could be possible. The idea that special contracting processes lead to mates getting great deals is not alien to us at all.

But there’s another possibility here as well. Think back - demand for PPE was through the roof as the pandemic hit the whole world at the same time. Supply was constrained, obviously enough. So, and therefore, prices rise. This is normal enough.

We also have that special lane. For those who can actually deliver, to spec (clearly, not all was to spec but that’s another matter). In a time of global shortage of supply when measured against demand. So, those supplies of PPE that come through this special lane, they’re going to be higher priced or not?

As we say, we don’t insist that the second be true, nor that the first not be. But we would insist that that second be explored, be thought about, the GLP claims adjusted for that somewhere between possibility and likelihood.

They have, haven’t they. Haven’t they? Or are they just claiming that deliveries during a supply shortage were more expensive?

That paradox of inequality

Matthew Syed asks an interesting question:

And this explains perhaps the most conspicuous political paradox of our age: why has the rise of economic inequality not led to the election of left-leaning governments whose raison d’être is (or should be) to offer redress for social injustice?

If inequality has risen as it is so often claimed it has then why aren’t the redistributionist parties sweeping the board? As, well as they did last time around a century and so ago?

Possibly, because the claim of rising inequality isn’t, in fact, true. We often mention that the Gini, the usual measure of income inequality, is currently lower than it was in 2007/8. That’s what is known as “falling” inequality, not rising.

There have been two new papers looking in more detail at this. Essentially, exploring the claims of the Piketty, Saez, Zucman axis. One shows that the post-tax, post-benefits income share of the 1% (for the US, agreed) has not in fact risen as that axis insists. Actually, it’s about flat. The other looks at the next level of inequality, after government provided services (ie, public goods). This is something that we’ve insisted upon here over the years. That all gain access to the NHS on the same terms is an equalising influence upon society. We must therefore account for that equalisation when trying to calculate inequality. Inequality is less than the more usual calculations - of course it is.

There’s a third level here as well, as yet unexplored in this formal manner. But again we’ve insisted upon it around here. The only form of inequality that could conceivably matter is consumption inequality. Which means that we must also include the consumer surplus in our calculations. Lambos and Chelsea houses tend to go for what someone’s willing to pay for them. Free email, search engines and social media go to all on that same upfront cost of nothing. This is another equalising factor in the standards of living as life is lived. There is one calculation out there that the email and search engine provides a consumer surplus of $18,000 a head. Which, obviously, applies to all, equally. Me, you, Bill Gates (although he has to use Bing) and that guy down the chip shop swearing he’s Elvis.

Far from the modern claims that inequality is soaring it is contracting by that only measure that possibly matters, consumption possibilities.

Which does leave us with the reverse of Syed’s original question. If the rise in inequality is not true then why have we had so many claims that it has happened? Clearly, the claim is being made so that the left wing redistributionists can roar back into power. Despite the base claim not, in fact, being true. But then when ever was truth a factor in politics and the gaining of power?

A rational builder will stockpile planning permissions

Think through, just for a moment, the idea that those who run companies are rational. Not omniscient, not perfectly predictive of the future, just rational.

So, if it takes x amount of time to get a new supply of something then the business will - rationally - hold a stock of that thing equivalent to x times’ worth of production. If a car maker will only get new car making steel after a 6 month wait then the car maker will hold a 6 month stock of car making steel. We saw this in both 1970s British car making and also throughout the Soviet economy.

Actually, it’ll be a little more than that - for of course we now need to add uncertainty. But the general principle stands. You hold a stock of whatever to tide you over until you can get more.

If this confuses then try thinking that one level deeper again. The big costs of being in business are rarely those physical inputs like steel. They’re the costs of having the factory and plant to be able to transform steel, the workforce to do so and so on. The costs of those being empty, or having to be paid without work to do, are vastly greater than the carrying cost of some steel. So, steel gets carried as stock so as to allow continual employment of plant and labour.

This rational behaviour is not limited to something like steel for carbuilding. That essential raw material for housebuilding is land upon which you are allowed to build a house:

Mr Perrins has long called for an overhaul of planning rules to boost the housing sector. Berkeley Group specialises on building on brownfield land but has repeatedly said that obtaining planning permission for its sites is difficult.

