The best of luck to all who try this

Just to try to capture neoliberalism - well, just good sense in fact - in a nutshell. Markets often work and when they do use markets. Markets sometimes don’t work and when they don’t don’t use them. A neoliberal is just any person who thinks markets work more often than you do.

With that in mind:

Yet for some patients with rare diseases, commercial interests are dictating who gets to access life-saving treatment and who doesn’t. Pharmaceutical companies have long been driven by global demand and the potential for the highest profits. In the past two decades, the market has exploded: pharma revenues worldwide have exceeded $1tn. For patients with common conditions, this investment in healthcare can only be good news. But the narrow focus of this strategy means that, in the UK, the one in 17 of us who will at some point be affected by a rare condition risk being forgotten.

OK - the claim is commercial pharma works just great for many things but doesn’t for all. So, where it doesn’t use some other system. We can’t see any objection to that.

However, it’s not, perhaps, quite as simple as is being portrayed.

Great Ormond Street hospital (Gosh) recently announced that it was taking the unprecedented step of attempting to obtain the licence itself for a rare gene therapy on a non-profit basis, after the pharmaceutical company that planned to bring it to market dropped out. If successful, it will be the first time that an NHS trust has the authorisation to market a drug for this kind of treatment. The move could act as a proof of concept for bringing drugs to UK patients that pharmaceutical companies aren’t willing to risk their profits on.

Ah, well, no. The development costs of a new treatment are high. It’s possible to have the most lovely arguments about how high, estimates range from “only” $500 million up to $2 billion. The vast majority of that cost being the testing regime and the seeking of authorisation and licence to be able to market. The new and interesting chemical is a small fraction of that cost.

The rare disease problem is that the disease is rare. Whether we use profit making companies, charities, government or whatever else to perform the task we do still want whatever it is that is done to be value additive. If we’re to spend $500 million (or $2 billion) we still want a profit on that expenditure - profit in the real sense, that the value gained from having done it is greater than the alternative uses of the same scarce economic resources. Whther that profit then becomes a profit to the capitalists or just the general value addition to society as a whole is an entirely secondary question. We still want the value from having spent $500 million to be greater than the $500 million spent. Changing who spends and how the $500 million, changing who gains that value added, doesn’t change that base calculation.

This particular rare gene therapy is for bubble baby - the absence of an immune system. The incidence is somewhere between 5 and 15 children a year in the UK. Spend $500 million to save 15 children? Well, maybe. 70 years of life from a one off treatment at $40,000 per QUALY gives us $2.8 million a treatment and $42 million a year in societal benefit. If the treatment can be marketed elsewhere as well then that cost per life saved falls precipitately.

But again, note that that calculation is the same whether it’s Great Ormond St or vile capitalist b’stard spending the $500 million. The problem isn’t the capitalists and their lust for profit. It’s the rarity of the disease being treated and the costs of gaining authorisation for the use of the treatment.

There is an easy way out of this of course. Lower the cost of gaining that authorisation. Cull the bureaucracy and so solve the problem - but doesn’t culling the bureaucracy solve so many problems, eh?

OK everybody, back to sleep

Unite the Union tells us that inflation - in fact everything that’s wrong with the economy in general - is because of corporate profiteering. No, really:

Thousands of UK companies have exploited their corporate power to increase profit margins since the pandemic, redistributing wealth from employees to employers and shareholders, according to the biggest study yet of data since 2019.

A trawl through the accounts of 17,000 companies by the trade union Unite found pre-tax profit margins were 30% higher on average in 2022 compared with the average across 2018 and 2019. Post-tax margins were on average 20% higher.

Werl, obvious, innit? There’s your problem. The capitalists are stealing it all.

In the actual report:

We've looked at profit margins before tax in 2022 compared with the average across the two pre-pandemic years of 2018 and 2019. We calculate the mean profit margin (see below) by dividing the total profit of all 16,600 companies by their total revenue. In 2022, the overall average profit margin was 8.3%. That is significantly higher than 7.1% in 2018, and just 5.7% in 2019. Averaging across those two years, profits increased 30% since the pandemic. Those figures are based on profits before companies paid tax. Profit after tax saw a smaller, but still large, increase of 20%.

