It's OK everyone, William Keegan's got the solution
Amazin’ now one else thought of this really:
The problems facing the country do evoke parallels with the immediate post-1945 situation. Moreover, they demand an Attlee-style grasp of the need for bold measures, starting with a vast investment programme founded not on the kind of fiscal rules that imply continued austerity, but on the assumption that sensible investment pays dividends if you take the long view, and are not hidebound by annual budgets and arbitrarily chosen fiscal rules.
The Attlee government knew about the need for regional policy, well described in the memoirs of Douglas Jay, a prominent member of Attlee’s cabinet. Regional policy is now known as “devolution”. Under the auspices of Harvard University and King’s College London, a new report examining the UK’s feeble growth performance argues in favour of a more equitable regional balance, with more power given to local leaders throughout the regions.
It is possible, just, to quibble slightly with this.
As we’ve noted just recently when those local leaders got access to cheap money from the Treasury they spent it on buying commercial real estate at the top of the market and are now all going bust for having done so. National government doing the investing has given us HS2.
That is, getting politics to do the investing seems to violate that “sensible” caveat.
Of course, there are things that can be done:
Lower Thames Crossing planning application becomes UK’s longest ever – at more than 350,000 pages, and costing almost £300m
If we had less idiot government - that is, less government that was idiot and also less government because it is idiot - then we could have more investment and also more productive investment. Which does sound like an excellent idea.
The bold idea we need being, therefore, that we slash government and so free up the economy and investment in it. All of which sounds, to us at least, like a much better plan.
The rent's too damn high
Let us attempt, at least, to make the argument for technocracy. There really are problems that government should be trying to solve. We all also know that politics itself is not driven by anything so mundane as facts and or logic. So, there’s a case for taking the really bright people and putting them into those technocratic offices. The ones where we all agree there’s a problem to be solved. We can then insulate them from those political winds and leave them be to, well, solve those specific problems.
We all agree that unaearned concentrations of economic power are a bad thing, monopolies can be turned to ripping off consumers and so on. So, let’s put the Rolls Royce minds into the anti-monopoly body.
OK, sounds like a plan.
Today, the FTC and Department of Justice took action to fight algorithmic collusion in the residential housing market. The agencies filed a joint legal brief explaining that price fixing through an algorithm is still price fixing. The brief highlights key aspects of competition law important for businesses in every industry: (1) you can’t use an algorithm to evade the law banning price-fixing agreements, and (2) an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.
The agencies’ work in this space is especially important given rising residential housing rental prices. Rent is up nearly 20% since 2020, with the largest increases concentrated on lower- and middle-tier apartments rented by lower-income consumers. About half of renters now pay more than 30% of their income in rent and utilities, and rising shelter costs were responsible for over two-thirds of January inflation.
Well, hmm. Landlords using a computer program to work out what the rent should be doesn’t sound like collusion to us. Sounds like the gathering of market information rather. You know, bringing clarity and information to that market.
But, you know, Rolls Royce minds and all that and we’ve never been picked to be in the FTC so obviously they’re brighter than we are.
Except this has been a piece of political agitation in the US for some time now. Progressive activists have been banging the drum about it. Rents are going up and of course it cannot, possibly, be that progressive policy is wrong in any manner and therefore it must be capitalist collusion. QED.
That is, this investigation into, reminder about, algorithmic collusion is an intensely political act. The very thing we were insisting we were going to protect the technocrats from, right?
Something we can prove too. The inflation claim of 20%. OK, but how’s that compared with general ubran inflation over the same time period? Oh, it’s a couple of percentage points lower you say? Really?
Real rents have fallen but the FTC is having an investigation as a result of political whining. So, doesn’t that just kill the idea that we’ve a technocracy doing technocratic stuff rather than bowing to the winds of politics. Which gives us our lesson. That technocracy isn’t even possible, it will always be subject to those political winds. So if it’s not a system that is even possible let’s not try to do it then, right?
