If it’s bullpuckey then it’s bullpuckey, right?

One of the advantages of being quite as arrogant and selfcentered as I am is the ability to label trite trivias after myself and then claim that they’re grand insights into the State of Man and the Nation.

Thus Worstall’s Acuity.

This is an addition, possibly a corollary, lesson of, conclusion from, Gell-Mann Amnesia:

"Briefly stated, the Gell-Mann Amnesia effect is as follows. You open the newspaper to an article on some subject you know well. In Murray's case, physics. In mine, show business. You read the article and see the journalist has absolutely no understanding of either the facts or the issues. Often, the article is so wrong it actually presents the story backward—reversing cause and effect. I call these the "wet streets cause rain" stories. Paper's full of them.

In any case, you read with exasperation or amusement the multiple errors in a story, and then turn the page to national or international affairs, and read as if the rest of the newspaper was somehow more accurate about Palestine than the baloney you just read. You turn the page, and forget what you know."

– Michael Crichton (1942-2008)

Worstall’s Acuity is to do the opposite. If someone’s feeding me bullpuckey on a point I know about then I’m going to assume they’re feeding me bullpuckey on the ones I don’t. This seems only fair and logical and certainly saves a lot of time.

From The Guardian, a report on a report about climate change and environmental limits:

The researchers said global heating was part of a wider crisis that included pollution, the destruction of nature and rising economic inequality.

Economic inequality is not rising. Quite the contrary, economic inequality is falling. The poor parts of the world are growing faster than the rich parts - economic inequality is decreasing. A report here from a decade back and yes, those same impulses have been continuing.

The report itself, rather than the report upon the report, makes the same mistake:

The climate emergency is not an isolated issue. Global heating, although it is catastrophic, is merely one aspect of a profound polycrisis that includes environmental degradation, rising economic inequality, and biodiversity loss (Hoyer et al. 2023).

It’s possible they’re right in some of the things they say. But that’s not the way to bet at all - for on the thing we here know about, economic inequality, they are wholly and exactly wrong. They’ve actually got the sign wrong - inequality is decreasing, not increasing. This does not bode well for whatever other bullpuckey they might be trying to sell us.

It is logical, sensible, for us to reject all of this because we know that they are wrong on the thing that we know about.

After all, if you’re presenting a report about the totality of the world you do have to be correct about that totality of the world, no? And if you’re wrong on one of your basic claims then that really does call into question your ability to be right about anything.

Tim Worstall

Why wealth inequality isn’t much of a thing

From a press release by Hargreaves Lansdown but interesting for all that:

If you were to quantify it (wealth that is - Ed) as being the age group with the most assets, it would be those aged 60-64, who have nine times as much as the aged 30-34.

If you were to quantify it as the individuals holding the most assets, those with the top 10% of assets hold £90,000 in the bank, £310,000 of property, and £627,000 in pensions.

The two groups are not wholly the same of course but there’s a very large overlap there.

One point to make is that getting into that top 10% by wealth isn’t all that exclusive a club. Yes, £90k in the bank seems a bit de trop but £300k in equity is a provincial house with the mortgage paid off. £600k in pension is middle ranking civil servant sort of territory. Schoolteacher, senior nurse, that sort of level. This is not an exclusive club. It’s also, as it happens, about the global 1% by wealth that has Oxfam spitting with rage in those annual reports.

The other thing that is obvious is that there are large lifecycle effects in play here. People who’ve paid off their mortgage and saved into their pensions are richer - wealthier - than those just starting that process. Shocking finding, eh?

But there’s more to it than this. D’ye remember Piketty and all that fuss that wealth was now a higher portion of GDP than it used to be? It was 300 to 400% of GDP a couple of generations back it’s now 500 to 600%? This was a terrible thing and taxes must rise substantially to take care of it?

But there’s our explanation. Lifecycle effects in an increasingly long lived population. Back two generations average lifespan in retirement was some handful of years. Now it’s a handful of decades - meaning that rational people save more for those golden years. That rise of wealth to GDP can be described as just the natural outcome of increasing lifespans. Thus not, in fact, something that needs to be taxed away.

