Markets are forward looking, d'ye see?

No, we are not about to make a claim about the revenue from any changes in the non-dom taxation system. We are though going to insist on how the effects of any changes should be measured:

Labour’s plans for a £2bn tax raid on non-doms are already putting off wealthy foreigners from coming to Britain, international lawyers have warned.

Tax lawyers working with billionaires and multi-millionaires have already noticed a “substantial” drop in interest from overseas clients in coming to the UK, according to Withers.

Labour has long warned that it plans to change the scheme, which allows foreigners to live in the UK without paying tax on their overseas income for up to 15 years.

The party, which is 20 points ahead in the polls, initially said it would abolish the non-dom tax status. However, shadow business secretary Jonathan Reynolds earlier this week suggested Labour would instead “modernise” it and make it less generous.

As we say, we’re not about to insist on any particular fiscal outcome from these changes. We have our suspicions of course - expectations even - about lower overall revenue but those aren’t proofs.

What we do want to insist upon though is how any effects need to be measured once the deed is done. For, as we can see, markets are forward looking. People are making decisions now on what they expect to happen in the future. Thus those expectations of future changes move the reaction back in time to now. So, when measuring the effects of the changes we do not - both should and cannot - start from the time of the actual changes themselves. Rather, we must start from when those changes became likely and therefore affected behaviour.

That is, any calculations of the yield from changes in non-dom taxation need to start a year or two back from today, not from when those changes are actually enacted, nor the tax year in which they first apply. Not because of anything that’s either good or bad about changes in non-dom taxation. But because that’s the only way we’ll be able to measure the effects of those changes upon revenue.

So, stop having government targets then

Some issues really are Simples:

Family meals have become far more fattening since the Government set targets to reduce their calorie content.

The Government has been urging restaurants, supermarkets and manufacturers to cut calories from their foods, either by reformulating them or cutting portion size.

But an official report by the Office for Health Improvement and Disparities shows Britons are consuming more calories than ever in meals and snacks.

The data show family meals now contain 10 per cent more calories per 100g than they did when the programme began recording measurements in 2017.

The volume of calorific food being consumed also rose significantly, partly fuelled by the rise of snacking and takeaways during the pandemic.

The figures show shoppers consumed 25.3 per cent more calories from crisps and snacks in 2021 than in 2017.

If government targets for lowering calorie counts in fact lead to higher calorie counts then the answer is to stop having government targets for calorie counts.

Simples.

This is not just a gotcha, nor an arf arf. It’s a serious point. We have had other examples of the contrariness of us humans out here. Calorie counts on menus have led to at least some people deciding to get more bang for their buck. If this meal is 800 calories, this one is 1,100, they’re both the same price, why not have the one with more calories? Food energy is, after all, one of the things that we eat in order to gain access to. So, thanks very much for the calorie counts on menus, I can now see which is the best bargain on that menu. I’ll have the Fatburger with large fries, thanks.

Micromanagement of us, the people, at this sort of level simply isn’t ever going to work. So, don’t do it.

The Dr Seuss problem in public spending plans

If we had some eggs we could have ham and eggs for breakfast, if we had some ham.

Or, the fallacy of the unwarranted assumption:

In a report setting out the case for a vast expansion of GB Energy in the early years of a Labour government, Common Wealth said state-led investment in clean energy would be substantially cheaper than the private sector equivalent – helping to save households money on their bills.

It said renewable investment financed out of Labour’s initial £8.3bn capitalisation would save between £125m and £208m a year on debt interest costs each year – saving up to £1bn in total compared with private-sector borrowing, which is typically more expensive.

Business Green, the media outlet of choice for the subsidy suckers, agrees. Obviously.

It is true that the interest rate on public debt is lower than that on private. For the obvious reason that if the project is mismanaged, or goes over budget, or goes kablooie, or just generally doesn’t work out well then the taxpayers are on the hook for repayment, not the cashflows of the project that has been mismanaged, gone over budget, banged kablooie or just generally doesn’t work out well.

We’ve a transfer of risk that is - for nothing is actually free in financial markets.

OK. But what’s the assumption there that leads to the claimed lower bills? That the public management of the project will lead to the same risk, compared to private sector management, of the project being mismanaged, going over budget, exploding kablooie or just generally not working out.

This from the people who have given us the Scottish ferries - where they managed to bankrupt their own shipyard building the things - and HS2 and Sizewell and, well, you get the picture*. We might even think that similarity of outcome, of risk, might be an unwarranted assumption.

Building things with public money would be cheaper if building things with public money were cheaper. Well, yes, but Dr. Seuss was right you know.

*We particularly relish the national planning system for housing land which produces a shortage of land for housing despite 98% of the country not being used as land for housing.

Why would we want to win this climate change competition?