A Brit ISA - a truly stupid idea
Adam Smith’s Wealth of Nations came out 248 years ago. Which should be, we think, long enough for people, even those who rule us, to grasp the ideas therein. Apparently not, a quarter of a millennium is not enough time.
There is a suggestion floating around that ISAs should be limited to purchases of British investments. This is a truly stupid idea. Sam Bowman, lately of here, points out that US stock market returns have been 10x UK ones over the past decade.
But to that two and a half century old wisdom, Adam Smith himself:
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
All of economics is either footnotes to Smith or wrong. This Brit ISA idea is therefore wrong,
Clearly, it’s a folly and a presumption.
We can also add that footnote. It is possible to go with that invisible hand and agree that domestic employment of said capital benefits the domestic economy - at cost to the returns to the capital being employed. That’s what that home bias against the higher profits of the foreign trade means. If you were some sort of nationalist and socialist you might therefore think that government should force domestic capital to be invested domestically.
But that fails at the fence of it not being “British” capital which is being invested. Nor is it the government’s capital that is being invested. It is the capital of individual Britons being invested and the decision upon the investment is righteously for those individual Britons. What do property rights mean if you cannot decide upon the disposal of your property?
The nett effect of a Brit ISA would be to make individual Britons poorer as well as being a folly and a presumption. Or, as we’ve said, a truly stupid idea.
We do just so love this Meta argument
Facebook and Instagram’s parent company, Meta, has set itself on a collision course with the Albanese government after announcing it will stop paying Australian publishers for news, and plans to shut down its news tab in Australia and the United States.
Meta informed publishers on Friday that it would not enter new deals when the current contracts expire this year.
The news tab – a dedicated tab for news in the bookmarks section of Facebook – will also shut down in April, after a similar shut down in the UK, Germany and France last year.
The answer from Australian politics is that they will do such things etc.
As we’ve pointed out before there’s a certain tension in the arguments used here.
One claim is that Facebook (and Google and so on) steal the news content from the producers of it, thereby taking the crusts out of the mouths of journalists. Well, OK, possibly.
Another claim is that Facebook and Google (and so on) must carry news because that’s a significant source of traffic to the news sites themselves, from which they make ad revenue with which to provide crusts for journalists. Well, OK, possibly.
But there’s clearly that tension with trying to insist upon both at the same time. That Facebook steals the news content and therefore must pay for it but also that it’s entirely vital that Facebook must run the news as it’s essential to the incomes of the news sites.
We might even call that cakeism.
But that is what this insistence is. That Facebook must run the news, that Facebook must pay for running the news, because the follow on income to the news sites of Facebook running the news is vital.
We do tend to think that there would be more logical clarity here in politics if the news sites were not such a significant influence upon who gets elected to those political positions where such decisions are taken. But perhaps that’s just us being cynics.
Say no to neo-mercantilism!
The Treasury, high on pre-budget coffee fumes, has floated the idea of removing tax relief on foreign investments on international ISAs. To the Treasury, this would increase investment in British companies, reviving our ailing capital markets and support equities. To everyone else, this would decimate wealth and growth opportunities. We hope that this is the Treasury launching kites and seeing what does not fly - without a doubt, this policy would slam straight back into the ground.
Not only is this an unpleasant return to mercantilism, the idea that we get wealthier by just keeping our money in the economy rather than from consumption and trade, but it would wallop households at a time of acute financial uncertainty.
Let’s step back and look at why this policy should be consigned to the shredder.
Individual Savings Accounts (ISAs) provide a tax-free account of up to £20,000 in tax savings for equity, bonds, and fund shares, and they have proved immensely popular. In 2022, ISAs had a market value of £741.6bn, with £459.8bn of that being in stocks and shares ISAs. This forms a solid base for participation in British capitalism and a core component of our financial and relatively high wealth.
