If we could just make a short but important point?
There’s the Tory tax-cutting rhetoric and then there’s the tax-rising reality: between 2019 and 2024 the Conservatives delivered the largest rise in tax as a share of GDP of any postwar parliament (3.3%, equivalent to more than £3,000 per household).
Things have got better over this time period, have they? We are, for example, gaining more and better public services? Frolic more freely now that our wallets are lighter?
We’re not? Ah.
More taxation - that is, more ripped untimely from fructifying in our own pockets to then be spent as others insist, not as we do - doesn’t improve matters.
So, there seems to be a very strong indication that increasing the tax burden so that more of society’s resources are spent by the political system and the bureaucracy doesn’t make things better. So, let’s not do that then.
Of course, we are not anarcho-capitalists here so we do agree that some government - therefore some tax - is a necessity. But less of both sounds like a jolly good idea given the success of having more.
Tim Worstall
Edmund Burke proven right once again
The latest claim is that we’re all very ill because we do not do that only connect thing Forster was so keen on.
Social health is the aspect of overall health and wellbeing that comes from connection – and it is vastly underappreciated. Whereas physical health is about your body and mental health is about your mind, social health is about your relationships. Being socially healthy requires cultivating bonds with family, friends and the people around you, belonging to communities, and feeling supported, valued, and loved, in the amounts and ways that feel nourishing to you.
Decades of research have proven that connection is as essential as food and water, but this knowledge hasn’t yet made its way into the mainstream understanding of health – and without it, we’re suffering.
Possibly the idea is picked up from, umm, Bowling Alone was it?
But OK, so, we lack social connection. We do too few things communally and too many alone. Well, if true there’s an answer to that.
Burke said that the bedrock of a society, the layer that made it work, was the little platoons. Folk simply getting together, themselves, and doin’ what needed to be done. Rather than some distant ruler or bureaucracy tellin’ them what must be done, or how it must be done. Burke might have gone on to say that it was a more moral society and all that, but the clinching point to pragmatists like us is that it was a more efficient, effective society.
Now we’re being told that these sorts of personal connections are a major determinant of health. Which sounds like an interesting string to the bow of the argument. We have far too much done for us - by those rulers, that bureaucracy - for us to be making those little platoon connections any more. To our detriment and, as Burke and we would also point out, to the detriment of the society itself, not just our health.
Which seems an easy enough problem to solve. Cut government, slash it in fact, because it will make us healthier. For we’ll have to return to those more personal, locally communal, methods of gettin’ things done.
Who knows, cut enough government and we might all become healthy enough that we’ll save the NHS.
The household analogy is an absolutely great way to describe government debt
Much tutting over a reporter using the “household analogy” to describe government debt. The thing is, for all the squealing that no, no, it’s really different, it isn’t. The size of the governmental credit card is much larger, the constraints appear at a much higher level of debt but they’re still there and in the same way.
In a recent edition of the Newscast programme Kuenssberg, the broadcaster’s former political editor, suggested government borrowing was like a mortgage or taking out a credit card. She said: “One of the differences that is very important is the limit on borrowing for different kinds of spending. And just to give people some context, and I know some people object to trying to use metaphors to explain this stuff, I think actually it is quite important so you understand that borrowing for capital spending is a bit like if you took out a mortgage to buy a house or for day-to-day spending you buy loads of new frocks on your credit card: they are not the same kind of spending.”
Apparently this is terrible because:
Households have a limit on how much they can borrow because banks and other lenders put a cap on the amount. It means that once they have hit borrowing limits and can no longer afford to pay the interest bill, they tend to fall into arrears and before long creditors call in the debt. Thousands of households declare themselves bankrupt each year for this reason.
A review of the BBC’s economics coverage by Andrew Dilnot, a former head of the UK Statistics Authority, said in 2022 that countries also do not “tend to retire or die, or pay off their debts entirely” like households, which is why comparisons with household debt – and suggestions the government must ‘pay off’ or ‘pay down’ the debt – “can cause intense debate”.
Banks and lenders put a limit because they think there’s an amount that a household will not be able to repay. And as that limit is approached the more staid institutions refuse to lend and the wilder shores of the system are approached. That’s how moving from 3% over base for a mortgage (“investment!”) rises to 49% on a credit card with a guarantor (a recent offer from a non-traditional lender in the UK market).
