Sorry about this but there is no “new economics” to be had
True, it’s The Guardian headline writers who are wrong here but for all that it’s a common enough demand:
Britain cries out for new economics. Labour has given it repackaged Tory ideas
David Edgerton
Sorry about this and all that but there is no new economics to be had.
Sure, sure, there are new economic policies to be had, new, or at least different, political goals to try to reach. But that’s not a new economics.
Economics, as is continually pointed out, a positive, not normative, science. That is, it doesn’t say “it should be like this” it says “it is like this”. So, if we do this here then that over there is going to happen. Or, alternatively, if you desire that over there to happen then you’ve got to do this ‘ere to make it do so. We’d not claim it’s as accurate as the physics of a tennis racket but the idea is the same. If you want the ball to go there then you’ve got to hit it this way here.
That’s also all that economics does. It doesn’t tell you where the ball should go, it doesn’t say where you should want the ball to go either. That’s tennis - or, to haul this back across the net, that’s politics, morals, perhaps even ethics. Economics can tell us the results of what we do, economics can tell us how to gain a goal that we desire - or of course that it’s not possible to gain that goal - but it cannot tell us what we should be wanting; that’s that morals, ethics, politics and all the rest.
The actual claim here:
We now need change rather than growth. Some things should grow, while others should shrink, such as oil production and aviation. We need innovation, but creative imitation more. We need some investments, but not those that will make us less equal and less decarbonised. We need state investment, but we need to stop corporate losers lobbying governments to invest in carbon capture and storage, HS2 and overpriced nuclear power. We do not need “investable” water services, but rather decent water supplies. We should stop thinking of business as being all about entrepreneurship and “wealth creation”, given that many are neither entrepreneurial nor creating shared wealth.
If we want a more equal, more effective, more efficient and happier Britain, we can have it – even with no growth or lower GDP. But we need to want it, and to have a party that is committed to achieving this and fighting those who stand in its way. Most importantly, any form of national renewal needs new thinking, not doubling down on the failed nostrums of the last 40 years.
Maybe those things are good goals, maybe they’re not. But none of them are about changing economics. They’re about changing the goals we pursue informed by that same old economics.
We’d note that Edgerton does not make the mistake the headline writer does. He’s arguing for different goals not a different science.
As to the goals, well, we disagree but then you knew that. Greater equality for example. Wealth inequality is pretty much unchanged this psat 15 years or so. Income inequality - as we delight in pointing out - is lower than it was in 2008. We’ve not noted any great enthusiasm for how the economy has been working this past 15 years so we do tend to think that equality isn’t it - absolute levels of income are more interesting to people. But that, again, is not economics, that’s politics - or morals, ethics, whatever.
Economics is, therefore we can’t have a new one. Sorry and all that but it’s true.
Tim Worstall
It’s the (money), stupid
The punishment meted out last night to the Democratic Party represents a simple fact: pandemic profligacy has bitten Western government's backside. Inflation, rather than employment, now decides elections. For those on the centre-right, there should be some relief that it is Hayek after all, who is winning the debate over Keynes.
The election result, and US economy, is a quandary for foreign observers, and wonks in particular. The US dollar is strong, productivity is at all-time highs, wages have continued to grow, and unemployment is at historic lows. In 1957, Anthony Downs published ‘An Economic Theory of Democracy’, which stipulated that voters will vote in their personal best interests, and even refuse to turnout if things are going well. If Downs’ rational voter theory was right, voters should not be turning out in swathes, especially not to replace the incumbent. So what has caused this great upset?
Inflation - the invisible tax, has buffeted Downs’ predictions.
Inflation is solely a matter of how much money is in circulation and the capacity of the economy to absorb it. Unlike 2008’s Quantitative Easing, which found its way into bank vaults, the $13 trillion printed for the pandemic is still filtering through America’s checkout. From gasoline to household basics, the surge in prices has outpaced pursestrings. US workers might be 26% better off than in 2020 (in real terms!) - but the pain is still there. And that pain was expressed last night.
Americans, regardless of their political alignment, have felt the pinch of the profligacy of unaccountable central banks. But it is in the poorer, Rust Belt areas where that pinch has felt more like a punch. There, inflation has superseded, or just kept up with, pay rises - a heterogenous outcome from the trillions poured into the Midwest with the Inflation Reduction Act. Again, this is despite higher productivity, a strong dollar, and low unemployment.