No wonder the Treasury is hungry to divert a lot of this money into Britain’s markets.
However, by essentially tariffing international investment and outward FDI, British ISA holders will be left much worse off. As HMRC data shows, it’s everyday Brits who would be most affected. Over 6 million holders of ISAs are in the £10,000 to £20,000 income bracket, and a further 4.8m are in the £20,000 to £30,000 bracket, too. Those on low salaries, who use their ISAs as safety net pools of cash, or the almost £1bn a year withdrawn to buy a house, will be hit hardest.
Additionally, the scheme would create yet another barrier to the efficient allocation of capital. By removing tax relief on foreign investments ISA holders would be artificially incentivised to invest into less efficient UK firms.
This would be reasonable in a world without international trade, but when the UK imports 33 percent of all its goods consumed, it’s a bad idea. Investment in German cars, French wine and American oil will bring far greater gains, in terms of quality of product and price to UK consumers than investment into UK based alternatives. But this is exactly what such a policy would encourage. Free trade, allowing for the efficient allocation of capital not only within but across nations, has improved standards of living across the globe, it's what made Britain rich in the first place. Policy today should be encouraging this process, not restricting it to score political points.
If the Treasury wanted a more British focussed financial product, they would do well to listen to UKFinance’s call for a British ISA, and advertise it widely. With UK households only holding around 11% of their assets in equities, compared to much higher percentages in the G7, this would be a fantastic opportunity for British savers. However, a tariff led approach to investment simply will not work. As ASI Senior Fellow Sam Bowman has pointed out, “The FTSE 350 is up 6% over the past five years. The S&P 500 is up 80%.” Why invest in Britain, when the world is giving much better returns?
The Treasury’s intention misses the fundamental causes for the lack of investment in UK equities markets, and instead looks for a quick fix which is destined to calamitously explode. We know that there isn’t enough liquidity in the system for firms to list in UK markets. Placing a tariff on outward FDI would only temporarily address this. Shortly after coming into effect, we would see a substantial bubble, inevitably set to burst when this capital floods the market and is poorly allocated.
What the UK needs to do to address weak equity market performance is to take a serious look at reforming the supply side of the economy, addressing cumbersome planning regulations that stop real business growth, sky-high energy bills which push ever larger bills through post boxes and then SMEs into bankruptcy, and the loathsome salaries that skilled workers can expect.
Liquidity is only one spoke of Britain’s mangled wheels. Indeed, liquidity is the result of well-functioning markets, not the other way around. Fixing our capital markets will take more than one poorly-thought out policy.
Finally, the big question is, how would this be enforced? It sounds, in the words of one financial stakeholder I spoke to, like a complete nightmare to manage. Whether retrospective, or going forward, the enforcement mechanisms would be byzantine, full of loopholes, and ultimately too expensive and ineffective.
As Adam Smith himself said: "The proprietor of stock is properly a citizen of the world and is not necessarily attached to any particular country. He would be apt to abandon the country in which he was exposed to a vexatious inquisition in order to be assessed to a burdensome tax and would remove his stock to some other country where he could either carry on his business or enjoy his fortune more at his ease."
Extending Competition in the UK Electricity Market
Even after recent reductions, the UK end-user price of electricity is high by international standards. In January the price per KWh was 40.7 euro cents, compared to France c€29.1, Spain c€22.0, and the US c€16.3. High electricity prices damage UK competitiveness.
The lack of competition in the electricity market is the main reason for this. And things can only get worse. For years, electricity has been only 20% of the energy market, so there is at least some competition from other sources. Soon, Net Zero 2050 policy implies that electricity will be nearly five times bigger.
The problem stems from the fact that in 1989, Margaret Thatcher only partially denationalised the electricity market. A key element, the National Grid, remained a monopoly structure and the regulator Offer (which later became Ofgem), kept government in control.
