This is going to work well, isn't it?

The bill would empower the Federal Trade Commission (which would also get $1bn in additional funding) and state attorneys general to stop companies from charging “grossly excessive” prices, regardless of where alleged price gouging took place in a supply chain.

Of course, it’s Robert Reich so it’s clearly going to be bad economics. The suggestion is that the bureaucracy will tell everyone what prices should be. Which is not, not really, a course of action which has a great track record.

The Soviet Union told everyone what all prices need to be all the time- that didn’t work. Venezuela told everyone what toilet paper prices should be - toilet paper immediately disappeared from Venezuela. True, civilisation existed before toilet paper, civilisation can survive the loss of toilet paper but we’re really very sure that giving bureaucrats the power to determine fair toilet paper prices is not worth the disappearance of toilet paper.

As this is America under discussion it will also get worse. That top layer - some 3,000 people - of the bureaucracy is politically appointed, replaced with each turn of the Presidential administration. Thus in the political campaigns in the run up to any election there will be a certain pressure on those running the bureaucracy to fix prices in only that one, voter pleasing, direction. You know, job preservation? Well, voter pleasing in that short term sense of reducing the price now at the cost or reducing availability a little further out - after the election say.

That 20th century was - among other things - a grand economic experiment. Price fixing by bureaucrats was the system that didn’t work. We really have been there, done that, perhaps we should obey The Science and not do that again?

A musing - no, not amusing - on the Welfare State

The IMF says we need to cut - harshly - the levels of benefits:

Britain and other rich nations have been urged by the International Monetary Fund (IMF) to cut benefits and taxes to tackle the worklessness crisis.

Mel Stride vowed to “do whatever it takes to get Britain working” as the IMF said men in particular would be encouraged to find jobs if countries lowered taxes and benefits. More training and childcare support would help more women into work, the organisation said.

The IMF research, which was based on analysis of 38 OECD industrialised economies, including the UK, US and Germany, recommended that higher pension ages would also keep people in work for longer.

The comments are likely to fuel the debate among Conservative MPs over the benefits reforms needed to boost work.

Which leads to the musing.

The current definition of poverty is less than 60% of median household income, adjusted for household size, usually measured after housing costs. It’s also said that “low wages” are those that are less than 60% of median wages. The minimum wage has been pushed up over that 60% level.

Well, OK. It would be harsh to insist that those unable to work should be in poverty, that those working also be in poverty.

And yet we have this problem identified by the IMF - a large portion, too large they say - not working because work’s not worth it. Therefore cut the taxes upon work - at least at the low end - and also cut the benefits from not working. So as to open up the gap between the incomes gained by not working and those gained by working.

But there’s a very strong implication here. Which is that 60% is too high a portion of median income to gain by not working. For, if that can be gained by not working then some to many will make that choice. That is, at the very least, implicit in the IMF’s advice.

The musing at the end of this being, well, perhaps it’s just not possible to have the welfare system raising all up to 60% of median household income and also maintaining the incentives to go to work. Perhaps all that free time to do other than work actually is worth 40% of median income?

Perhaps we need to adopt a lower poverty measure in order to make the system as a whole balance?

It is a musing but one, we think, that does have to be mused through.

The Theory of Moral Sentiments & Adam Smith's View of Morality

Many people are familiar with Adam Smith’s The Wealth of Nations (WoN), But Smith’s ethical thinking was just as important. In fact, it was The Theory of Moral Sentiments (TMS), published 27 years earlier, on 12 April 1759, that made him famous.

Just The Wealth of Nations, this book marked a complete break from the thinking of the time. Ethics had until then been widely assumed to be based on God’s will (or the clerics’ interpretation of it); or something that could be deduced through abstract reason; or even something that could be felt through some ‘moral sense’ like touch or vision. 

Replacing this speculative thinking by scientific method, Smith argued instead that morality stemmed from our human nature as social beings, and our natural empathy for others. By observing ourselves and others, he said, we could discover the principles of ethical behaviour. Ethics was a matter of human psychology, stemming from how we form judgements about ourselves and others, and the influence of customs, norms and culture upon it.