This looks like good news:

All those stories foretelling a shortage of critical minerals seemed to assume that miners sit on their hands and that technology is static. The greater likelihood is a glut.

There are already as many solar panel factories as could possibly be needed this decade. Hence the drastic deflation in solar prices. Panels are today being flogged in the Global South at $120 per kWp, tantamount to free power. Try selling them a new coal plant without a bribe.

Well, yes, we’ve been known to push that likelihood of a minerals glut ourselves. Lithium mines are already on care and maintenance basis as prices are so low (Core Lithium for example) and cobalt mines aren’t opening on that same price basis (Jervois).

We’ve also been known to mutter over the decades that if solar gets cheap enough then the problem becomes solved. Yes, intermittency is still a problem but if electricity is cheap enough - with a lot of emphasis on enough - then all those dreams of batteries, of hydrogen from electrolysis to fuel cells, or Fisher Tropsch up to petrol and so on, become economically possible. Now, which might win out, even whether any will, we don’t pretend to want to plan. We’re of the market school, recall? Let people try everything and we’ll all do more of what works once it has been shown to work.

However, there’s also this:

The West has woken up to the technology threat from China, pulling slightly ahead last year with combined capex spending of $718bn on clean tech and the mineral supply chain. Clean capex rose 38pc in Europe, reaching $341bn in the EU and to $74bn in the UK – more than France ($56bn), or Italy ($30bn), which might surprise some.

“It is simply a technology battle at this point. There are three key races in clean tech and China is winning all of them,” said Kingsmill Bond from the Rocky Mountain Institute.

“The US and Europe are massively behind but last year was the year they got back into the game. There is an exponential growth story taking place across the leading regions and sectors of the world,” he said.

We’re not understanding this “technology threat”.

Those folks who have invested massively in solar factories are having to slash their prices because so many people entered that race. So, they’re all losing money on those slashed prices. Why would this be a race we’d want to enter? The competition to see who can lose the most money through industrial overcapacity?

We also can’t see it as a threat. Someone is now willing to sell us stuff below the cost of production? Sounds good to us, will they sell us two d’ye think?

What is this technological race and why do we want to lose money entering it?

We're going to see many more pictures of starving polar bears

The latest news from the Great White North:

Polar bears in Canada’s Hudson Bay risk starvation as the climate crisis lengthens periods without Arctic Sea ice, despite the creatures’ willingness to expand their diets.

Polar bears use the ice that stretches across the ocean surface in the Arctic during colder months to help them access their main source of prey – fatty ringed and bearded seals.

In the warmer months when the sea ice recedes, they would be expected to conserve their energy and even enter a hibernation-like state.

But human-caused climate change is extending this ice-free period in parts of the Arctic – which is heating between two and four times faster than the rest of the world – and forcing the polar bears to spend more and more time on land.

New research looking at 20 polar bears in Hudson Bay suggests that without sea ice they still try to find food.

OK, this could be true. We’re certainly not saying that it isn’t. However, we just want to put a little warning down.

Pictures of starving polar bears won’t be proof that it is happening.

Which might seem a little odd but bear (sorry) with us.

End of life for an apex predator is not a happy time. After a life eating everything else there’s nothing that does come eat you once you’ve lost a pace. End of life for an apex predator is, likely enough, therefore starvation when the ability to hunt goes.

We also know that polar bear populations have expanded massively in recent decades.

We would therefore expect to be seeing more starving polar bears - that end of life fate of so many apex predators.

There’s also that larger point. The population of apex predators is kept in check by the plenitude of the prey species. Once that predator species reaches full exploitation of the food source then it is indeed starvation which keeps it in check.

Seeing, pictures of, or finding starving polar bears will not, therefore, be proof of this contention that climate change ice loss is causing polar bears to starve. Sure, such evidence might well be consistent with that contention, isn’t proof against it, but it’s not proof of it.

As with more whales washing up on beaches being consistent with ships, or seabed development noise from windfarms, or whatever, killing whales. It’s also consistent with, something we should expect to see in fact, from the truly massive expansion - and a righteous expansion too - in whale populations in recent decades.

Evidence is indeed evidence but the big question is always, well, evidence of what?

We would suggest, ever so gently, that some who might try to mislead us will use pictures of starving polar bears to insist upon the verity of that contention - that climate change induced ice loss is starving them. As we say, this could be true. But we need rather more proof than pictures of starving polar bears to prove it.

We'll admit to being terrible cynics about the fashion business

At least one of us was once accused of dressing like a 1970s DJ - which, upon consideration, we felt to be a step up from the usual description. So, it could well be said that fashion isn’t really and quite our thing.