Exactly the same happens with a country. The income is the amount that can be squeezed out of the populace over time in taxation. As the lenders think that’s getting closer to that upper limit then so does perceived risk and the interest rate at which anyone is willing to lend. This is how the Russian government ended up paying 300%.
Yes, obviously, a government can print money. But so can a household. Getting the pub to run a tab is money printing - debt creation is an increase in the money supply after all and there’s nothing that says that only banks can do that. But willingness to do that also rises as lenders - creditors - assess that risk of repayment. Until, at the limit, no one thinks promises of repayment are credible so no one lends. This is what happened to both Venezuela and Zimbabwe. To the point that both countries should, really, have started printing the money on larger pieces of paper - perhaps in rolls - so that it could be used for more fundament and valuable purposes.
The household analogy for government finances really does work. The limitation is different, sure it is. For the household, what income can be brought into it, for the government that income that can be squeezed out of everyone else. But it’s still a limit. And as that limit is approached interest rates charged on loans rise and the value of promises to pay become worth less - not worth the paper they’re written upon.
There’s only the one thing wrong with all of the above. The limitation upon government is actually lower than that upon a household. Lenders will, entirely happily, lend 4 or 5 times annual income to a household for an investment - say a mortgage. Currently the UK government takes 40% of GDP in taxation. 5 times that would be 200% of GDP as an outstanding debt. Who thinks that the markets will be happy to lend to a government with a debt to GDP ratio of 200%?
Governments face lower credit limits than households, that’s what makes them different.
Tim Worstall
Interesting questions we might be able to answer
This particular formulation is from Danny Blanchflower but it’s an often enough asked question:
Here is a question why didn't the tories borrow a trillion pounds - or even two - between 2010 and 2020 at really low interest rates and invest/repair them in schools, infrastructure and hospitals, train doctors and build lots of houses roads, railways, clean up the water supply, and rebuild what was needed
I am just an old economist who wants to understand why they did austerity instead and now are borrowing really expensively> Just asking for a friend (me..)? Why didn't they?
The answer is because no one was lending to the government at those really low interest rates. That’s how the Bank of England ended up owning that near £1 trillion of gilts. You know, the flip side of that near £1 trillion of central bank reserves they’re paying 5.25% to the banks upon, the cause of the massive inflation we did finally get and so on.
If anyone had actually tried to borrow a couple of trillion at those 0.5% interest rates then interest rates would not have been 0.5%. If the BoE had printed more money (done more QE) in order to buy them then the money supply would have blown out and so would inflation. So also would the losses right now be vastly greater than they already are.
Why didn’t the tories (sic) or anyone else borrow £2 trillion at low interest rates to then “invest”? Because they couldn’t.
Glad we’re able to have sorted this out.
There was no market for those low rate gilts, that’s why the Bank of England owns them all. #
Tim Worstall
Nationalisation produces less and worse
From Works in Progress:
We can see the effects of wars of course. We can also see the effects of free markets in those periods before each of the World Wars. Housing construction boomed as the country got richer and the population grew.
Then in 1947, with the Town and Country Planning Act, we got the nationalisation of development rights to land. We now have less - and worse given the size of what is permitted - housebuilding. Simply because that process is indeed now centralised and subject to every whinge and complaint from whoever.
Nationalisation means less and worse. We should perhaps solve this by privatising development rights. Blow up the TCPA, proper blow up, kablooie.
Tim Worstall
Why don’t we, erm, just have less government?
In this election campaign everyone, but everyone, is saying that taxes are going to rise whoever does what. Which leads to one point which is just plain and simple. We can’t have more nice things from government because we’ve already spent all the money. This must be true - if we’ve already got to increase taxes over and above their highest rate for 8 decades to pay for the things we’ve already promised ourselves then we cannot then also buy ourselves other nice new things.
This leads on to the second point, which is that if we do desire new things from government then we’re going to have to do without some of the things we already get from it.
Now, yes, this is trivial and yet it is still indicative:
Michael Landy’s Lemon Meringue, which has been installed in East Bank in east London, consists of a series of large fluorescent signs depicting different cockney rhyming slang – rhyming phrases used to replace words.