Today, both Labour and the Conservatives intend to return electricity to monopoly. Labour’s argument is that we will need a central planning authority, ‘Great British Energy’. This is supposed to save households £92. But how? Certainly not from a reduction in bureaucracy: it seems highly unlikely that this nominally independent but publicly owned authority will replace the 4,000+ Department of Energy Security and Net Zero’s core staff. We can confidently expect greater bureaucracy as well as less competition in the sector under this plan.
To the Conservatives, going green and expanding the power transmission infrastructure are the priorities. The UK presently spends hundreds of millions of pounds in constraint payments to energy generators, simply because the existing grid infrastructure to absorb all the energy produced; with increased reliance on electricity, better infrastructure is needed. But the Conservatives have no coherent plan on how to produce that extra electricity. They talk up nuclear but have made no commitments to any new reactors.
If we are to reduce prices, secure supply and improve customers’ experience, however, we need to complete the original aims of privatisation and introduce more competition within the electricity sector. Here’s how.
The National Grid should be replaced by privately-owned Distribution System Operators (DSOs), which would buy from generators and sell to households and business. Although DSOs would be largely regional, each customer location should be entitled to buy from any DSO nationwide. Fuel poverty payments should be funded by the Department of Work and Pensions, not the operators.
In effect, each DSO would be a regional grid selling direct to consumers anywhere in the UK. They would balance electricity in and out, normally by buying and selling from/to each other, though national shortages/excesses would be traded with IMPEX (buying from/selling to) Europe. IMPEX would also be a grid, buying and selling to UK DSOs and European distribution companies. It would need to balance purchases with sales and breakeven or make a marginal profit.
The best regulator is competition, and with greater competition in the electricity market, the Competition and Markets Authority should take over from Ofgem (but not set prices as Ofgem does).
With these reforms, the original objectives of electricity privatisation — a competitive and consumer-focused industry — would finally be realised. This would give consumers a better deal and boost the UK’s international competitiveness.
We're less than convinced here we have to say
Ultra-processed food (UPF) is directly linked to 32 harmful effects to health, including a higher risk of heart disease, cancer, type 2 diabetes, adverse mental health and early death, according to the world’s largest review of its kind.
The report is here.
Effectively, anything a step up from a raw turnip kills you. Our attitude is rather different, eating only raw turnips would make one wish for death - we all die so why not enjoy the food while we’re here? Yes, we know, not in accord with the world’s currently puritanical cast but there we are.
Given that there’s no good nor useful definition of UPF (this one here includes “cakes” although they’re not, actually, UPF at all but they’re enjoyable so they’re on the list) we do tend to think this is simply a confected hysteria.
However, our real complaint here is the standard of evidence being used. For example:
However, Dr Chris van Tulleken, an associate professor at University College London and one of the world’s leading UPF experts, said the findings were “entirely consistent” with a now “enormous number of independent studies which clearly link a diet high in UPF to multiple damaging health outcomes including early death”.
“We have good understanding of the mechanisms by which these foods drive harm,” he added. “In part it is because of their poor nutritional profile – they are often high in saturated fat, salt and free sugar.
But the way they are processed is also important – they’re engineered and marketed in ways which drive excess consumption – for example they are typically soft and energy dense and aggressively marketed usually to disadvantaged communities.”
The bloke with a best selling book claiming that UPF is killing us all is used as independent proof of the fact that UPF is killing us all. And then there’s this:
In a linked editorial, academics from Brazil said UPFs were “often chemically manipulated cheap ingredients” and “made palatable and attractive by using combinations of flavours, colours, emulsifiers, thickeners and other additives”.
They added: “It is now time for UN agencies, with member states, to develop and implement a framework convention on ultra-processed foods analogous to the framework on tobacco.”
That editorial is here. “Carlos A Monteiro, professor,” Ah. Carlos is the guy who invented the very idea that UPF is killing us all.