The time taken to gain planning permission for new projects was now averaging almost four years, the company said, compared to two historically.

The rational building business will have a 4 year stock of planned and permitted sites given that it takes 4 years to get new ones.

Again, think on this. So, a housebuilder buys a site now, it will be late 2027 before it is permitted. The brickies, chippies and so on need something to do in 2024, 2025 and 2026 while they await that permission. A four year time span between land acquisition and permitting means 4 years of permitted sites moving through the system like a pig through a python.

There are, perhaps, some 1 million permitted sites. The housebuilding target is 300,000 a year. It takes 4 years from buying the site to building the house. We have not enough permitted sites in the system. Add in a bit of uncertainty and we have many too few permitted sites. So, we should increase the number of permitted sites.

Or, obviously, reduce the time taken to gain planning.

The alternative argument offered to us is that the housebuilders are a cartel who buy up all that potentially permittable land and then sit on it - land banking. Then a miracle occurs and they make a profit by doing nothing in the usual tale. Let us assume, just for this part of the discussion, that that’s true. OK, so what do we do?

The way to kill a cartel is to flood the zone with supply. No one can buy everything to corner the market - as the Bunker brothers found out with silver. So, if housebuilding is a cartel restricting supply by buying it all the way to kill that cartel is to flood the market with planning permissions.

That is, either argument - the rational and true one or the one made up by fools - leads us to exactly the same conclusion. Issue more planning permissions. Vastly larger numbers of planning permissions, millions upon millions of them. Or, as we say, blow up the Town and Country Planning Act 1947 and successors, proper blow up, kablooie.

If this is all too complicated then consider something very basic indeed. If you increase the supply of something then, against a settled level of demand, the price will fall. And that’s what we all want to do, right? Get house prices lower? So, issue more planning permissions.

Sure, there are bits of economics that are difficult. This isn’t, this is simple. Allow more housebuilding, vastly more housebuilding, and the houses that are built will be cheaper. Job done.

That zero cost of printing all the money to spend

Another one of those little effects of the Magic Money Tree coming back to bite us on the economic fundament:

‘Vulnerable’ £1.8trn private loans pose threat to UK’s financial stability

Scale of these high-risk loans has tripled to £1.8 trillion – but now ‘appears vulnerable’

Well, yes, this would happen.

Andrew Bailey has joined a growing chorus warning of the risk to the financial system of a collapse in the £1.8 trillion private credit market, which boomed in the era of rock-bottom interest rates.

The scale of these loans, which are often considered high-risk and take place behind closed doors rather than in banks or in public debt markets, has more than tripled globally since 2015, but now “appears particularly vulnerable,” the Bank of England said.

Recall what we actually did with Quantitative Easing. We deliberately printed new money with which we then bought government debt. Thiis lowered - by design - the risk free interest rate, that yield on gilts. At which point the rational investor went further out along the risk curve in a desperate attempt tp gain some sort of income. Which was the point of the printing and the buying, to push people out along the risk curve and hunt for yield.

As that problem inducing QE goes away and we come to Quantitative Tightening, QT, then that hunt for yield, acceptance of risk, is also going to change. Which is also the purpose of QT. We want investors to wind their necks in that is.

So far, so good and all is going according to plan. The difficulty is that the money printing, the bond buying, gave government free money to spend. As long as that remained in the financial system we did not have a system-wide change in prices. Capital assets changed in price, yes, but then that’s the same thing as reducing yields to push people out along the risk curve. Just a different description of the same process.

One government got a taste for actually spending that newly minted money we got inflation - which we’re now trying to reduce of course.

Which is where we get to that cost of Modern Monetary Theory, or that magic money tree. By funding government via money printing we do indeed reduce the general interest rate. Which will make the corporate world riskier as investors reach along that risk curve for yield.

Anyone complaining about these “private loans” has to accept that this just is what will happen in a world of QE and MMT. Anyone objecting to these risks needs to understand that they are a product of that money printing method of funding government spending.

Just one of those things - you don’t have to like what economics tells you but you do have to pay attention. For economics does add up. This action here creates that effect there and no, you can’t take this action without that effect.