It’s possible to wonder whether 5.7% was a good number to be starting with, whether 8.3% is too high now or a return to some welcome stability and so on. Eyeballing very slightly different measures of the same idea tells us that profit margins are significantly down on a decade ago. So it might well be that welcome return to a profitable capitalism. Which says something about this complaint:

Profiteering has gone hand-in-hand with under-investment. Have companies put their increased profits to use for long-term investment to rebuild our industries? Our analysis shows they haven't. In fact, investment has fallen.

If the returns to investing have risen - that’s the claim at least - then clearly we’d expect investment to increase - the gold piled up from doing so has increased and no one’s actually accusing the capitalists of being stupid, are they? If investment isn’t increasing at a time of risen profitability of investment then there might be something wrong with the numbers being used. And, of course, there is. The measure of “investment” being used here is only of reinvestment into the extant firm from profits made within that firm. Money paid out to shareholders that then gets invested in some other portion of the economy isn’t counted at all.

But the real issue here is that the numbers being complained about aren’t enough to explain the effects claimed.

The capital share of the economy is around - and about, you understand - 20%, or which corporate profits is about half. So, 10% of everything. That’s gone up by 30% or so - 3% of everything. The labour share (no, the labour share, not wages. The labour share is wages plus taxes paid on employment (both sets of NI) plus pensions contributions, plus, plus plus, all the compensation people gain from going to work) is about 70% of the economy. So, even if this effect is exactly as stated, that means wages are 4.2% lower than they would be without the capitalists carving an ever larger slice off the pig for themselves.

Sure, a 4% pay rise is nice, not having it is not nice. But it’s not an adequate explanation for everything that’s wrong with the British economy now, is it? It’s just not large enough to be the problem claimed.

Politics is the* reason industrial planning fails

Those who would plan the economy and our lives always do say that it’s far better that things are done democratically, by politics. Only the Rolls Royce minds of the civil service, so ably guided by the elect, can possibly guide the economy in the way that everyone would really want if only they were smart enough to know it.

Hmm.

Electric Vehicles: Tariffs will increase from 25% to 100% in 2024 (on top of a separate 2.5% tariff), the White House said, citing "extensive subsidies and non-market practices leading to substantial risks of overcapacity." The U.S. Trade Representative's Office said plug-in hybrid electric vehicles will be covered by the new tariffs but not hybrid vehicles.

So there are vast subsidies to electric vehicles, to make them cheap enough that people will buy them and so save the climate. But if anyone just actually makes cheap EVs and so saves the climate then they must be stopped from doing that by tariffs.

Biden’s national economic adviser, Lael Brainard, perhaps best summed up the purpose of the huge new tariffs when she said that they would ensure that government investments in jobs are not undercut by “underpriced exports from China.”

So, why’s that? Because this is an election year, it looks like it might be a tight race and the car making centre of the US is one of those tight, swing, states.

That is, the problem with politically determined economic plans is that the economic plans are determined by politics. Something for us all to remember the next time Professor Mazzucato barges through the door talking about industrial policy with strict conditionalities…..

*Possibly “a”

No, the Russians haven’t found oil reserves in Antarctica

It may well be that the Commons, or a committee of it, has been told that there are oil and gas reserves newly found in Antarctica but it’s really not true.

Russia has found huge oil and gas reserves in British Antarctic territory, potentially leading to drilling in the protected region.

The reserves uncovered contain around 511bn barrels worth of oil, equating to around 10 times the North Sea’s output over the last 50 years.

The discovery, per Russian research ships, was revealed in evidence submitted to the Commons Environment Audit Committee last week. The committee was assessing questions regarding oil and gas research on ships owned by the Kremlin’s Rosgeo, the largest geological exploration company in Russia.

Antarctica is currently protected by the 1959 Antarctic Treaty, which prohibits all oil developments in the area.

