If we could just remind people of supply side economics?

A basic problem outlined concerning the British economy:

Tax rises will follow UK election unless fiscal rules are ripped up, says thinktank

Unless government gets to spend lots, lots, (even, a lorra lots) more money without worrying about the debt created then the economy will never boom.

Or, government must take more of everyone’s money in tax so as to be able to spend it to create that boom.

After the general election, Niesr said a future chancellor would be faced with a choice: raise taxes to maintain the existing provision of public services or rewrite the rules so that they served the UK’s medium- and long-term needs and objectives – including raising the growth rate, levelling up the regions and greening the economy.

Not exactly and not wholly but useful as a way of thinking about it, this is to return to that Keynesian system used up into the 1970s. Government spending is the fount of all growth. It is that priming of the system, that forcing of growth through expansionary fiscal policy, which works.

If we could just remind everyone of the basic idea of supply side economics. No, that doesn’t mean just lower taxes for richer people. It means reform of the supply side of the economy. Remove the things being done which limit growth and watch growth come back.

One of those things might indeed be lower taxes on higher earners - people can indeed be subject to the substitution effect and decide to go fishing rather than work if their tax rates are, to them, “too high”. But there are many other things which also limit the growth rate of the British ecconomy. An insane planning system for example. It is not just the Town and Country Planning Act 1947 and successors which neads to go - which would produce, as happened in the 1930s, a very nice little house-building led boom. But interminable public inquiries that lead to it being vastly expensive to near impossible to build or do anything - that tunnel that’s got a page of paperwork for each 2 inches of the length of the tunnel for example.

Or, the ban on fracking - everyone’s looking at Argentina right now and agreeing that if Milei allows fracking there will be a boom. There was a boom in the US as fracking spread.

Or, to nutshell supply side economics - loosen the regulatory straitjacket and marvel at the growth that appears. We should do that. Again.

Gary's not really doing economics

Many will have heard of Gary, that former star trader who now gives us YouTube videos. And, well, one of the problems might be that Gary’s not really doing economics - he’s acting like a trader. He’s running on what people generally believe, not what is actually happening.

Take this particular video. The central claim is that the rich are getting all the money because inequality is growing. That’s why the mass of the population are worse off even as we have - anaemic, but still do have - growth.

Hmm, well, could be. The thing is, actually, it isn’t. We could look here, at the ONS numbers for the Gini. The country is (mildly) more equal than it was in 2007. Or to look at the long term here. The UK is markedly more equal than the average over the centuries. The low point for inequality was in the 1970s - which, as we all recall, were such fine economic times for the country.

It simply isn’t true that there’s been some recent mass outbreak of inequality. Sure, there have been many claims that there have been, to the point where we’re wholly sure that most believe that there has been. But inequality in the UK economy is about where it’s been for the past 30, 35 years.

It’s entirely possible to say that that’s bad. It’s possible to say it doesn’t matter very much, all sorts of things in fact, but it’s simply not true that this is something new, something of the past few years.

The art of trading is working with what people believe is true. Not, wholly not, what is actually true. We think that’s the little trap that Gary has fallen into there. Sure, everyone believes that inequality is soaring in the UK. Actually, it’s a little lower than the last time Gordon Brown was Chancellor. Traders work off what people believe is true - Gary was a trader. QED.

It’s true that we tend not to have quite the conniption fits some others do about inequality. It’s also true that we differ with many to most over the actually desirable level of inequality in a society - we’re really very sure that differences are necessary in order to provide incentives. But this here is about facts. The UK is currently less unequal than it was in 2007, both then and now being fairly mild variations on the levels of the past 30 to 35 years.

Those saying different are not in fact doing economics.

Happy 125th Birthday Friedrich Hayek!

On this day, in 1899, the Nobel economist and social theorist Friedrich Hayek was born. He was, in the words of Robert Skidelsky, “the dominant intellectual influence of the last quarter of the twentieth century”.