But the larger point we want to make. Wealth and wealth inequality have huge, vast even, lifecycle effects in them. Anyone who starts talking about wealth and wealth inequality without including, discussing, those lifecycle effects can be safely ignored. In fact, not just should be ignored but also spanked and sent to bed without any supper. It’s entirely possible that there will still be things to complain about - when isn’t there? - after they’re included but not including lifecycles in an analysis is to be deliberately misleading. And why should we pay attention to anyone lying to us - even by omission - in the first place? All that before we even begin to discuss Frenchmen.

Tim Worstall

The IFS capital gains tax proposals are…..strange

The IFS has some proposals for the reform of CGT. Things like exit taxes, equalising rates with income tax, forcing both CGT and death tax to be paid on the same assets. But it’s more complex than that. Much more complex than that.

These reforms would mean that CGT would sometimes be payable on top of inheritance tax (and, under the second option, at the same time). That is not a flaw. CGT and inheritance tax are serving different purposes – inheritance tax is not a substitute for CGT. On death, if an asset has accrued gains, it is appropriate to tax these just as much as if the asset were sold the day before death, when it would currently be taxed.

As we’ve noted before an 85% tax at death sounds more than a little de trop. 40% IHT and 45% top rate CGT on the same pot of money? Not passing that basic fairness test we think.

Then there’s this:

CGT rates vary across assets. They are lower than tax rates on earned income and, in most cases, income from capital. These rate differentials are unfair and create a range of undesirable distortions.

Thus we get that standard progressive call that CGT and income tax rates should be aligned, be equal even. For why should those who labour for a living be paying a higher tax rate than those who speculate for it? ‘S’unfair, innit?

Well, yes, except these are the rates currently paid:

The CGT rates on shares are very different from those on non-share assets. Because - as they say - shares are already reduced in value by the corporation tax charged upon the profits of companies. Given this CGT on shares is already well aligned with income tax rates. In fact, for basic rate payers well above.

What this means is that if nominal CGT rates are equated with income tax rates then the CGT charge will be well above income tax rates. Which really isn’t the point at all. So, to equalise actual rates it will still be necessary to have a different, significantly lower, rate for CGT on shares. Equalising rates means different tax rates that is.

Exit taxes are, we think, just vile, so ‘nuff said there.

But where it gets really complex. Quite rightly the proposals take account of the Mirrlees point. That we don’t, in fact, want to tax normal returns to capital at all. Therefore something akin to inflation indexation but set at the risk free return rate. Mirrlees himself suggested the gilts yield which we think too low - the FTSE one sounds better to us. But that’s a detail. It becomes only economic profits which are taxed, not regular returns to capital.

Which in one sense is good yes. We can’t see it being remotely politically possible of course - the shouting when it becomes obvious that rentiers get to live tax free would see to that we think. Yes, it’s - in one sense - wholly economically sensible but we can’t see it being allowed to stand, nor being implemented.

This thought then runs into another problem: Schumpeterian Profits. As that Nordhaus paper points out these are the profits that accrue from entrepreneurial activity - they are not the returns to financial capital from it. Of those Schumpeterian profits near all flows to us, the consumers, in the form of the consumer surplus. Only some 3% sticks to the hands of the entrepreneurs themselves.

Yet note what this proposed tax system does - it taxes those entrepreneurial profits at the highest rates our tax system has. Top income tax rates, or CGT at that same top rate, or if left to the kiddies at 85%.

We end up not taxing at all the coupon clipping bourgeois while dunning the entrepreneurs - those who both make us consumers rich and who also drive the entire system of market capitalism forward - at the very highest rates of the entire system. There’s an error in the reasoning that got us here if we end up with a proposal so gobsmackingly awful.

It is true that we want to tax economic rents. But economic rents and entrepreneurial returns are different things and that’s the distinction that isn’t being made. The solution to economic rents is to go out and destroy the things that allow economic rents to be collected - then we can, righteously, have a lovely low tax rate upon the entrepreneurial returns. Say, zero as a nice starting point for negotiation?

Tim Worstall

Foreign Aid Reimagined

Rachel Reeves plans to cut almost £2 billion from the foreign aid budget. The Chancellor is preparing to let spending on aid fall to 0.5 per cent of gross national income after two years, a drop to a 17-year low. This has aroused Cabinet opposition.

The Adam Smith Institute has already told the Chancellor how to deal with this, but it seems she might not have been paying attention. In my Overton Window piece I pointed out that in addition to the aid publicly provided by the government, the UK should calculate the amount of aid sent in remittances by people to their families in the countries they originally hailed from. 