Gloriously, wondrously, bad economics on greedflation

Greedflation is this idea that recent inflation was driven by Big Business - you know, capital, them, they - upping their profit margins at this time of stress. The usual response to this is that if capitalists - them, they - had this power to push up prices then they would have used it already. If that power was newly arrived in this time of stress then it’s the newly arrived ability which is to blame - so, macroeconomic or monetary conditions again - for their ability to do what they always would. They’re capitalist, those they, them, after all.

But the idea is still attractive to many. After all, it cannot be a failure of government, politics, Modern Monetary Theory or the Magic Money Tree, can it? Those are all nice things and sugar and spice do not lead to puppy dog tails.

Which is what leads to this latest report claiming that, no, really, it’s all them in their top hats and with their cigars:

The report from the IPPR and Common Wealth thinktanks found that business profits rose by 30% among UK-listed firms, driven by just 11% of firms that made super-profits based on their ability to push through stellar price increases – often dubbed greedflation.

Excessive profits were even larger in the US, where many important sections of the economy are dominated by a few powerful companies.

Gosh.

Researchers said the energy companies ExxonMobil and Shell, mining firms Glencore and Rio Tinto, and food and commodities businesses Kraft Heinz, Archer-Daniels-Midland and Bunge all saw their profits far outpace inflation in the aftermath of Russia’s invasion of Ukraine.

“Because energy and food prices feed so significantly into costs across all sectors of the wider economy, this exacerbated the initial price shock – contributing to inflation peaking higher and lasting longer than had there been less market power,” the report said.

Ah. In fact, Snigger, Ahahahaha and even LOL in that non-Call Me Dave sense.

The claim is that commodities prices (those raw foods like grains etc, oils, metals) went up more than inflation thereby boosting the profits of their producers. This must therefore be evidence of that market power to push up prices and so cause that excess inflation. We do agree that’s what they’re saying? Yes?

Excellent - now, what’s the definition of a commodity? “A commodity is a basic good used in commerce that is interchangeable with other goods of the same type.” If it’s interchangeable it’s substitutable. That is, commodity producers have no market power. They have to take the market price, they cannot determine it. It’s right there in the base definition of the thing we’re talking about. Commodity producers take the market price.

IPPR and Commonwealth have decided to use commodity margins - where there is no producer market power, by definition - as proof of producer market power. This isn’t economics this is politics with counting.

Misunderstandings around austerity economics

After the 2008/9 recession the coalition government famously adopted a set of contractionary fiscal policies with the aim to reduce national debt. Elements of this austerity programme included significant cuts to government spending, public sector job reductions, and changes to welfare programs. Various Keynesian economists claimed that such policies would be detrimental to the British economy, including Nobel prize winners Paul Krugman, and Joseph Stiglitz. 

In some sense they were right, but for all the wrong reasons. 

Austerity in the UK was harmful due to the impact which it had on total expenditure. The reduction in government expenditure caused a reduction in public sector employment, which had a knock on effect in the private sector as lower total spending in the economy led firms to layoff workers. Primarily through these mechanisms austerity policy led to rising unemployment, and a general reduction in standards of living. 

However, this is not inevitable. Following the recession the US adopted a very similar set of austerity policies to the UK, if anything they were slightly more radical. Just as economists did in the UK, a letter signed by 350 Keynesian economists suggested that this might push the US economy into recession. The US budget deficit was then reduced from roughly $1,050 billion in 2012 to $550 billion in 2013. Despite this, there was never an equivalent ‘double dip’ recession, as was experienced in the UK and EU.

This is because the Federal Reserve adopted sufficiently expansionary monetary policy to offset the impact of the reduction in government expenditure on NGDP (total expenditure). While government expenditure fell, this was negated by the increase in private sector expenditure, meaning there was no significant increase in unemployment. Had the Bank of England adopted similar monetary policy, the country undoubtedly would have fared far better during the austerity period. 

Austerity in the UK was not harmful because government expenditure fell, as many will often suggest, but instead because inappropriate monetary policy allowed total expenditure to fall. 

We think this is probably a very good idea indeed

Not, particularly, about KFC and or fast food near schools, but:

Anti-obesity policies designed to stop takeaways being opened near schools are being thwarted by challenges made by the fast-food giant KFC.

At least 43 local councils in England and Wales have had their anti-obesity policies challenged by KFC since 2017, The Times has found.

In more than half of these cases the fast-food giant has succeeded and town hall bosses have either abandoned their plans or significantly watered them down.