There are lessons for Brits here, perhaps not yet learned from the General Election. As our Patron Nadhim Zahawi wrote back in July “voters registering their anger about high interest rates and inflation by turning against incumbents is a feature of politics across Western nations…[e]ven in the US, where their economy is greatly outperforming ours.”
£450bn of pandemic printing from the Bank of England, combined with dreadful economic growth, can only end in tears. In a statement to the Lords Economic Affairs Committee last June, former permanent secretary to the Treasury Nic Macpherson said that Bank of England QE let ‘inflation take root.’ He compared it to heroin: ‘The economy gets addicted to it and needs bigger fixes for it to have an impact.’ There must be more accountability for the Bank of England, and greater acknowledgement of its role in Britain’s political economy. If the UK doesn’t register this, there may be further upsets at the ballot box- this time here in Britain.
The planning system makes it impossible to save the planet
We tend to think we’d rather like to save the planet. Polar bears are cuddly, d’ye see? Well, from a distance they are at least. Therefore we’d probably like to do something about this:
A plan to create a clean electricity system by 2030 promised by Labour before the election is “immensely challenging” but still “credible” if ministers take urgent action to fix Britain’s sluggish planning system, the energy system operator has said.
Britain could become a net exporter of green electricity by the end of the decade at no extra costs to the energy system under the plans and bills may even fall if ministers make the right policy changes, according to the operator.
We do tend to doubt the second part of those conclusions. Using more expensive power sources is unlikely to bring power bills down. But the first part, sure, we agree. The planning system does not allow us to build anything in anything less than geological timescales. Therefore, if we desire to do anything in less than those geological timescales we’ve got to change the planning system.
However, if we were to change the system only for socially approved green projects we’d be missing that opportunity to make the country hugely, vastly, better.
For that planning system bans the building of houses that Britons want to live in. That traditional des res with front and back garden is illegal given the enforcement of the minimum 30 dwellings to a hectare idea. The planning system also bans the building of houses where Britons want to live. That’s the whole point of the Green Belt nonsense, that the haute bourgoisie don’t get their views of rolling green acres interrupted by a crib or two for the proles.
The planning system costs of £300 million just on lawyers for a tunnel under the Thames. That’s good for m’learned enemies and an impertience and impoverishment imposed upon the rest of us.
The planning system prevents anyone building lab space around Cambridge, where the beating heart of the nation’s pharma research pumps away…..and on and on.
We’ve a planning system that prevents anyone from doing anything useful that is. It stems from that nationalisation of the use of land incorporated in the Town and Country Planning Act 1947. As ever, nationalisation has made things expensive, bureaucratic and in short supply. Thus that’s the thing we need to change.
Blow up the TCPA - proper blow up, kablooie. No, don’t replace it, just erase it, bang.
That way we can have houses and tunnels and labs and factories and jobs and a thriving economy and just, in general, be a better country - as well as, if we must, save the cuddly polar bears.
Tim Worstall
Smoke-Free Projection Extended by 9 years
As published in The Guardian yesterday, analysts at Cancer Research UK believe the government's smoke-free by 2030 target is doomed. Instead, the charity suggests that the key public health milestone will be reached by 2039.
The report states, “Our updated projections, based on the continuation of recent trends, indicate that smoking prevalence will continue to fall in England, but not fast enough to achieve the smoke-free ambition set out.”
However, with the analysis coming so close to the controversial budget, it’s not altogether clear if 2039 is even feasible. The Chancellor of the Exchequer’s £2.20 per 10ml tax on e-liquids will make vaping less affordable and hurt the UK’s most vulnerable citizens.
When combined with the eagerness of the government and certain organisations to push through the Tobacco and Vapes Bill, we could start to see the destruction of the UK’s greatest “smoke-free” ally, harm reduction products.
When the Department of Health and Social Care says, “The Tobacco and Vapes Bill will be the biggest public health intervention in a generation,” they might be right. The problem is that these proposed rules will intervene in a private-sector solution that has been instrumental in reducing smoking rates in the UK and beyond.