Hayek was the driving force that kept alive the spirit of personal and economic freedom that had been crushed by the Second World War and the Keynesian economic experiment that followed it. Those who think they can rationally design a better society, he argued, suffer from the ‘fatal conceit’ that we know far more about how society works than we really do. Governments simply could not collect and process all the information needed to run a functioning economy, because that information is dispersed, diffuse, incomplete and personal. The socialist dream would always be frustrated by reality; and as socialists struggled to control things, we would be drawn down a road to serfdom.

Societies do not need to be planned in order to be rational and functional. Their rules and customs contain a ‘wisdom’ that has stood the test of time. A wisdom that we cannot even understand, never mind control. The price system, for example, allocates resources to their most urgent uses, with a speed and efficiency that defies any government planners. Such ‘spontaneous orders’ (including not just markets but language, justice and much else) were, said Hayek, products of social evolution, not rational design. Trying to replace them with some planned ‘rational’ alternative always ends in disappointment and chaos.

Hayek influenced a generation of economists, including many others who would also win the Nobel Prize, such as Milton Friedman, George Stigler, Maurice Allais, James Buchanan, Vernon Smith, Gary Becker, Ronald Coase and Elinor Ostrom. His ideas also enthused intellectuals who in turn disseminated his ideas even more widely. Among them were Henry Hazlitt, journalist and co-founder of the Foundation for Economic Education; Ralph (later Lord) Harris and Arthur Seldon who ran the Institute of Economic Affairs; F A (“Baldy”) Harper who founded the Institute for Humane Studies, and Eamonn Butler and Madsen Pirie of the Adam Smith Institute.

These thinkers and activists gave Hayek’s ideas a real political effect. Margaret Thatcher and Ronald Reagan owed much to his thinking, as did Mart Laar and Vaclav Klaus, who became political leaders in Eastern Europe after the fall of the Soviet system. “No person,” concluded Milton Friedman, “had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek.”

Hayek remains an inspiration to lovers of individual freedom all over the world. Think tanks promote his view; student groups name themselves after him; college programmes take his name; economists and journalists cite him; his views are analysed in books, papers and blogs. Millions of ordinary people around the world owe to Hayek their enjoyment of the fruits of personal and academic freedom, even though they may not realise it; but then as Hayek pointed out, knowledge is not always obvious.

Eamonn Butler is author of Friedrich Hayek: The Ideas and Influence of the Libertarian Economist (Harriman Economics Essentials).

How glorious efficient markets are!

That this runs in The Guardian makes us think that they might not have realised the import here:

The 59-year-old Wilfred Poggenpoel is a fisher from Lambert’s Bay, a picturesque town 170 miles north of Cape Town that’s popular with surfers and home to 17,000 breeding pairs of Cape gannets. Five years ago, he made the decision to join a virtual marketplace called Abalobi, which enables fishers such as him to sell their catch directly to restaurants, retailers and consumers using a custom-built app.

“I get a better price and I can sell more species now,” he says. “I’ve bought a 60-horsepower motor that I’d never have been able to afford before. I’ve bought a second boat.” He joined, he says, because he didn’t want to spend all day walking around town in the sun trying to sell fish. “My quality of life has improved. I’ve even been able to help some old people in the community.”

Abalobi (which means fisher in isiXhosa, one of the official languages of South Africa) is a tech nonprofit that works to help the small-scale fishers who make up the bulk of the South African fishing industry but are traditionally excluded from it financially.

Those previously in a Polanyiesque marketplace of direct contact and mutual obligations have now moved over to a technologically intermediated impersonal and larger scale market. They are - humoungously - better off as a result.

Which is glorious, poorer people are now better off. Precisely, exactly and wholly because of a deeper and wider market - a more efficient market.

Or, as we might put it, market efficiency matters. It’s what makes people better off. Therefore we must - as we are not - be very careful in evaluating anything that makes markets less efficient for whatever synapse-spasm seems a good idea at the time to those proposing it.