It’s possibly necessary to be slightly delicate here, but two folk who are heavily invested - to be that delicate - in the idea that UPF is Bad, M’Kay? are to be used as independent proof of the idea that UPF is Bad, M’Kay?
We are less than impressed by that standard of evidence to be honest with you.
Especially since this is the proof being used to insist that the United Nations should be put in charge of banning cake and insisting we all subsist upon raw turnips. To be fair we cannot think of any level of evidence that would convince is of that. If people desire to eat cake until they pop like a weenie on an overheated grill then good luck to them - it’s their path from cradle to grave, not anyone else’s. We are, after all, liberals around here. But even so we really do think that perhaps these puritans should be putting just that little bit more effort into independent and convincing evidence.
Really not quite grasping the economic basics here
Jonathan Reynolds, Labour’s shadow business secretary, said the UK should be willing to apply “trade remedies” - tariffs - if it is found that Chinese brands have gained an unfair advantage over their European peers.
Asked about the issue at the MakeUK manufacturers conference on Tuesday, he said: “There are some sectors where I look at just the sheer overcapacity that’s coming out of China and I worry that is inconsistent with how a healthy, global market economy should operate.
“Where there is a concern that we’re not facing free and fair and healthy competition, we’re right to use trade remedies as an answer to that.”
This is not just to dunk on the Shadow Secretary, we expect the current one to make much the same sorts of points. And all likely contenders too. Simply because politics just hasn’t - 248 years after it was first properly pointed out in Wealth of Nations - caught up with how trade works. Nor, even, the most basic point about who the economy is supposed to work for.
The claim here is that the Chinese government has been taking money off Chinese citizens and giving it to Chinese car making companies. As a result those Chinese cars are subsidised and thus cheap to us Britons.
That is the claim. The next step is where the lunacy comes in, in the reaction. For now the claim is that we must tax ourselves for buying these cheap, subsidised, Chinese cars. That’s what a trade tariff is. So too would be any system of quotas or other restrictions upon those cheap cars being imported. It’s a tax upon us Britons.
Or, just to point up the lunacy, China is taxing its citizens so we must tax ourselves in response.
The entire point of trade is that we get to put our hands on the things made by Johnny Foreigner - those things that we desire of course, those which are cheaper, or better, or simply more desirable than we can make them ourselves. That’s not an aberration, that’s the point.
Even more basic, the point of an economy is consumption, not production. So, if someone’s offering cheap electric vehicles - however produced, however financed - the correct answer is “Please send a second shipload. Pretty Please”.
The Chinese government is, as a result of its actions, getting Chinese car companies to ship us cars. Each coming with a cheque attached signed by the Chinese taxpayer. We get the car and we get the free money. The political response is that this is dreadful and cannot be allowed.
Foreigners sending us free money is a bad idea that must be stopped. Now do you see why politics is such a lousy way to run the place?
Torture the Green Economy statistics enough and they'll confess to anything
We’re told that the green economy is a very good thing, growing fast, highly productive and all that:
The UK’s net zero economy grew by 9% in 2023, a report has revealed, in stark contrast to the 0.1% growth seen in the economy overall. Nevertheless, the report pointed out that strong future growth from green businesses was being put at risk by government policy reversals, lack of investment and competition from the EU and US.
Thousands of new green companies were founded in 2023 and overall the sector was responsible for the production of £74bn in goods and services and 765,000 jobs, according to the report by the Energy and Climate Intelligence Unit (ECIU) and the Confederation of British Industry (CBI).
Super, great. But there’s a confusion there. If this is all a very good thing, growing fast, highly productive, then why do we still have those demands for subsidy?