This scientific approach to ethics was a sensation. It was very much in line with the Scottish Enlightenment, which sought to apply observation and scientific method to the study of human affairs. Old hierarchies were breaking down; industrialisation was eclipsing Scotland’s feudal past; radical thinkers like Francis Hutcheson and David Hume were pushing new boundaries, and religious pluralism was creating a more active debate on virtue and morality.

Smith’s book explained that morality is rooted deeply in human psychology, especially the empathy we have for our fellow humans. By our nature, we understand, and even share the feelings of others. Wanting others to like us, we strive to act such that they do. Even if there is no one else around to see how we behave, we are still impelled to act honestly, says Smith, as if an ‘impartial spectator’ is judging us all the time, setting the standard by which we rate ourselves and others. And under this imaginary eye, every choice we make helps us appreciate that standard more clearly and act more consistently in accordance with it. It is as if an invisible hand is drawing us to act in ways that promote social harmony.

TMS is mainly a descriptive account of human moral action. It examines how people actually make moral choices, and the pressures on them to do so. It also provides a guide on how we can cultivate our morality, emphasising the importance of self-reflection and self-improvement. 

Smith’s radical scientific approach in TMS and WoN provided a foundation for the subsequent development of psychology, sociology, and economics, establishing them as distinct subjects of academic enquiry. And its suggestion that self-interested actions—wanting to be liked by others, or exchanging things we value less for others’ things we value more—could produce a cooperative social and economic order, continues to have a central place in liberal thinking.

All this makes the themes in The Theory of Moral Sentiments just as relevant today as they were in 1759. Through self-reflection, we can make better moral choices. Through our empathy with others, we can foster understanding and create a more peaceful society. Through an appreciation of our shared feelings and interests, we can live and work and collaborate together for the mutual benefit of the whole of humanity.

Closing a tax gap isn't all that simple

That tax due should be collected is obvious. So the aim seems fair enough. We do, however, think it’s more difficult than many are saying, for as HMRC says:

failure to take reasonable care (30%), error (15%), evasion (13%), legal interpretation (12%) criminal attacks (11%) and non-payment (9%) are among the main behavioural reasons for the tax gap

Non-payment is largely people going bust before making payment. Legal interpretation is people suggesting that perhaps the law isn’t as tightly written as some would think. And so on - there’s no magic bullet here.

But there are also those suggesting it is all too easy, like Margaret Hodge (or, as we like to point out, Dame Margaret, Lady Hodge):

Furthermore, the tax gap does not start to take account of the billions lost each year when global companies such as Google, Facebook and Microsoft avoid tax by creating financial structures that have no other purpose than to avoid paying tax.

That isn’t a gap, that’s just the way corporation tax works internationally. As HMRC have pointed out repeatedly. Profits of American companies are righteously taxed in the US - and since the Trump tax reforms, they are, even if held offshore - in exactly the same way that profits of UK companies - say, those of Vodafone - are taxed in the UK even if earned in other jurisdictions and then brought into the UK. Like, say, profits earned on a German business and then parked in Luxembourg before being brought back into the UK. Just the way that whole system works.

Or this:

We also know that £36bn is a very conservative estimate of the gap between what the exchequer does collect and what is due – what is known as the tax gap. For instance, many wealthy individuals hide their assets in secret trusts they set up overseas in British tax havens – and they pay no tax on that hidden wealth.

Osborne set up a deal with Switzerland, whereby they would comb through every bank account in that country to check that all who should be declaring for UK tax were. The results were less than either stellar or remunerative. The vast, vast, majority of such Swiss accounts were held by Brits who were non-resident in Britain - and therefore did not need to pay tax upon any foreign earnings like from an account in Switzerland - or were non-doms in Britain. For whom a foreign account was a necessary part of that non-dom tax deal, that they do not pay tax on foreign earnings which remain in foreign.

Actual investigation of such claims of vast pots sitting offshore untaxed turn out to be not wholly grounded in reality that is.

We are also reminded of the Liechetenstein Disclosure Facility. If there was some trust, sitting undisclosed, in that secretive jurisdiction then you could declare it, pay the necessary tax and no more would be said. Now, we do not insist that this is absolutely true but the only person we know of who publicly made use of this facility was Dame Margaret, Lady Hodge. There was absolutely no tax due, the arrangements were not made by her originally, no illegality, not even any avoidance and most certainly not anything at all even untoward.