The supposed justification of these policies is that child obesity - the thing that Chris Snowden has proven does not, in fact, exist - spiced up with a post-rationalisation:

The findings come after an analysis found this week that Britain’s weight problem is costing the state almost £100 billion a year. Henry Dimbleby, the government’s former food adviser, found that the effect on national productivity from excess weight was nine times bigger than previously thought.

As we’ve pointed out that Dimbelby number is abject nonsense. And The Times doesn’t even manage to quote it correctly either. As the fishfinger sandwich salesman actually says, more than £60 billion of that cost is private, individual, costs, not costs to the state at all.

But let us assume, just for the sake of argument here, that everything said about fast food, childhood obesity and the costs to us all is correct. We still support such challenges and such watering downs. For:

Officials said that after they submitted their plans to improve children’s health, KFC has argued in some instances that the measures were “unlawful” because they had not been through all the correct processes, or that there was not enough evidence of links between obesity and the proximity of fast food outlets to schools.

We are in favour of the rule of law. It’s a basic and absolute requirement for a free and liberal society. Whatever it is that may not be done must be written down, passed through the legislature and be a rule, not a matter for the discretion of whoever is currently occupying the corner office.

Local authorities create unlawful plans? Then local authorities should be - must be - challenged about their plans until they manage to bestir themselves into producing something that is actually legal. They’re swift enough to impose that duty upon us, the citizenry, so fair is fair, no?

That is, the O Tempora, O Mores, complaint here is not that obesity is not being attacked, it’s that we now have to rely upon a fried chicken joint to preserve the most basic of civil liberties, the primacy of the rule of law.

One reason we don't believe certain economic claims about climate change

Geoffrey Lean - yes, yes, we know - tries to tell us about climate economics.

The Cop28 president told a shocking lie about fossil fuels – and he’s wrong about climate economics too

Wrong, eh?

Study after study has revealed the immense potential. One, by Deloitte for the World Economic Forum, concluded that a transition to net zero could benefit the world economy by $43 trillion over the next five decades.

A commission of some of the world’s top businesspeople and financiers decided that similar measures could create 380 million jobs.

Jobs are a cost, not a benefit. Having to direct human labour to some task reduces the amount of such human effort that can be devoted to sating some other desire - it’s a cost. So that boast is that dealing with climate change would add 380 million costs to the global economy. Yes, obviously, this is an opportunity cost but if you’re not doing opportunity costs then whatever you’re doing it’s not economics.

The Deloitte claim is here. The “bad” outcome they’re testing against is SSP2 6.0. That’s a target we’re already going to hit, we’re - roughly, you understand - on RCP 4.5 or so at present. But rather more importantly:

$178 trillion in global economic losses Net present value terms to 2070 in US dollars

Ah. So, divide by 50 years (yes, ignoring discounting, aren’t we such terrors?) to give $3.4 trillion a year. Perhaps 3% of global GDP currently. And very much more like 1 to 2% in 2070 - yes, all these forecasts assume that the global economy will continue to grow over the decades. For the loss being detailed is the cumulative loss, not the annual.

So, one thought is that this is a fraction of the Stern Review loss of 5% (an annual number off in that future) and so Deloitte is telling us that climate change is very much less of a problem than Stern did. Which is interesting.

Rather more apposite we think is that we don’t, in fact, know current GDP to within 1%. Whether or not we add drugs and commercial sex or not moves the number by that much. Imputed rents (what people don’t pay for living in the houses they own) is multiples of that. The difference between the first estimate of the monthly GDP numbers and the final count 6 or whatever months later can be 0.5% of GDP. Claims about a few percentage points 50 years out strike us as little more than a demonstration of a sense of humour.

As with Peter Lilley we’re fine with what people tell us about the physics of climate change. But the economics of it all is much more marginal. Leave aside the deluded who think that job creation is anything other than a cost. The reason that the Nordhaus and Stern analyses insist that we must do this the cheap and efficient way is that the difference - absent a Venus-syle runaway - is marginal. It’s a few percent either way. Therefore the efforts cannot, logically, be more than a few percent either way for if they are then the costs will be greater than any possible benefits.

The actual economics of climate change does tell us that avoiding disaster is a pretty good idea. After that it’s all rather a marginal issue.