Coach’s Stuart Vevers on sustainability in fashion: ’The change has to come from designers’

British designer credits a decade in New York with firing a ‘genuine passion’ for sustainability

This newfound insistence upon sustainability in fashion amuses us. For, of course, the entire point and purpose of fashion is to show who is in this season with the latest things and who is some regrettable oik still wearing something at least three weeks out of date. At the highest possible, most favourable, description the entire industry produces Veblen Goods.

Which is, of course, a problem when actual clothing - and designs - are now cheap as chips and getting cheaper by the week. Temu, Shein, Boohoo and the rest means that said oiks can be dressed in whatever at the same time as the cognoscenti. Which would never do, of course. Violating the main point of the game.

What is the point of catwalk shows, now that social media serves up fresh trends to everyone’s phone every day of the year? “[It] has to be about sustainability”, says Stuart Vevers, the British designer who has spent the last decade bringing fashion credibility and a new point of view to the once-staid American handbag brand Coach.

Fashion weeks hand the microphone of the cultural conversation to designers, and Vevers wants to use his airtime “to look at where sustainability can be scaled. Where we can scale is where we can have an impact.”

Thus the rules of the game must be changed. For if the base idea is the production of Veblen Goods then Veblen Goods there must be. So, now sustainability is in - a method of creating expensive things which people will buy because they are expensive and therefore “Look at Me!” as opposed to nice cotton t-shirts which just anyone can now have in abundance.

As someone once said about methods of eating asparagus (perhaps a Mitford?). Which one is used doesn’t matter, even firing it from miniature cannons into fellow diners’ mouths. But that there is a fashionable method which you don’t know about is vital. For that’s how the distinction between you and non-U is made.

Given the paucity of wildly wealthy economists out there it’s not true that a command of economic theory is a surefire way to make cash. But it is nice to see that The Theory of the Leisure Class is still relevant as a description of human behaviour 125 years later.

If we could make just a small suggestion to Mr Gove?

At the weekend Mr Gove warned that young people shut out of the UK’s housing market could spurn democracy and turn to authoritarianism.

“If people think that markets are rigged and a democracy isn’t listening to them, then you get – and this is the worrying thing to me – an increasing number of young people saying, ‘I don’t believe in democracy, I don’t believe in markets,” he said.

There is indeed something perverse about people looking at British housing and thinking that too much market is the problem. But if this belief is strongly held by the Minister - that the young will turn to authoritarianism if something isn’t done - then our little suggestionette.

Have more market in British housing.

Since 1947, under the Town and Country Planning Act and successors, the British land market has been centrally planned. As happens with all planning systems as the decades pass the system becomes ever more constipated and in need of a thorough colonic irrigation. The situation is such that the system simply needs to be destroyed.

Create a market again in British housing - blow up the TCPA. Proper blow up, kablooie.

It’s the only language the bureaucrats understand, d’ye see?

Oh dear, Matthew Syed appears to have swallowed some nonsense

We’ll accept that it could be just horrendously bad information and assumptions that have led to the tin foil hattery:

And here we glimpse the geopolitical significance of Ukraine. In the coming decades two things will prove crucial. First, we’ll need fossil fuels to keep the lights on in the short term; second, in the medium term we’ll need access to a wide variety of materials to build a renewable energy infrastructure (we can argue about the speed of the energy transition, but the transition itself is non-negotiable). This means that fossil fuel prices will continue to rise, providing a final windfall to suppliers (look at the money flowing to Saudi Arabia). But it also means that the price of some materials is set to spiral. These include lithium, cobalt, nickel, copper, manganese and “rare earths” like neodymium, used in electric vehicles and the magnets of wind turbines.

Ukraine isn’t an important source - not even an interesting source - of any of these materials. We’d also point out that the cobalt and lithium prices are currently below production costs - not a sign of a shortage - and rare earths are rapidly approaching that price.

Let’s circle back to Ukraine. Did you know that it has been described by Jonathan Maxwell in his superb book The Edge as a “mineral superpower”? Did you know it has the second-largest gas reserves in Europe after Norway? Or that the Donbas boasts one of the largest coal deposits in the world? And that Ukraine has stocks of 117 of the 120 most widely used metals and minerals, including manganese, sulphur, graphite, titanium and nickel? Did you know that one think tank has estimated the mineral wealth now under Russian control in Ukraine at $12.4 trillion, which is nearly four times the UK’s GDP (albeit the former is a stock, the latter a flow).

Now do you see the geopolitical importance of Ukraine?

That’s just argle bargle. Yes, we know the source. It’s nonsense.

The $12 trillion is the value of those minerals extracted, prepared and sitting on the dockside ready to ship. The actual value of those minerals is $12 trillion minus the costs of extraction and preparation. Which is, for a very rough and ready guide, likely to be about $12 trillion. The net present value of those minerals, in the ground, where they are, is around and about zero. We’d not be categoric about it being entirely nothing, but it’s not, if we’re using $12 trillion as our other measure, much above that nothing.