A major reason they’re not reserves is that last sentence of that quote. This is also more than the mere pedantry we’re so fond around here. The world simply will not make sense if you don’t grasp these differences. We’ve explained them, at book length, here. To give a simpler version just in case any politician is about to believe these claims of Russian finds of reserves.

Just one note, fossil fuel and mineral reserve definitions are slightly different but the base ideas apply to both.

Resources and reserves are things that are man-made. Deposits are not, they’re natural. It’s vital to grasp this.

So, a mineral deposit is that there’s something there in that rock. OK, fine, it’s there. A resource is when that something has been studied enough, tested, that we become reasonably (and there are gradations of “reasonably” leading to gradations of resource) sure that we can lift that mineral (or fuel) from that deposit in both technical and economic terms. A mineral reserve is when we have proven that we can extract, using current technology, at current prices, make a profit doing so and we’ve the varied licences and rights to be able to do so. Effectively, a “mineral reserve” is something proven up to the standard that a bank will lend against it or a stock market allow capital to be raised against the claim. That proving document is often called a Bankable Feasibility Study - proof enough to convince the bankers to unlock the vault.

The mineral deposit simply is - but those resources and reserves are man-made things. Created by applying the attention and capital necessary to prove the volume, concentration, chemistry etc of the deposit up to that financeable stage.

The importance of this is that people like the Club of Rome, varied environmental wowsers and idiots everywhere look at the volume of reserves - the man made things - and conclude that’s all we can have. Run out of those and we all die. The very slightly more sophisticated apply the same misinsight to resources. Both are wholly and entirely wrong - humans are unlikely to run out of things made by humans. The limitation is deposits, not resources or reserves. But as we point out at book length (again) there’s no shortage of deposits that can be transformed by that human effort into resources and or reserves.

But back to oil in Antarctica. These findings are all at a very early stage as yet so they’re not reserves and it’s doubtful that they’re even resources. Deposits, yes they are. But most importantly - a reserve is defined, in part, by the legal ability to extract and as oil extraction in Antarctica is illegal then any oil in Antarctica is not a reserve, is it?

In just the same way that all that lovely gas trapped in the Bowland Shale is not a gas reserve because it’s not legal to go fracking in England, is it? That copper at Bristol Bay is not a reserve because saving the fishies means no legal right to mine it. For while humans create mineral reserves by their actions humans can also - and do - destroy reserves by their legal and permitting actions.

‘The War on Prices’, a review by Dr Eamonn Butler

The Cato Institute has just published a new book that I (and others such as Deirdre McCloskey) have contributed to, The War on Prices: How Popular Misconceptions about Inflation, Prices, and Value Create Bad Policy.

In my chapter, I point out how, from ancient Egypt to the US and UK today, government efforts to control wages and prices have never worked. Price caps, minimum wages, limits on wage increases and all the rest have not stopped inflation, nor helped the poor. but have invariably created shortages, reductions in product quality (and ‘shrinkflation’) and black markets. In the end (surprise surprise), it is the poorest people who suffer most.

The book debunks the official narrative about the recent surge in prices and the cost of living. No, it wasn’t caused by corporate greed, or wage-price spirals, price gouging, or oil prices, or Brexit, or anything else like that. It was caused by the US Federal Reserve, the European Central Bank and the appalling Bank of England keeping interest rates down too far for too long, and printing too much money.  

The authors show how minimum wage rises, which are intended to help poorer workers deal with the cost of living, simply price people out of jobs, particularly those who are young and unskilled. And even when there aren’t layoffs, minimum wage bills cause employers to cut perks, insist on less flexible work schedules, and neglect the work environment. Minimum wages are a very bad way to tackle poverty. 

There’s much more of interest in the book, including analysis of price controls in World War II, Modern Monetary Theory, water pricing, CEO pay, oil and gas price controls in the 1970s, and much else. The book has received some excellent reviews to date, from a diverse range of economists and commentators. So order your copy here!