The deprivation gap
The CRUK report also talks about the deprivation gap among people who smoke. They state that sometime next year, the wealthiest 10% of people in the country will hit a smoking prevalence of around 5%, aka “smoke-free.”
However, the situation for the lowest 10% is far less rosy, with CRUK predicting this cohort won’t get to 5% prevalence for another 25 years
It’s been really clear for a while that smoking harm reduction is a class issue in the UK. Finding ways to engage with these communities to help them quit is essential.
Closing the deprivation gap
Closing the deprivation gap should be a priority. However, we already know that the current government has problems communicating with the demographic that is most affected by smoking. So, it’s hard to have faith in their ability to use public messaging, posters, and school workshops to reduce smoking prevalence in these communities. Instead, any solutions must be pragmatic and grounded in reality.
For starters, price matters. A 267% increase in the most affordable product is tantamount to an attack on poorer vapers, especially when tobacco products will not rise at close to the same rates.
Secondly, whether you’re a fan or not, disposable vapes are effective. They’re available everywhere, day or night, and they work right out of the box. That’s not minor when you consider that about 2 in 3 lower-income homes mostly shop in-store.
Finally, studies show that flavours are an important part of satisfaction when using vapes. Anything that makes vapes more appealing to smokers is a good thing.
Final thoughts
The free market has already provided a blueprint for how to help people stop smoking: convenient, low-cost vapes in a range of satisfying flavours. Without these products, smoking rates would be far higher than the revised 2039 prediction.
What Alternative solutions are there then that will help solve the environmental problem disposable vapes cause and also limit underage illegal sales? I have argued in the past the issue is one of enforcing the laws that are largely in place, namely that it is illegal to sell vapes to under 18’s already. The introduction of a vape licensing scheme could bring in £50m into trading standards whose job it is to enforce the rules. This would lead to a huge increase in enforcement resources to tackle the problem, all without using taxpayers money. In regards to the “environment” a deposit return scheme would provide the market incentive for consumers to return their used products for recycling. Instead the Government is taking the route of taxes and prohibition, one that Australia has also taken with terrible results.
Sadly, the government’s decision to punish people who have already quit smoking will have a tragic effect on “smoke free” targets. If the Government realises they just need to get out of the way to solve this problem, it will benefit UK citizens and the NHS.
Apparently government is not very good at doing something
This will, of curse, come as a great shock to readers here - government turns out to be not very good at performing a task. Here the issue is one of giving away free money - they’re really just not very good at this:
Everywhere you look, the richness and abundance of European nature is under threat. Since the 1970s and 80s, even while many environmental indicators in Europe have improved – cleaner air in cities, less industrial pollution, less sewage in waterways (outside the UK) – the story of nature is one of steep and stark decline. Wildlife, trees, plants, fish and insects – the picture is bleak.
Nature is declining. Boo!
It was not supposed to be this way. Since the early 2000s, changes to Europe’s farming practices and subsidy regime – the common agricultural policy (CAP) – have been geared explicitly towards protecting the environment, as well as supporting farmers and food production. The CAP represents a third of the EU budget, coming to about €55bn (£46bn) a year and in return for that largesse, farmers are supposed to meet a minimum level of environmental protection. Taking additional measures such as growing more trees or conserving wetlands can net them extra support.
The more government spends on farming to aid nature, with targets, plans and insistences to farm to aid nature, the worse the effect of farming upon nature is.
Oh, and also:
The European Union gave generous farming subsidies to the companies of more than a dozen billionaires between 2018 and 2021, the Guardian can reveal, including companies owned by the former Czech prime minister Andrej Babiš and the British businessman Sir James Dyson.
Billionaires were “ultimate beneficiaries” linked to €3.3bn (£2.76bn) of EU farming handouts over the four-year period even as thousands of small farms were closed down, according to the analysis of official but opaque data from EU member states.
The money just goes to the rich anyway.
Note that this is the reformed system. The one before that just paid a flat fee per acre farmed - thus benefitting the richer farmers with the more land. Plus making it more difficult for new entrants, of course because as David Ricardo would have recognised, increasing the rental value of land will push up the capital value of land.
The system before that last reform subsidised ripping out the hedgerows and slathering the countryside in chemicals.