Every attempt to catch these purportedly immense sums running untaxed, wild and free, seems to find very much less of such untaxed pots out in the wild than alleged. Which is as bit of a problem for those who insist that they’ll balance the books through that entirely righteous process of insisting that all should pay the taxes they owe.

Perhaps government isn't the efficient way to do things

From The Guardian:

It had already been stressful, and then the government said my son didn’t exist. After an initial administrative fiasco, we were all set to claim our “free” 15 hours of childcare for our two-year-old as part of the government’s expansion this April. But then another spanner hit the works.

We hadn’t been able to get our code due to a totally foreseeable government error, so, like the thousands of others affected, we’d been issued with a temporary one. But when our actual code was confirmed, meaning we then had two codes, the nursery was told he didn’t exist, and then that we couldn’t use the hours until next term, since our code had been issued in April. It’s as Kafkaesque as it sounds and, though it was eventually sorted out thanks to the brilliant nursery administrator, it’s another example of the confusion and chaos that has afflicted parents since the announcement that the already labyrinthine system would be expanded.

Erm, bureaucratic allocation ends up being complex and bureaucratic. Who would have thought, eh?

Is it possible to suggest a different, better, more efficient system? Musing on it, perhaps. What if everyone just had unconstrained ration vouchers? These could be swapped for, perhaps, this many hours of child care. Or that many hours of after school top up education. Or for food, or housing, or pints down the pub.

This would increase the utility of the voucher holders for they could then swap them for what most boosted their utility within their overall budget constraints. This would eliminate several to many layers of bureaucracy. It would also bring clarity to the overall costs - it’s easy to count the number of vouchers issued after all - of the system as a whole.

And what if we renamed those unconstrained ration vouchers money?

You know, we think there could be the beginnings of a plan there.

To whom? Expensive to whom?

The Resolution Foundation - them again - tells us that the system of Individual Savings Accounts is very expensive:

ISAs are expensive

Expensive to whom?

The starting point of their analysis is the logically - and morally - objectionable idea that all belongs to the government. That Tutto Nello Stato idea that we out here are lucky to be allowed to keep some of our hard earned and that allowing us to do so is a cost to government. This is, of course, incorrect - government is a cost to us out here and it is the impositions of tax itself which is that cost. A reduction in what is taken from us is therefore a saving, not a cost.

Oh, sure, government sometimes buys us pretty things and some parts of government are even worth having - those are the benefits of our having government. But those are the benefits, tax is the cost.

So, us keeping some of our money is a benefit, not a cost.

Any analysis that starts from something so obviously logically wrong - that tax reductions are a cost - is therefore clearly wrong.

We can go further, for of course we can. Investment itself is usually thought of as a pretty good thing. As people like the Resolution Foundation are wont to suggest in fact - we’re really sure we’ve seen reports of theirs bemoaning the low rate of investment in Britain.

That further is that the tax system should go further in encouraging saving and investment - the progressive consumption tax. Not that gains inside an ISA are untaxed, but that income placed into an ISA remains untaxed. Full exemption from income tax (and NI) for sums placed into something like an ISA. All income and gains inside an ISA - which remain inside an ISA - remain untaxed. It is at the point of extraction from the ISA to be spent upon consumption that the money gets taxed - at the full marginal income tax rate at the time of extraction.

Effectively we end up with something akin to a blend of an ISA and a pension. Income, from whatever source, which is then saved is untaxed. Gains within the tax wrapper are untaxed. Extraction from the tax wrapper carries income tax.

There is a logical argument against this. Which is that some to many will utilise such a system to save money. Thereby becoming bourgeois and so not requiring the intervention of the State in their lifestyles. But, you know, we think a bourgeois state where the people are rich enough not to require the State’s intervention in their lifestyles to be a pretty good thing. Even, a Good Thing. Something to be desired and even the system set up so as to produce it.

That is, not just the current system of ISAs alleviated of the impositions of taxation but all saving by all so alleviated. Action This Day etc.

Floating Nuclear Power Plants

Achieving net zero carbon emissions by 2050, a plan to which all our leading political parties are committed- except Reform- will require large scale use of low carbon energy sources, including nuclear power. 