Council housing increases the unemployment rate

A useful little illustration of the problem that the planners always have - the world’s a complicated place.

John Harris tells us that:

Particularly in cities, selling council houses sooner or later eats away at places’ sense of stability and continuity: once buy-to-let landlords enter the picture, most tenants tend to become transient and disconnected from where they live.

It’s even possible to accept that this is a real thing. And yet. Council housing also raises the unemployment rate. The issue was raised by Blanchflower and Oswald:

We explore the hypothesis that high home-ownership damages the labor market…..We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility,

Lower labour mobility - less ability to move to where the jobs are - leads to a higher unemployment rate. Now, true, the paper looks at home ownership, not council houses - but they are something that doesn’t really exist in that US market analysed. For us we need to know that council house tenures are longer than private rentals (obviously) but also than direct ownership. Further, while it is theoretically possible it’s something that takes many years, if achievable at all, to move council housing across a council boundary. That right to housing does, after all, depend rather upon “a local connection”.

From the way that British council housing works this means that the effect upon unemployment is higher than mere home ownership.

Or, to put this the other way around, keeping the unemployment rate low (the structural that is, not the cyclical) depends upon there being some transience, possibly disconnection, in the labour force. Even, less stability and continuity.

As oft said, there are no solutions, only trade offs. One of them being that the less of the population we have in the current form of council housing the lower - at that resting, structural, state - the unemployment rate will be. Stability and continuity can indeed be seen as virtues - less so when the jobs are now three towns over of course.

The carbon tax is the cheap way to do it

Yes, yes, some don’t think it’s happening, others insist that leave be even if it is. But, leaping over those thoughts and to the important point, for we can all see that politics has its head up and the fools are going to do something. It’s then a duty to point out that the carbon tax is the cheap way to do it:

In 2023, the UK squeezed £52.5bn out of the economy in green taxes, a 4.9pc increase year-on-year, and it is now close to its pre-pandemic high. The revenue raised by green taxes has almost doubled since 2000. Within that, fuel duty is by far the biggest contributor, accounting for nearly £25bn.

The UK’s Emissions Trading Scheme – which seeks to reduce greenhouse gas (GHG) emissions in energy intensive sectors – now raises close to £6bn. Air passenger duty brings in £3.7bn, and the climate change levy – an environmental tax charged on the energy businesses use – close to £2bn.

OK. But what this tells us is that we already more than charge ourselves for climate change.

For, UK consumption emissions (no, not merely domestic production, but all consumption) are a shade under 600 million tonnes CO2-e a year. The Stern Review said that the appropriate carbon tax is $80 per tonne CO2-e. $48 billion a year, or £38 billion a year. But we already tax ourselves £52 billion a year for this same thing.

Well, OK, allow us just that tad of rhetorical excess in claiming that environmental taxes and the carbon tax are the same thing. But we’re pretty sure that £38 of that £52 is indeed upon carbon. And that’s before we get to all the other sillinesses like EV subsidy, boiler bans and all the rest.

We are already paying more than the cost of the Stern solution. Much more than the Nordhaus one. Very much more than the result from not quite swallowing the arguments about hyperbolic discounting and lower discount rates. But, given the political rhetoric that’s shouted at us, we’re nowhere near a solution.

Paying more than necessary but not achieving the goal? Ah, yes, that’s planning then, isn’t it? Exactly the thing that we’ve been told not to do. This is why the economists’ answer is that carbon tax - because it’s the efficient method of dealing with the problem as presented. Stick the answer into the price system and leave the market to sort out the rest.

Perhaps we shouldn’t worry all that much about the price when we’re out to praise Gaia - religious observance is often not really about costs after all. But that other economists’ observation (it’s in Stern for example). Humans do less of more expensive things, more of cheaper. Which is the reason that we have to be efficient about dealing with climate change - so that we’ll do more, not less, of it.

Shifting the UK from that current dog’s breakfast of plans to a simple carbon tax would be cheaper, more efficient and we’d end up doing more dealing with climate change.