Or, as we can put it, European governments have been doing farming for 80 years now, at minimum, and their farming has got worse as time goes on.
Oh well, three generations on the land and government’s just continued to make it all worse. Time to agree that the experiment has been tried and it doesn’t work. Government’s just not very good at farming so government should stop doing farming.
So, the full New Zealand then. Wholly and entirely abolish the rules, supports, subsidies and interference. Just cancel the entire idea and leave farmers be to work out how best to use their own land. It did, of course, work in New Zealand so it will, of course, work here too.
That £46 billion could also be left to fructify in the pockets of the populace instead of being spent by the European Union on making things worse. H, ha, just our little joke of course. For there’s absolutely no way that Brussels would accept a reduction in their exactions even if they did stop spending it on making farming worse.
But, you know, not making farming worse by not spending €55 billion on making farming worse sounds like a plan. For we’ve tried this and tested it - government just isn’t very good at farming. Therefore government should stop farming.
Tim Worstall
An Alternative to Tuition Fees
The Education Secretary has just confirmed that university tuition fees will rise next year, for the first time in 8 years. The annual maximum fee will now be £9,535.
Students who leave university with roughly £50,000 of debt have a rough deal. 39% of full-time UK undergraduate students starting in the academic year 2023–24 are predicted to not repay their student debt.
The Adam Smith Institute in its Overton Window paper has already shown a way out of this dilemma. It involves the participation of businesses in student finance. The RAF offers a scheme of academic sponsorship through its University Air Squadron Bursary. If you sign up to the RAF for two years after graduation, your fees are paid for and you leave with no student debt.
Private businesses could be encouraged to take the same route by formalizing degree sponsorships as deductible from corporation tax. In return for a commitment to work for the firm for two years after graduation, they would pay their fees as a tax-deductible expense.
From the students’ point of view this has several advantages, in that not only would there be no debt burden on leaving university, there will also be a job lined up. Furthermore, internships during the vacation would enable the student to step into the job already trained for it.
The employer has the advantage that the graduate comes into their employ fully trained during the vacation internships, and as a known person they have had experience with, rather than as an unknown outsider.
Obviously, there would have to be arrangements if the student changed their mind. This would constitute a breach of promise case in which the student would be required to gradually repay some part of the fees that were expended on their behalf. Illness and tragic factors aside, reneging on one’s contract could incur the necessity to pay back one’s degree costs. Similarly, there would have to be an arrangement if the employer no longer wished to employ the graduating student.
The government’s tax relief on company sponsorship would be offset by the elimination of the almost 39% default rate on student loans. The tax relief for degree sponsorship programmes would cost less than the money it saved in the reduction in student loan defaults it would cause. Under the ASI proposed system, the state would save money.
All registered businesses should be eligible for this student support tax relief, though it would not apply to local government organizations or the Civil Service because they would be using public, rather than private, money. Rendering tax-deductible corporate degree sponsorship programmes is best suited to shareholders’ money, not public money.
But, what, you mean macroeconomics is not accurate?
A useful little example here:
OBR error leaves Reeves £18bn short of room to borrow
Mistake in official borrowing forecasts risks spooking traders
Our word. You mean that macroeconomic numbers are not very accurate?
A mistake in the UK’s official financial forecasts has left Rachel Reeves £18bn short of headroom to borrow in her ambitious tax and spending plan.
The Office for Budget Responsibility (OBR) was this week forced to “restate” its March estimates for public sector net financial liabilities (PSNFL), the UK’s new measure of public debt.
The figure shows Reeves has £44bn of room to borrow – around £18bn less, Bloomberg reported, than its initial estimate of £62bn in March.
Well, yes, that is what this means - macroeconomic estimates are not very accurate. Now in one sense this isn’t all that important. The credits and debits on the PSNFL are both vast numbers, trillions each. The balance between them being out by £18 billion, well, under 1%. Pretty good for government work actually.
But in another sense really very important indeed. Because this under 1% is the sort of number that people are trying to use to manage that macroeconomy. And if your numbers are inaccurate by 1% then you cannot manage to that under 1% level. For the information you’re using to manage is erroneous by greater than the margin you’re trying to manage.
This is why that detailed demand management of the Haute Keynesianism years didn’t work. The information flowing into the decision making system just wasn’t accurate enough for the decisions people were trying to make.