Various studies confirm what is obvious: that nuclear power has a significant role to play in meeting increasing world energy demand and keeping carbon emissions low. However, that means that nuclear power will have to become a much more significant part of the energy mix than it is today. The UK government reckons that the country needs to increase its nuclear power capacity to 24 gigawatts by 2050 to meet its net zero targets. That would make it about a quarter of projected electricity demand, compared to about a seventh today.

Today’s large-scale nuclear power plants are difficult, time-consuming and costly to build. But enterprising companies such as Rolls-Royce propose much smaller-scale plants — Small Modular Reactors or SMRs. They promise be much lower cost and much quicker to build. Even so, there is a lot of opposition to new nuclear construction (or indeed any sort of construction) from local residents; and the UK’s highly restrictive planning rules don’t make it any easier. (Nor, indeed, do the UK’s energy regulators.)

Maybe there is a solution, though: floating nuclear power plants. We site wind turbines offshore, so why not site nuclear power plants offshore too? Of course, it sounds like a cross between science fiction and fantasy, because we still have this idea that nuclear power plants need to be huge. But they don’t. Nuclear energy has been used in ships of 70 years. There are today 162 nuclear-powered vessels floating on or below the surface of the sea. Nuclear energy is used to power submarines and icebreakers, allowing them to remain operational for very long periods. So no, it is neither science fiction nor fantasy, and marine engineers are actively working on the proposal. Last August, academics from King’s College London delivered two workshops on floating nuclear power plants (FNPPs), in Jakarta and Manila. And the prominent marine engineer Stuart Bannantyne has also raised the same prospect in Australia. It’s a good place for it, since 92% of Australians live near the coast or by rivers. But the same is true of many countries.

Already, some countries have floating diesel- or gas-powered power stations in ports. The Russians were the first, in 2019, says Bannantyne. They placed a 70mw floating plant in the remote town of Vilyuchinsk. Since then the idea has spread. 

In November 2023, the International Atomic Energy Agency held an international conference on the idea of floating SMRs, looking to provide clean heat and power for remote coastal locations (and to replace carbon-based generators). The conference discussed all aspects of the option: licencing, regulation, safety, security and so on. Singapore, which suffers a lack of land space, is already thinking about the prospect in practical terms. A US shipping company is developing the concept of micro reactors on ships for shore-side locations. Floating reactors might even be a way to get power back to war-torn states once the shooting stops.

It is unlikely that floating nuclear power plants will replace onshore generation. But for remote locations and in times of trouble — well, watch this space.

Read Stuart Bannatyne’s article in Spectator Australia. https://www.spectator.com.au/author/stuart-ballantyne/

Inverting the lesson to be learned

Not that we’ve actively got anything against John Naughton - or even The Observer - but this does seem to be an excellent example of taking the wrong lesson from events, even inverting it:

On Good Friday, a Microsoft engineer named Andres Freund noticed something peculiar. He was using a software tool called SSH for securely logging into remote computers on the internet, but the interactions with the distant machines were significantly slower than usual. So he did some digging and found malicious code embedded in a software package called XZ Utils that was running on his machine.

This then means that this open access software - which runs on pretty much every internet server in the world - is infected and poses a very great danger to us all, to civilisation and all that is right with the world.

This, however, is the wrong conclusion to draw from it:

Who knows? But two clear lessons can be drawn from what we know so far. The first is that we have constructed a whole new world on top of a technology that is intrinsically and fundamentally insecure. The second is that we are critically dependent on open-source software that is often maintained by volunteers who do it for love rather than money – and generally without support from either industry or government. We can’t go on like this, but we will. Those whom the Gods wish to destroy, they first make complacent.

Well, what’s the opposite to open source? Closed source, obviously. At which point a malicious actor might - imagine - introduce some similar malicious code into their proprietary software stack and we’d never know about it. Because we’d not be able to examine the source, not be able to see what they’d done. We’d just be victims without either knowing about it or being able to do anything about it.

Well, we might be able to do something about it we guess. If we knew about it. Which, actually, we just have done. We’ve ripped every Huawei chip out of the internet, haven’t we, on mere suspicion that this specific closed source manufacturer might do something like that?