This frequently exceeds public sector aid as a proportion of total aid. The UK’s foreign aid should thus be declared as the sum of public and private aid.

The US is often criticized for giving relatively little in government aid, but the inclusion of private aid makes it clear that it is among the most generous nations in helping those in poorer countries.

The UK could increase the amount of private aid that is remitted to families in poorer countries by allowing it some measure of tax deductibility. This would increase the number sending it, and probably the amount that they send.

Private foreign aid is better in one important respect in that it goes directly to people instead of being filtered through governments and bureaucracies. Private aid is less likely to go to fund space programmes, or to fund gold bathtubs in presidential palaces or to buy tanks. Remittance has been shown to circumvent corruption-induced deadweight loss.

The Chancellor should include private aid in addition to government aid and strive to increase the former by giving some tax breaks to that given through reputable and regulated agencies that transfer funds internationally. It should prove to be an attractive prospect to a Chancellor who is no stranger to redefining things.

Liam Byrne is making a structural change on cyclical grounds

No good ever comes from this sort of thing. There are indeed swings and roundabouts in the economy and policies to deal with swings and roundabouts are fine. There are also structural issues in an economy and policies to deal with structural issues are equally fine. But imposing structural policies to deal with swings and roundabouts is one of those things likely to fail. As is the other way around of course.

But that is what is being done here:

A failure by Rachel Reeves to back a “windfall of wealth taxes” in her budget risks fuelling the rise of the populist right, a former Labour ­cabinet minister has warned.

Liam Byrne, a senior figure in the New Labour government and chair of the Commons business and trade committee, said that the rise of Reform UK at the last election meant the chancellor and Keir Starmer must urgently consider raising funds to deal with inequality.

The bit about Reform is just a bit of polish on the log of the argument. Which is really this:

The average wealth of the top 1% has risen by £2.2m since 2010, about 41 times more than the rise in average wealth of the rest of society, according to new research commissioned by Byrne for the updated version of his book The Inequality of Wealth: Why It Matters and How to Fix It.

Wealth inequality has increased we must tax to reduce it.

Now, we have our mutterings about wealth inequality. We insist that it’s badly, wrongly, measured. For absolutely nothing the State does to reduce it is counted as reducing it. The old age pension, a below market rate tenancy, free health care, they all reduce wealth inequality substantially. Except, they don’t reduce it one iota the way we measure wealth inequality. So we don’t believe a single word that comes out of the fork-tongued mouths of those talking about wealth inequality.

But this is rather simpler, the mistake here.

Since 2010 we’ve had a deliberate attempt to increase the value of assets. That’s what quantitative easing was - reduce the return on risk free assets, push people into taking more risk in search of yield, increase the capital value of assets producing a yield and thereby expand wealth inequality. QE was deliberate policy and that’s what that policy was - we want to increase wealth inequality so that people do more investing in creating wealth.

This is now being used as an excuse to tax wealth more? Really?

Further, we’ve already started quantitative tightening. Which raises the return on risk free assets, reduces the attraction of risk bearing ones and so lowers the value of those assets - QT deliberately and specifically reduces wealth inequality. We have, that is, already solved this pitiful excuse anyway.

The rise in wealth inequality is a cyclical change resulting from monetary policy - one already in the process of being solved too. But it’s being used to lead to a structural change in capital taxation. No good will come from applying policies for the wrong reasons.

That’s before we get to the idiocy of the policies themselves of course.

Hmm, what’s that? Liam Byrne is a politician you say? Ah, yes, we’d forgotten that and him. Well, no wonder it’s bad economic policy then.

Tim Worstall

Why not just burn it all?

Used plastic that is:

The inevitable consequence of this simple messaging is that the retailers have to do more work: the plastic has to be sent for sorting because we are not sorting it for them. The valuable, high-quality material they are looking for (uncontaminated mono-material) is recycled, while the rest is likely to be incinerated or downcycled. That is a bitter pill for the public to swallow, when they have so diligently brought their plastic back. But it is understandable that the messaging usually takes the form of “please bring your plastic here” rather than the perhaps more truthful (albeit depressing) “we burn some of this”.

So where is the plastic sorted? Often in other countries where sorting by hand is cheaper. Once sorted, some soft plastics might be incinerated to generate electricity because it is not economical to recycle them, others are downcycled into bin liners, or the melted plastic is compressed to make alternatives to wood. This is not necessarily a bad thing, because soft plastic we have used once may be downcycled, or redeployed in place of a raw material. It is important to note that soft plastic is often deemed unsafe for reuse as food packaging because of Britain’s high safety standards.