The installation includes phrases such as “apples and pears” (stairs), “S Club Seven” (heaven), “duck and dive” (hide), “April showers” (flowers) and “dog and bone” (phone), as well as additions to the dialect such as “chicken jalfrezi” (crazy) that speak to more recent diasporic influences on the area.
We seem to have modern art celebrating Cockney rhyming slang by someone who doesn’t understand how Cockney rhyming slang works.
The direct description:
The artwork was commissioned as part of the Waterfront Art within Queen Elizabeth Olympic Park curated by Louise Trodden on behalf of London Legacy Development Corporation. It is associated with the cultural and education organisations of East Bank.
Michael Landy has named the artwork 'Lemon Meringue' as according to the conventions of the style that means 'Rhyming Slang'.
Yes, we are paying for this. And according to the conventions it should be called “Lemon”. For the entire and whole point of rhyming slang is that the rhyme is not said.
Apples and pears does not mean stairs. Apples means stairs. Derived from the phrase apples and pears, indeed, but the “and the rhyme” is always left unsaid. Brahms and Liszt does not mean pissed but Brahms does. Boat race does not mean face but “boat” does.
The man’s plastering the environment with his ignorance.
Now, some of us would suggest that we the people shouldn’t be paying for modern art at all. I certainly stand by the argument that we should abolish the Arts Council entirely - thus not paying for old art either - and all such tendrils and sucker-growths into the public purse. But I’m willing to agree that I’m an extremist on this matter. An extremist who has a point up to the point of being right about this but an extremist all the same.
But perhaps we can all agree that we should not be forced to pay for people to display their ignorance? Restrict tax funding only to that portion of governance that is being done by the competent and knowledgeable?
Oh, good, well that is nice. So, what are you going to do with your 90% tax refund then?
Tim Worstall
The true joy of microfinance
That Muhammad Yunis has been having problems in Bangladesh has been true for a long time. Sad perhaps but true. But it’s still worth pointing out what we really found out when we tried microfinance:
Yunus is credited with pioneering microfinance, a financial service for people locked out of formal banking systems. It allows them to take out small loans to invest in building their own businesses. Piloted in 1976 among a group of women in a Bangladeshi village who were given small loans without needing collateral, by the mid-2000s it was seen as a key tool for ending poverty. Yunus and the Grameen Bank won the Nobel peace prize for the work in 2006.
The first point is that those loans were not without collateral. Rather - and this is a very Elinor Ostrom point - the collateral was the social reputation of the borrower. Potential borrowers are placed into groups - who should know each other well. Only one of the group can have a loan at any one time. There’s therefore considerable social pressure to repay so that one other of the group can borrow. The very poor do still have an asset - their social reputation.
The second, and perhaps much more important, thing we’ve found out - more from Mpesa than Grameen - is that what the poor really want is a form of secure savings. Microsavings if you wish. The ability to put by - out of reach of the mice that will eat paper cash, thieves who might take it - a few days or a couple of weeks of necessary funds.
The point to be made here is not that therefore everyone must provide opportunities for microsaving even if that would be a good idea. It was that until those poor actually did get banked no one had a clue that that’s what the poor really wanted. Even Yunus thought it was access to capital that was the grand wish. But it’s been the ability to save, even at that microscale yet securely, that has had the biggest take up.
We don’t, in fact, know what people are going to do with a new thing until they’ve the opportunity to do so. Planning at some rarefied level of abstraction simply does not work. It has to be actually tried then, of those things that work, we do more of them. Markets that is and markets with free entry. Let all try stuff out then do less of what isn’t wanted, more of what is.
There’s, well, umm, you know, a plan, eh?
Tim Worstall
Your reminder, the social housing waiting list is those who want cheap housing
We’ve pointed this out before and no doubt we’ll have to point it out again. This is a very basic point about supply, demand and prices. The queue of people asking for below market price housing tells us absolutely nothing at all about the number of people who need below market priced housing. It is, by definition, the number of people who would like below market price housing:
Between April 2013 and April 2023, the number of social housing homes owned by local authorities and housing associations in England fell by 260,464 units, according to the charity Shelter, which calculated the figures.