Which is where we profess ourselves gobsmacked. Open source found the problem and a bit of software updating and we’re done. Closed source was merely suspected (No, Mr. Huawei, please don’t write in, we are not claiming you have or did) and we’ve had to physically rip kit out of the infrastructure. The gobsmacking coming from the conclusion reached, that closed source is therefore better and more secure?

Blimey.

Sure, we know things go wrong in open markets but closed designs for economies go wrong more expensively, for longer and worser……

Econ 101 for the win then

The Times gives us this headline and sub:

There has never been more music made — but most artists go hungry

Tech and streaming have made writing, recording and distributing a pop song easier than ever, yet reaching an audience of millions from your bedroom won’t necessarily make you rich

If only we had some form of human science that could explain this to us.

Ah, yes, that’s it, isn’t it? Supply and demand. Pages two and three (after the copyright page that is) of every introductory economics textbook ever. Econ 101 it’s called.

If there’s lots more supply - and if the cost of supply falls then there will be - then the price gained for that supply falls. A teen in a bedroom can now turn out a perfectly cromulent pop song on some few hundred pounds worth of equipment. We know this because some are indeed doing so.

Which is an interesting insight, no? Perhaps we should apply it to other things that we currently think are expensive in our society. Those that might, from those prices, be thought to be in short supply?

Houses? Make them cheaper to supply, see supply rise and prices fall.

We always did like the Sound of the Suburbs *

*No, not punk, competent musicians so disqualified

Everything, but everything, happens at the margin

Yes, yes, we know that neoclassical economics is just so out of style these days but the Marginalist Revolution was indeed correct - stuff happens at the margins:

It will cost jobs. It will harm the UK’s competitiveness. It will make the labour market less flexible. For those with long enough memories, the push back against Labour’s plans for a new deal for workers has a familiar ring to it. The same arguments were wheeled out before the national minimum wage was introduced a quarter of a century ago. All proved groundless.

Confounding the doomsters and gloomsters of the late 1990s, the minimum wage has raised the pay of millions of Britain’s lowest-paid workers by an average of £6,000 a year without lengthening dole queues. It has been described by one thinktank as the most successful economic policy in a generation.

It does rather depends upon the definition of success. As Chris Dillow pointed out back in 2005:

Tony Blair today announced plans to cut the jobs and hours of low-paid workers.

He’s going to raise the minimum wage, from £4.85 an hour to £5.05 in October. This as the Low Pay Commission recommends in its report today; it also recommends a rise to £5.35 in 2006.

The first rule of economics, of course, says that if you raise the price of something, you’ll reduce demand. And this means shorter hours and job losses for some of the low paid.

The Low Pay Commission pretends this won’t happen. Its chairman Adair Turner says: “Our analysis suggests that previous upratings [to the minimum wage] have largely been absorbed without adverse effects.”

Can I give Mr Turner some advice? Try reading your own report matey.

Now the effect is small at that labour price - the wage set back then might have cost perhaps 13,000 jobs, another estimate maybe 30,000.

Now, I’m not denying that some people will benefit from the higher minimum wage. Those who keep their jobs and hours will do so, at least marginally. And tax-payers will have a lower tax credit bill. But these gains come at a cost – of lower hours and jobs for some of the low-paid, and lower profits for many small businesses.

There’s no such thing as a free lunch. To pretend otherwise is either dishonest or economic illiteracy.

Now, perhaps that trade off is worth it to you - possibly less so to the 13,000 to 30,000 - but that’s an ethical matter and we can’t determine those for you.

The thing about those things that happen at the margins, those trade offs. At some point the balance swings to the deal being, on balance, more bad than good. The government went out and hired a respected minimum wage advocate - Arindrajit Dube - to tell them when this would be so with the rate of the minimum wage. That report is here. The answer is that when the minimum wage rises over 55% of median wage - and it’s the blended median, of full and part timers together - then on balance that rate is detrimental. No, not just detrimental to those poorest and least trained who are those who don’t get a job but detrimental to the society as a whole.

The current plan is to push the minimum wage up over 60% of the full time only median wage - very much higher than even advocates of higher minimum wages think optimal.

To adapt a commonly used metaphor - the government’s noted that jumping out of a ground floor window doesn't cause that much grief so they’ve decided to try it from the tenth.