But then we’ve known about this for a long time. That study of sardine fishermen and their mobile phones off Kerala was in one of the very top economic journals back in 2007. The creation of those more efficient markets increased fishermen welfare - profits went up and labour requirements declined. Increased consumer welfare - the price of fish went down. Everyone benefitted - even CO2 emissions declined - none lost, from that mere market efficiency.

Of course, early papers often get revised - the conclusion of doing that seems to be that the original paper under-estimated the benefits, the general increase in human welfare from that more efficient market.

Market efficiency, it’s a good thing and don’t you, ever, forget it.

Well, no, John Harris does have a point here

An important point even:

That day, I had been in Thurrock in Essex: the patch of built-up sprawl just beyond the border of Greater London where, amid Thursday’s endless Conservative meltdown, the Tories would lose 10 council seats and Labour would gain eight, putting Keir Starmer’s party in charge. That change points to the likelihood of the Conservatives also losing Thurrock’s parliamentary seat – which, thanks partly to the local 72% vote for Brexit, they last won with a majority of 11,000. But I was there to explore a much murkier story, which amounts to a parable of the past 14 years – of a Tory-led council that thought it could avoid austerity by borrowing £1.5bn to invest in risky business ventures, and ended up bankrupt, with a deficit.

This disaster finally became clear two years ago. Now, people in such places as Tilbury, Grays and Stanford-le-Hope are faced with a great litany of cuts: cancelled road projects, hacked-down adult social care and transport for kids with special needs, drastically altered bin collections and, to cap it all, huge increases in council tax.

We’re not sure that we’d put all of it in exactly those words but the underlying story is true. Thurrock Council borrowed a lot of money to invest. They managed to lose some to all of it. The result of that is indeed higher council tax bills, lower services and so on.

That’s Bad, M’Kay?

But there’s more as well. The money they borrowed was at less than market rates. They borrowed at those special, Treasury to local council, rates. If you can borrow below market and still, still, lose money you’re really not deploying capital well nor effectively. Warren Buffett has been borrowing below market rates for decades now and he’s turned that into being one of the richest men in the world.#

There’s a lesson from this. Local government doesn’t have the skill, nous, good sense or ability to invest well. Therefore we shouldn't be using local government to make investments. Of course, it might be true that further up government, at the national level, skills, nous, good sense and ability increase. But looking at HS2 there’s not grand evidence of that either. So, perhaps the lesson from this is that we shouldn;t be using government to do the investing for us?

Yes, yes, we know that’s entirely against the current weltanschauung but the evidence we have in front of us about the British state does seem to indicate that rather strongly.

Sure, sure, it’s wholly possible to make the theoretical case that government - packed with those Rolls Royce minds as it is - could do better but actual evidence of the contention seems to be lacking. So, let’s not do that then.

Just to remind, there has been no austerity

There’s a truth here:

Every government looks to save money. Sometimes, it’s a priority to reduce spending, as with post-2010 austerity. Even when overall spending is rising, politicians may reduce spending in one area to make progress on a priority elsewhere. Doing things more efficiently is always a good idea.

But announcing a spending cut is not the same as reducing spending, let alone achieving value for taxpayers’ money. That is a key lesson of the austerity years. Cuts announced in haste in one area today have repeatedly led to costs ballooning elsewhere tomorrow.

But it’s not the line about austerity which is that truth. For spending is up in cash terms, in inflation adjusted terms and as a percentage of GDP. No one at all has spent less.

However, there is that truth. That salami slicing budgets does not work. One way of describing it is as “library cuts”. Not an absolute truth but a great deal more than merely a tendency. When a budget is sliced then it is always the consumer, public, facing service - say, libraries - that gets cut. Never the monstrous bill for the bureaucracy and its pensions that does. “See, See! The b’tards are preventing us from lending you books!” and never is it that papershuffling be done faster and heaven forfend that papershuffling be done less.

Fortunately, we have an actual example of how to do austerity:

Argentina has historically been a country of failed governments, economic collapses, and debt defaults. Yet incredibly there are signs that – against all the odds – the bold, free market reforms of its libertarian President Javier Milei are beginning to work.