Of course this point has been made more generally, about all economic numbers and management. They gave Freddie Hayek the Nobel for pointing it out after all. The centre simply never will have the knowledge to be able to do things in detail. Therefore don’t try to do things in detail. Get the basics - incentives, legal rights, civil liberties - right and leave be to allow society to grow.
Yes, yes, this is just the one example of error, already cleared up. But our opposition to detailed macroeconomic management - to detailed economic management - is at least in part driven by our insistence that all economic numbers are like this. Therefore there’s no system of processing that information centrally, through politics or Rolls Royce minds, that can possibly do that management job. So, don;t do it because it’s not possible to do.
Tim Worstall
When did we allow the pecksniffs into our lives?
Possibly why did we allow the pecksniffs into our lives? Even, did we?
Supermarkets are using multibuy promotional deals to encourage shoppers to buy meat and processed meat, despite the products being linked to a heightened risk of cancer, research reveals.
Almost one in five (18%) of multibuy offers in major British supermarkets involve meat and dairy products, and one in ten (11%) processed meat such as ham, bacon and sausages.
Customers are being encouraged to buy such products even though the World Health Organization says that red meat probably causes cancer and that processed meat definitely does.
The Food Foundation said its findings, especially about processed meat, were alarming for environmental as well as health reasons. It accused food retailers of “actively incentivising citizens to buy more of those foods that are known to be bad for the health of people and the planet”.
One possible explanation here is a link to the declining fertility rate. There are always those in any society best suited to telling the ickle ones to eat up their broccoli, to take charge of toilet training. The absence of enough children doesn’t stop that urge nor the presence of those with it. It simply gets displaced into this urge to do that same command of both ends of the diet to the entire population. Therefore one useful solution is to command the ladies and gentlemen of Britain to get on with it - our freedom lies in your, erm, hands. Or, perhaps, we could abolish the Town and Country Planning Act 1947 and successors - proper blow up, kablooie - so that Britons can afford to have children in Britain. Might work, who knows?
Or, of course, we could just be serious and be adults. The Grim Reaper will come for us all in his own good time. The gap between now and then is to be enjoyed and if that, by your tastes, includes steaks, ham, sausages and bacon - mmm, bacon - then so be it.
This is, we insist, being serious about it. The pecksniffs are insisting upon their right to potty train society. Nope, we’re adults, gerroffwi’it.
And now really think about it. If those who rule us think we’re not even capable of deciding upon our own diet then how long before we’re considered incapable of deciding who is to rule us?
Tim Worstall
Britain’s first fibreoptic telecoms network was built by ferrets
You know, ferrets, the vicious little beasts related to stoats, weasels and wolverines. It really is true that when Cable and Wireless built that first - private sector! - fibre telephone system in The City then did so by strapping cable to a ferret which was then sent through the pipes. We think this is one of those stories that should be regularly repeated so that it doesn’t drop out of the national consciousness.
It also aids in explaining this:
Northern Rail is still relying on fax machines to communicate with staff as the state-owned operator grapples with some of the worst delays and cancellations in the industry.
Faxes are still being used to run the UK’s electricity grids, the Government’s energy systems operator has admitted.
And it’s the basis of the disagreement between Bill Nordhaus and Nick Stern over how to deal with climate change.
Back when there was the London Hydraulic Power Company. Pressurised tubes snaking across London to deliver power to people. It was, if we’re honest about it, a technology out of date very soon after it was first adopted - electricity and wires were “better” by perhaps 1904 which is a bit of a blow to a company started in 1893. However, the system still ran factories up into the 1960s and really closed only in 1977. The ferrets bit is that it had the right to dig the roads to maintain those pipes - and it had that network of pipes down which it was possible to stick ferrets - which was very useful when laying a telephone network. Thus the shell - empty pipes and the right to dig the roads - was bought up by the nascent phone company and ferrets stuck down pipes trailing a cable attached to a little leg.. All very fun.
But, note, that power system still lasted 70 years after it was, if we were building anew or even linking up a new customer, technologically redundant and past it.