Ukraine isn’t even a major home for reserves (nor even resources) for the minerals identified, iron ore, titanium, strontium and so on. Yes, there’s some there, as there is some of everything else. Because there’s some of all those things near everywhere. Because the world is only made up, all of it, of those 90 things.

As to the claim about sulphur, really, Maaaate? Get a grip, it’s a waste product from processing high sulphur (of which there are lots and lots) fossil fuels. The usual problem is getting rid of it, not producing it - which is why it often goes for $50 a tonne, the cost of transport.

Seriously, the idea that columns are written on these assumptions, let alone their being actual geopolitical incentives, is an absurdity.

Give us a call Matthew, we’ll explain it to you. Then you can return your tin foil to wrapping your sandwiches, the use it’s intended for.

Just nonsense.

These sound like remarkably bad ideas

It’s entirely true that globalisation is changing and yet:

How about citizen consultations on bringing back some manufacturing? We may have clever ideas that politicos and their advisers have overlooked. America is embarking on a win-win strategy by subsidising companies that create green jobs: green transformation, new skilled jobs and less dependence on China. Imagine what a high-end chip plant in the West Midlands could do for Britain.

Jobs, as we never tire of pointing out, are a cost, not a benefit. Creating more jobs in the energy production system is creating more costs in the energy production system. Requiring more human labour to produce the same value of output also lowers labour productivity - by definition. And since average wages depend upon the average productivity of labour - not just depend upon, are determined by - this lowers all wages in the United States. This is not good policy.

As to citizens consultations of course these happen every time anyone buys anything. And a high end chip plant in the West Midlands? We have no one in the country who can actually run a high end chip plant - as the Americans are finding out there, tens of billions of $ have been sprayed at building the factories only to find out they’ve not got the workers.

It is entirely true that globalisation is changing but it’s changing in the right manner. Which is that market participants are experimenting with what to do and then doing more of what works, less of what doesn’t. Rather than change in globalisation being a green light for every planning stupidity that fools can come up with.

A change in how the market system allocates is not an excuse for not using the market system of allocation - quite the opposite.

Parkinson's and the EU Digital Services Act

We tend to think this is going to end up being a very bad idea indeed:

The EU Digital Services Act (DSA), which goes fully into force on in-scope digital services later this month but is already being applied on a sub-set of larger platform providers like Meta, makes provision for charging these so-called very large online platforms (VLOPs) and very large online search engines (VLOSE) to help fund the cost of the bloc’s oversight of their businesses.

The regulation stipulates that the amount charged annually should take into account the costs incurred by the European Commission, which is the primary enforcer of the DSA on VLOPs and VLOSE; and be “proportionate” to the size of the service (based on average active monthly regional users) and also factor in the provider’s “economic capacity”, or that of the designated service (or services) they offer. (In Meta’s case, it provides two services which are designated under the DSA: Its social networks, Facebook and Instagram.)

Now, yes, some of us here aren’t all that keen on the EU itself. Some have even campaigned against it - but there is no ASI “view” on the organisation. So this isn’t about the EU specifically.

It’s also not about regulation - although we have a well known antipathy to many forms of it around here.

This is, rather, about something very specific, the setting of that budget.

We know, from C. Northcote Parkinson, that the motivating force of a bureaucracy is simply the survival of that bureaucracy. Once that is achieved it is the growth in the budget of that bureaucracy and the associated headcount. Given that there can be no useful measure of the output of a bureaucracy that’s just what the motivating forces are.

This is simply a revealed truth and is why we do now have more Admirals than ships, why the MoD now has more than one bureaucrat per sailor or soldier and also what gave rise to Ronnie Reagan’s joke (the punchline of which is the D of Ag bureaucrat crying at his desk because “My farmer died”).

OK, we know this. So now we have a bureaucracy to “monitor” certain companies. But the budget is not determined by what taxpayers are willing to pay for such monitoring (not that that’s much of a limitation at EU level) nor, in fact, by anything very much. The more the bureaucracy spends - that is, the greater the desire for a higher headcount, and expanded budget - the more the captive companies under the law will have to pay.

We do not expect this to work out well. In fact, we’ll make a prediction.

Per the Commission, the total pot of supervisory fees it has collected from VLOPs/VLOSE for 2023 is €45.24M (~$48.7M).

That’s not going to remain about €45 million. That’s going to go north at 15 to 25% a year soon enough.

Come back and prove us wrong in 20 years.

We do know that Parkinson is right. And the nutshell argument about bureaucracy is that to put bureaucrats in charge of their own budget is to put children in charge of the sweetie shop. An amusing idea leading to hyperactivity but no long term good will come of it.

This isn’t a good idea.