With inflation falling, interest rates coming down, and the peso on fire in one market, Milei is already proving the global Left-wing economic establishment – addicted to bigger government and endless deficits – wrong. Indeed, it may provide a template for other countries to escape from zero growth.

Quite so and that template is:

First, even without a majority in parliament, he has been ruthless. Whole government departments have been closed down overnight, regardless of the immediate consequences. The Ministry of Culture was axed, so was the anti-discrimination agency, and the state-owned news service. Only last month, he unveiled plans to fire another 70,000 state employees.

Do not try to salami slice budgets. Do not try to moderate what the state does. Have the state stop doing things. The Arts Council, EHRC and the BBC (yes, the licence fee is a tax, has been since the Brown Terror) sound like darn good places to start too.

Allow fracking, kill the planning system so we can have a concurrent housing led boom - the government needs to stop doing things and also to stop stopping other people doing things.

Chainsaws, that’s the economic tool of choice these days. No, don’t prune, chop down.

Of course Boris can't vote without ID - don't be silly

Several of us here have spent years, decades, living in places and cultures that are not Britain. At which point Boris turning up to vote without ID produces a chortle in everyone. Marina Hyde gives us more such mirthtful examples.

Did we really expect Tory MPs who fought for voter ID rules to follow them? Don’t be ridiculous

But in that is one of the glories of Britain. One that we’d all miss, terribly, when it’s gone.

Yes, of course, it’s possible to think that voter ID is the best thing since that sandwich bread came out. It’s possible to think that it’s voter suppression and all that. And clearly there’s more than just the single chortle to be had from the architects of the idea not being able to vote as a result of not, erm, having their ID.

But the glory? Absolutely no one has said but, but, that’s Boris! Being ex-PM (and who knows, future once again?) doesn’t make any difference. Being, as is pointed out, a current MP (Tom Hunt) makes no difference either. The law says no ID no vote. This applies equally to all, from the very grandest in the country to you, me and the bloke sleeping under the bridge.

That experience of in foreign tells us that this is rare in a society. Sure, argue about what the rules should be but rules are going to be obeyed.

As we’ve noted before the English, then British, deal was always that there weren’t going to be many rules but those there were were going to be important. This brought the societal buy-in which led to near all the population, near all the time, obeying what rules there were. As opposed to many places we’ve been where rules are the thing you swap advice on how to avoid, ignore or undermine. Those places where there are rules about everything, in detail, thus the very concept of rules being important is undermined.

Yes, of course this is slightly handwavey and even romanticising. Yet there’s still that nub of truth to it. As we said yesterday about waste disposal - make the rules too detailed, too expensive, and the black market will arrive. As is obviously going to be true of the foolishness over smoking and vapes.

Britain, largely, obeys the law because there isn’t much law to obey. What law there is is important. Or, rather, that was the old deal. As we become ever more like the Roman Law continent (or, Lord Forbid, like the Soviet system) then the attitude to the law will become like it is there.

We’ll miss the rule of law when it’s gone.

One of those George Monbiot questions we can answer

George illustrates one of those basic limitations to government regulatory - heck, any type of - power:

To give one example, it is hard to explain why a large portion of the lucrative waste disposal industry has been ceded to organised crime in the UK while successive governments look the other way. Might they have been, in effect, legally bribed?

No, it’s that government is trying to do too much here.

One of the methods by which government fails is when it tries to do too much. The reason the plans gang agley is that people simply won’t follow them.

Thus we gain, at the milder end of the spectrum, the Laffer Curve - tax people “too much” and they work less. At the stronger end the Soviet Union was an entirely planned economy - and large portions of economic activity were simply illegal and therefore unplanned. Folk just would not obey the rules laid down.

This applies to anything and everything - make those rules, for whatever it is, too strict and the black market will arrive. This is true of cigarette taxation leading to the £14 pack, it is already partially true of vapes and it will be wholly true of the upcoming attempts to ban smoking by age group and so on. Rules that are “too tight” create scofflaws.