Which is the point that Nordhaus makes. Sure, deal with climate change. But don’t junk what currently works. Only, when that needs to be replaced, replace it with the new and more climate friendly. For, that way, the cost of dealing with the problem is minimised. The cost of the new and climate friendly is no longer the total cost of the new system. Rather, it’s the cost of the climate friendly minus the cost of building another of the old as a replacement for what doesn’t work any more anyway.
Or, in more formal terms, work with the capital cycle. Run that old power plant for the 70 years it’s worth running it for. Only then replace it with that new fangled electricity.
If faxes still work then why not faxes? Until the faxes themselves need to be replaced that is?
Tim Worstall
We predict a - significant - rise in youth unemployment. What joy
As a tendency - not an asserted truth - we tend not to believe in macroeconomics very much. Too much maths and wand waving by those who really never can gain the information necessary to feed into the equations even if they did work. Microeconomics though we believe in very strongly. Get the details of legal structure, incentives and the freedom to respond to them correct and she, that whole economy, will largely come out right. Where we would assert a truth is that even if you do have a macroeconomic policy - even one that’s vaguely correct - you do still have to get those details of the markets themselves correct. Macro is a nice addition to micro that is, not a substitute for it.
At which point our prediction from this most recent UK budget. We’re going to see a significant and sustained rise in the youth unemployment rate. Which is not, we’d suggest, something that policy should be trying to encourage.
A basic point: whatever rules we make about the price fixing of wages - minimum wages that is - they’re obviously going to bite hardest upon the young and untrained. For they’re the people who have to leap that hurdle from not working to having convinced someone to give them a try. This will also be true of “workers’ rights” like protections against unfair dismissal, whatever rights folk might have to maternity leave and any other non-cash expense of employment.
The effect of such things will bite hardest upon those attempting to enter the labour market. Obviously they will. How would anyone think otherwise?
The minimum wage rise for 18 to 20 year olds will add £2,500 a year to the cost of employing one such. The drop in the National Insurance payment level will add £600 (15% of the £4,000 increase in the taxable amount). So, roughly, a £3,000 addition to the cost of employing some fresh faced shaver straight out of education. Or, given that starting wages are fairly obviously going to be at or close to that minimum wage level, a 15% or so increase in the cost of giving the young that first step on the path to a career.
This is a hard bite. Somewhere between fewer and many fewer are going to be given that opportunity. The gap between taking on an untrained and untried youth and instead hiring a known quantity, someone who’s already been working a few years, has, after all, now shrunk. Therefore the incentives have changed and so will behaviour.
We’ve also that issue of workers’ rights now kicking in immediately and not after some probationary period. Trying the fresh-faced now comes with a substantial - well, substantially higher - risk as well as cost.
So, what do we all think will happen as a result of this change in incentives? Fewer fresh-faced will get hired. Obviously.
Contrary to popular belief we’re all in favour of Europe. Just perhaps not the political confection that is the European Union. Parts of Europe are lovely places, many Europeans are equally lovely, the food’s often good, the wine better and so on. Britain has done well over the decades by importing much of that food culture, the wine’s very definitely got better and climate change seems to be making the weather more European too. So, good.
But one aspect of the European experience we’d suggest we should not import is the Latin-style youth labour markets. Here in the UK the “youth” (as in, 18 to 24) unemployment rate is 12.8%. In Portugal - as an example - more like 20%*. And that’s after 350,000 of the young have left the country in search of a job - 3.5% of the entire population. In Spain it’s 29%.
The reason the Latin countries have such high youth unemployment rates? Because worker protections - and they’re strong - kick in from day one of a job. Further, the minimum wage is high as a percentage of the median wage and yes, social security taxes upon employment are high. All of these bite upon the young and untrained more than upon the rest of the workforce.
As we say, importing some European things is wonderful. Others perhaps not so much. And importing the youth labour markets, thus the youth unemployment rates, of Southern Europe strikes us as not just a bad idea but a positively insane one.
Yes, obviously there were other things in the Budget. But there’s a strong argument to be made that this is the one single issue that’ll have the most pernicious long term effects.
Finance bills don’t get voted down especially with today’s sort of majority. But here’s hoping…..for the children, you see, for the children……
Tim Worstall
*Yes, that’s the 16 to 24 rate but sadly different countries compose stats slightly differently. By that same W Bank measure the UK is at 12.5% for 2023.