Have we pointed out before that we prefer markets to political plans?

We, rightly, don’t do hypothecation of taxation

The amount that can be raised from taxing a particular activity bears no relation - none whatsoever - to how much should be spent upon some other activity. Therefore the tax - impost, charge, fee - upon any specific activity should not be devoted to some other specific activity. The British state has long said no to the hypothecation of taxation. It’s one of the - few possibly - things that the country gets right at that basic level.

A group of MPs are calling for a ticket levy on concerts at UK arenas and stadiums to raise funds for grassroots venues that are struggling with rising costs and the risk of closure.

No. That’s it, it’s as simple as that.

The amount that can be raised by packing the female teenage population of the country into the O2 for Taylor Swift bears no relation, at all, to how much - to use an example from the youth of one of us - Moles Club needs to stay open so that The Cure could play an early date there (alternatively one could have gone around to The Bell and seen early Tears for Fears, as, umm, one of us did).

No, think on it. If Taylor decides not to tour this year then does Moles need less money? Or she does, does Moles need more?

It is the hypothecation that matters here, not the idea of the taxation. These days - some will call it old bufferdom, others maturity - the idea of taxing Swifties, Cureists and Fears has a certain attraction. But that devotion of the money raised here to spend on this over there - no, that’s just not the right thing to be doing. Collect tax where possible, spend where necessary.

That you’re calling it a levy not a tax changes nothing about that logic. Tax concerts? Meh. Create an allocated pot of money? No.

George Monbiot doesn’t seem to know the facts here (Copy)

George Monbiot has a new book coming out, telling of the perils - no evils - of neoliberalism. There is something of a slight problem here, which is that George seems unacquainted with some basic facts about reality:

A vast amount of money has flushed through this country. Science has advanced by leaps and bounds; health and labour-saving technologies have greatly improved; we know exactly how to build good homes, treat sewage and improve democracy.

Instead (literally, in the case of our rivers) almost everything has gone to shit.

OK, rivers. England has had capitalist, profit seeking, water companies. Wales and Scotland varieties of non-profit and government owned. NI stuck with local councils then to government owned. The last time someone did a proper comparative study (OffWat, 10 years after these changes) prices had risen least, water quality in the taps risen most, effluent into the environment reduced the most, in England. Then Wales, Scotland and NI, in order of the march away from capitalism and profit.

For all the recent shrieking no one has in fact done a comparative study across the four systems. It’s entirely possible to say that England isn’t good enough, if that’s what you want to say. But is it better than the other management systems? That’s the important question and not one we’re being told - because there has not been that full comparative study. So to blame this all on neoliberalism is a bit difficult - as the best results we’ve got so far show that more neoliberalism does better.

Or:

If we keep working harder, one day we’ll pay for the public services we need; one day we’ll earn the economic security we crave; one day we’ll have more leisure time.

Hmm, leisure time. Anyone who tries to measure working hours without including unpaid labour in the household is going to get this wrong. And when we do proper time use surveys which do include all hours we find that leisure hours have been increasing. Divide the day into personal time (things others cannot do for you, sleep, washing, eating), household labour, market labour and leisure. The leisure hours are the balancing item after the first three. These have been increasing in these recent decades - heck, they’ve been increasing for centuries. And that’s before we get to longer childhoods and increased decades of retirement - both leisure in such a measurement. No group of humans, ever, has had as much leisure as the inhabitants of a currently rich nation - no, not even hunter gatherers (those estimations of 20 hours work a week are for food only).

Neoliberalism is an ideology that sees competition as our defining feature.

Snigger. A market transaction is a cooperation. Competition only comes into the decision over who to cooperate with upon which terms.

If George is so ungrounded in these basic facts then his critique of the world is going to have certain flaws, no?

We would like to be able to dig deeper into these flaws for you but for some unaccountable reason our review copy doesn’t seem to have arrived as yet. Tsk. We might even have to - shudder - buy a copy so that we can analyse it properly. Which, if necessary, we shall do, possibly even at book length.

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.