This is just one of those things which limit government power. That the humans being governed will only follow said laws, rules, regulations, to a point and no further. Sure, sure, we all really should obey the law, we are a democracy and so should be bound by those in common decisions. Yet we don’t and that is what places those limits upon what can be centrally done.

The reason the illegal waste disposal industry is lucrative is because the laws upon the legal version make said obeying of the law highly expensive. So, some to many simply do not obey them. This isn’t a good idea, obviously and the answer is to have looser laws overall but which gain general acceptance from the population.

Or, to put it more simply. Handing over the writing of waste management laws to the sort of anal retentives who make a duck’s sphincter look relaxed isn’t the optimal solution. Because people just won’t obey such rules.

Onwards to knowledge

We have suggested, already, that the Onward groupuscule might benefit from a little more knowledge before planning the economy for the rest of us. Doing that job of reading their report so that you don’t have to we find this:

Too much speculation has turned housing into a tradable asset, inflating the market and pricing families out of ownership. Britain’s liberal M&A regime enables predatory asset-stripping, and our regulatory and tax regime combined with loose monetary policy have promoted debt financing and leveraged buyouts to the detriment of investment. Weak corporate governance rules have allowed executive pay to rise far above average salaries regardless of performance, and a fashion for share buybacks has sucked capital into inflating share prices rather than business growth.

A fine collection of wibbles as more usually graces The Guardians opinion columns.

A house is an asset - housing is the consumable - and it is possible to buy and or sell a house. A house is therefore a tradeable asset. That the bet has been pretty much one way for some decades now is due to an idiot planning system, not to the nature of the asset nor the ability to trade in it.

Predatory asset stripping is not actually a thing. Moving an asset from a lower to a higher valued use is the very definition of wealth creation. Debt financing is investment, as also is a leveraged buyout. People are paying real money for an asset - this is investment. CEO pay is set in the international market for CEOs, not in relation to pay in this country. We could, of course, always stop foreigners from coming and working here, that would have an effect, but there seems a remakable resistance to that idea at present. And share buybacks are how we move money out of one line of business so that it can be invested in another - more investment in new things being something the groupuscule at least says that it desires.

They’re running with a collection of currently fashionable soundbites, not actual knowledge. And as we’ve suggested before knowledge, then thinking and only then the plan, please.

Sure, to err is human, but to fail at that very first stage isn’t a good start to an economic plan.

Of course slavery, colonialism, did not produce the Industrial Revolution

Nor are slavery and or colonialism the cause(s) of current wealth.

Now, if you want the detailed calculations there’s a source:

Slavery and colonialism did not make Britain rich, and may even have made the nation poorer, a new study has found.

The riches of the slave trade were concentrated in a few families while the nation footed the bill for extra military and administrative spending, according to a book by Kristian Niemietz at the Institute of Economic Affairs.

“Profits earned from overseas engagement were large enough to make some individuals very rich, but they were not large enough to seriously affect macroeconomic aggregates like Britain’s investment rate and capital formation,” he said.

Mr Niemietz argued that that the slave trade had little overall impact on the economy or the country’s ability to industrialise.

The Full Monty is available here.

It’s also possible to approach this with some simple logic. Everywhere had slavery. Many places had colonies. Only some places got rich. There’s therefore - obviously and clearly - something else which caused the getting rich. It’s certainly possible to say that the other thing was that societal change which led to the profits of slavery and or colonialism (to the extent that were those were large enough, if that’s what someone wants to try and argue) being effectively used to produce an Industrial Revolution made the difference. But that then is to insist that it was the societal change, not the slavery nor colonialism, which made the difference.

For example, the Arab slave trade lasted longer than the Atlantic by many centuries, was larger in volume and human misery. The Arab colonisation process covered all of North Africa, large non-Arab areas of the Middle East and reached up into Spain for centuries. Yet near no modern Arab nation is or has become rich in the absence of fossil fuel deposits.

It’s not the slavery or the colonies that produced an industrial revolution nor modern wealth. QED.