Why bother with all of this? Given that lots of that plastic is burnt, why not just burn it all? For given the costs of that sorting - or that shipping to cheaper places to sort - we refuse* to believe that the “valuable, high-quality material” is in fact valuable.#

We’ve made this point a number of times over the years:

We put our mix of rubbish in the right bins,…. the economics make it difficult to justify the significant cost of collection, transportation and processing.

So, don’t. Recycling things where recycling them adds value is just great, it adds value. Recycling things where value is being subtracted just makes us poorer. So, why are we doing this? Why not just burn the stuff? And other than incantations about worshipping Gaia we’ve never had anyone give us an explanation as to why not. Perhaps someone would like to try?

*See what we did there?

To remind the government - jobs are a cost not a benefit

The current government is firmly grasping the wrong end of the economic logic stick. Like most governments most of the time of course but still. We think we should point this out:

I am determined to deliver that change. But I know it can only happen if we bring investment back to Britain. Investment that can reignite Britain’s industrial heartlands to create good jobs in the industries of the future – like wind power and solar. And this includes carbon capture and storage. That’s why today we have announced up to £21.7bn of funding over 25 years to launch this major new industry for our country in a new era for clean-energy investment and jobs.

Leave aside the whole carbon capture and storage idea (which means we don’t have to address the silliness of it) and concentrate just on that comment about jobs from the Chancellor. As with this from the Sec of State for Expensive Energy:

With Labour, climate action means investment in good jobs.

Jobs are a cost, not a benefit.

Yes, obviously, everyone likes things to be produced. Everyone likes to have access to that production which does, more often than not, require having an income to gain that access. But it’s still true that jobs are a cost.

For those who have to do the jobs a job is effort that must be expended. For those trying to get the work done of course a job is an expense of that. For society as a whole a job is a cost too. Human labour is an economic resource, there’s also a limit to it and therefore it’s a scarce resource. We’d much prefer to have the production while economising on the use of such scarce economic resources.

Jobs are a cost of getting something done, not a benefit of doing that thing.

Adding jobs to the energy supply system - or to our anti-climate change efforts - is adding costs to our energy supply system - or anti-climate change efforts. As we’ve already the most expensive energy in the rich world and the cause of that is our anti-climate change efforts adding these jobs just increases our basic problem.

Yes, obviously, we’ve issues with the policy itself. But is it really too much to ask that the government of the country grasps the most basic of points about economics? Jobs are a cost…..

#Juststoptoil - Sorry, but we despise agroecology

The hashtag #Juststoptoil has a lot going for it. Started - at least we think so - by Jusper Machogu the aim is simply that basic aim behind having an economy, a civilisation, at all. To gain more output from less human labour. Therefore we’re all richer, as for each hour of human labour it is possible to enjoy more consumption. Jusper illustrates this with scenes on the ground from farming in Africa. The weep inducing toil and labour that has to go into making a living as a peasant that is.

Thus:

Which is why - and we’re sorry about this and all that - we so despise agroecology.

From degraded fields being brought back to fertile life to community gardens flourishing as food co-operatives, a growing revolution is happening in countries across the African continent.

The climate crisis, conflict and the dominance of multinationals with industrial-scale production for export have popularised the concept of agroecology – promoting small-scale farming and farmers, protecting biodiversity and adapting traditional methods that do away with the need for chemicals and expensive fertilisers.

Now, better ways to farm, of course, delightful. Varying crops, cassava as well as corn - or cabbages, courgettes and cauliflower as well - and why not? Diversifying, increasing, incomes is just great.

However, that insistence upon traditional methods - that means peasant farming. That insistence upon small-scale - that means peasant farming. And the peasant farmers’ lot is an unhappy one - one packed with toil.

For we hit a basic truth here. The income - standard of living, lifestyle - that can be enjoyed by doing something has a hard upper boundary. Which is the value created by the doing of that thing. And peasant farming doesn’t produce much value.