The answer is that the numbers are being tortured. In the actual report itself we’re told:
The net zero economy spans a number of new and emerging sectors, such as renewables, carbon capture, or green finance, as well as more traditional, established sectors, such as manufacturing. The latest CBI Economics analysis shows that these businesses contributed £74 billion in Gross Value Added (GVA) in 2022-23, which is equivalent to 3.8% of the UK economy – larger than the economy of Wales (£66 billion). They also supported 765,700 Full Time Equivalent (FTE) jobs, equal to nearly 3% of total UK employment. Their contributions include the value generated by their own activity (£25 billion) and their employees (218,500 jobs) as well as the wider economic contributions they supported through their expenditure with suppliers and the expenditure of their employees on goods and services. In essence, due to these wider spillover benefits, for every £1 million in GVA contributed by net zero businesses, nearly £2 million more was added through these wider economic contributions.
Ah, no, that’s not the way GVA works.
GVA is attempting to give us something like GDP calculations but for some portion, region or other subset of that national economy. GVA is therefore worked out the same way as GDP but for that subset. This means that what people spend upon housing, clothing, food, as a result of this subset of the economy is not included in the GVA of the subset - for the housing, clothing, food, would turn up in those other subsets if we were to analyse them. As, when we calculate GDP we do not include those run on effects. For, obviously, if we included the run on effects in GDP of each sector then we’d be double, triple, multiply counting every sector and end up with a GDP that is hundreds of times larger than reality.
We’re fine with people doing economic analysis of the green economy. In fact we’d welcome it if people did. We’re really very sure indeed that the result will be that green economy jobs are less productive than the rest of the economy. For the obvious reason that the green economy is attempting to solve externalities - those things not included in market prices nor our market price based measures of the economy like GDP or GVA. As the value of the output - lower emissions - is not in our measures of output, but the working hours to achieve them are then we run into the productivity measurement equation. Value of output at market prices divided by hours of work put in to gain it.
Exactly because we are trying to solve externalities by our green policies then and therefore green jobs will be less productive.
As we say, we’re absolutely fine with, even look forward to, economic analysis of the green sector. While we wait for that we can reject political fluff jobs like this.
So we've tested government doing the investing and it's a crock of....
….umm, shinola? Or is it the other one?
There is a logical argument stating that government should be doing the investing for us. Government can - because it has the backstop of being able to charge future generations of taxpayers to pay back the loans - borrow more cheaply than near any private organisation. Therefore profit from investing should be higher. It’s also true that government has all those Rolls Royce minds to decide upon what should be invested in. And thus the insistences from the likes of Professora Mazzucato, Professor Richard J Murphy and every politician eager to get their hands on the spending taps that, really, government should be doing the investing.
Well, it’s a logical argument but as with all such it does need to be tested against that reality outside the window:
Four district councils in London’s commuter belt have accumulated debts worth a collective £4.2 billion, or about £10,000 per resident, on property investments, many of which have gone awry.
Woking, Spelthorne and Runnymede, all in Surrey, and Eastleigh in neighbouring Hampshire have the highest debt-to-income ratios in the country. The four owe debt between 700 per cent and 1,500 per cent of their annual income, according to the Chartered Institute of Public Finance and Accountancy.
Woking is already effectively bankrupt, while both Eastleigh and Runnymede have been the subject of notices from central government concerned about their financial health. Spelthorne has yet to receive a similar warning, but in 2022 KPMG, its auditor, warned that the council’s decision to borrow £225 million to purchase three Heathrow properties in 2017 was unlawful, a ruling that Spelthorne contests.
Note that these local councils did enjoy those presumed benefits. They borrowed from central government at central government (ie, gilts or thereabouts) rates in order to invest into market rate paying investments. With, of course, all that lovely information that government has about what should be done and those very fine, well tuned, minds to make the decisions.
They then lost all that money and have driven themselves bust in doing so.
So, we have now tested this idea that government should be doing the investing. The idea is found wanting when tested against that reality outside the window. This despite having those preferential financing rates, centralised information and fine minds.
The logical arguments fail because even with those advantages they then decide to micturate societal capital up against the wall.
Let’s not have government and politics deciding what to invest in, eh? If only for the societal value of clean, dry, walls.