Polly Neate, its chief executive, said: “We are seeing more social housing being sold off or demolished than built, despite the staggering 1.3m households stuck on social housing waiting lists in desperate need of a genuinely affordable home.
If Aldi (or Lidl, Tesco, whatever and to taste) cut the price of bananas to a penny each there would be a queue at Aldi (or Lidl, Tesco, whatever and to taste) for one penny bananas. Everybody likes having things at below market price.
And, as that very basic supply and demand model tells us, as prices fall then demand rises. So, the demand for below market price housing is high and that then leads to a queue.
Sure, it’s possible that more cheap housing should exist. We certainly think so, that’s why we insist that the Town and Country Planning Act 1947 should be blown up - proper blown up, kablooie. In order to make housing cheaper for everyone.
But it’s still not true that a queue of 1.3 million households for below market priced housing is proof that there are 1.3 million households that need below market priced housing. It’s proof that there are 1.3 million households who would like to pay below market price for their housing. This is not the same thing.
There are queues for stuff going cheap are there? Gerraway……
One problem with monopolies is groupthink
Back in that - at the time - famous book “The Wisdom of Crowds” there was a long discourse on the perils of groupthink. Some inaccuracy creeps into the thinnking of an isolated group and becomes a foundational belief. The dynamics of ingroups mean that the belief becomes ever more extreme. There’s no reference - it’s within group groupthink - to outside reality to check this process of spiralling off into ever greater error:
Considering the fact this part of their website was updated in April 2024 after several maternity scandals, including at Shrewsbury and Telford NHS trust, where mothers and babies died or were left severely disabled in part because of the pursuit of “normal birth at any cost”, this policy was completely tone deaf. The Royal College of Midwives dropped its initiative to promote “normal birth” in 2017. British women have had the right to a caesarean birth on request since 2011, though some are still having to fight to have that request granted.
NHS midwifery did indeed become overcolonised by the “madwives”. Some number of would be mothers and their children were killed by that, umm, “overenthusiastic” insistence upon natural birth rather than the technological marvels that we spend £160 billion a year on the NHS to gain access to. Why?
The NHS is a closed system, does not face competition from those not subject to its groupthink. Therefore we gain that spiralling off into extremism of the thinking within the group.
This is a criticism at a much higher level of abstraction than whether taxpayers should be paying for other peoples’ healthcare or not. It’s that the one monopolistic supplier is a bad idea. Because Monopolies Are Bad, M’Kay? This groupthink leading to extremist error being only one of the reasons they are.
Tim Worstall
Big Brother is alive and well and living in Westminster
Seventy-five years ago, on June 8th 1949, George Orwell published 1984, his classic novel on totalitarianism. It was not about the future, so much as an indictment of Communism in the Soviet Union of the 1930s, but it gave us the language to speak about totalitarianism. It gave us doublethink, thoughtcrime and Big Brother, among others.
If one looked as many years forward from 1984 as Orwell had done from 1948, when he wrote it, those 36 years would take us to 2020. In 2020 we were locked indoors, only allowed out for essentials. We were banned from sitting down to rest outside. Police stopped people to see if their journey was ‘essential,’ and in shops the book sections were taped over as ‘non-essential.’
Schools and universities were forcibly closed, with many students confined in hostels, with barbed wire in some cases to prevent them leaving. A father was warned by police for playing in his garden with his children. Police drones were used to track and caution country walkers.
No meetings were allowed with strangers, or visits to relatives and friends. Foreign travel was prohibited. Mask mandates were enforced. Hymn singing was banned in churches. Some towns were sealed off, with no-one allowed in or out. NHS health inspectors enforced self-isolation by phone calls and unannounced visits.
No visits were permitted to hospitals and care homes, and attendance at weddings and funerals was limited to six persons. Most tellingly, a climate of fear was deliberately cultivated to force people to keep to the rules.
If anyone had told Orwell, or indeed anyone else in 1948, what 2020 would be like, they would have been met by astonished disbelief. Yet it happened, and much of it went far beyond what Orwell’s dystopian future had envisaged. The people who broke those rules received criminal sentences. The people who dreamt them up were knighted.
Those who say, 75 years after Orwell published 1984, that it could never happen, should be reminded that it did.