For example, the corn (maize to us Brits) price seems to be $170 a metric tonne. -ish. Maize yields in Africa - without that fertiliser, those expensive chemicals - seem to be around 2.1 tonnes per hectare. So, the quite literally backbreaking work of raising 2.4 acres of corn is worth $350 or so. That’s the upper limit of the lifestyle possible from the peasant farming of a hectare of corn without chemicals and fertilisers in Africa. And, you know, that’s not a lot. You’d need 5 acres - a large peasant farm - to even reach that minimum standard of absolute poverty of $2 -ish a day. For one person.

Yes, yes, it’s possible to diversify. Modicums of other crops and so on. But the base insistence is still true. Peasant farming - which is what “small-scale farming without fertilisers and expensive chemical inputs” is, by definition - leaves the farmers living as peasants. Vast toil to live in what we all define as abject poverty.

We’re all fine with the idea that African farming could, should, improve. That the incomes of African farmers should increase, that the income to toil ratio should improve in the farmers’ direction. But that just does mean that more fertiliser, more chemicals, more machines and larger farms are required. Those larger farms - and thus fewer farmers - will be the inevitable outcome of that replacement of toil by its substitutes as well. And won’t that be fabulous? Hundreds of millions will be able to move - as we all have - to indoor work, no heavy lifting, and the remaining farmers will be ploughing, by tractor not hand, the acres to feed them. Glory, they can become as rich as we are.

And that’s why we despise “agroecology”. Because that insistence upon small-scale, no chemicals, no fertilisers, farming is exactly what will condemn those hundreds of millions to an eternity of peasant farming - and, ineluctably, an eternity of peasant poverty.

#Juststoptoil - it’s the entire point of our having an economy, a civilisation, at all.

The people who don’t buy houses also drive prices

The two worst commentators on British housing are tag teaming each other. Nick Bano quotes Phineas Harper from The Guardian:

Twice as many new homes have been built in London in the past decade as the number of households added to the city’s population, yet average property values in some areas have almost doubled. In some places, rents have even gone up as populations have fallen

This is the heart of the idiot argument. Prices rise if more people buy houses in an area. If there are more houses built than people buying them then prices should not rise, right?

Therefore all this nonsense about supply and demand is wrong and….well, apparently and everyone get to continue living in rabbit hutches or some such.

The error is obvious to us select but if you’re a lawyer, or called Phineas, we’ll help you out with the obviousness.

Prices are driven by the interface between supply and demand, not by the number of completed contracts. Completed contracts, of course, give us the strike prices at which contracts were completed. But the number of contracts that complete - the number of added households actually added - is not the driver of house prices. The number of people - and how much money they’ve got, clearly - who wish to complete such a contract is what drives house prices.

Measuring housing demand by how many - at absurdly high prices - actually buy houses is absurd. What drives demand and thus prices against that badly limited supply is who would like to buy houses in those places. Thus to declare that there were only so many extra households and therefore demand is met by that limited supply is absurd. Prices, the third moving part of the system, are screaming out that there’s large unmet demand. This is why prices have risen to allocate that scarce supply.

That prices have risen tells us that more people would like to have a house in such areas than are able to. Using high prices themselves to insist that demand has been met, well…..sure, the demand at those high prices has of course but what about the demand that is there at lower?

Sure, yes, we’re great with people noting that supply and demand thing, it is indeed important. But managing to get it entirely the wrong way around - measuring the number who complete on limited supply rather than using price to tell us about supply and demand - is not a great step forward. Could we recommend that people called Phineas - and lawyers, obviously - have a look again at pages two and three of any basic economics textbook?

No, not page one, that’s the copyright note.

Tim Worstall

Buy America! Number Go Up!

No, really, cash in the cat’s ‘nip mousie collection and everything before that to collect all the munnies possible*. Then buy, buy, buy, Americans. Stocks, bonds, ETFs, anything you can get hands on.

It’s obvious, innit?

Imports reduce GDP. We all know the equation:

GDP = C + I + G + (X – M)

Well, there we are, it’s in the textbooks. M is imports, the sign in front of it is a minus sign, imports reduce, detract from, GDP..

Therefore, clearly, the economy does better, GDP rises, when imports fall.

The US has a ports strike. Two of the three coasts (Atlantic and Gulf) are closed down, locked tight. There will be no imports through those ports. America is going to get so much richer as a result of imports falling. Thus US stocks, bonds, collective investments, are going to soar. Imports are around 16% of the US economy - GDP’s going to rise by 16%, right?

Heck, sell the cat to be able to cash in here.

Well, why not?

*It’s possible there’s a certain ridicule in play here.