Taking Corbynomics seriously…and stop giggling at the back there

One of the joys of Corbynomics is that it’s all largely the invention of Richard Murphy. We therefore know that it is wrong on any specific subject, we’ve just got to work out how it is wrong on any specific subject. Which leads us to the idea that this peoples’ quantitative easing will be able to replace the private finance initiative. The idea being that if the Bank of England just prints money with which we can do nice things then we won’t have to go off and borrow expensively from the hated bankers and kittens will ride sunbeams once again.

The problem with this being that PFI really has very little to do with the price of the finance used to build these lovely things. Sure, bankers get their cut of the interest, as do investors, but that’s really just not the point of it all. Instead, the point of PFI is to get some people into state run projects who are worried about losing all of their money. That is, it’s really about getting equity partners in.

The point of that being that we all know how projects work out if they are funded by the magic money tree. They come in late, vastly over budget and thus waste vast amounts of real resources. And the only way we’ve ever figured out how to introduce some rigour into the management of these sorts of projects is to make sure that someone is indeed sweating over the idea that they could lose all their money. PFI is thus far more about bringing the strictures of value for money, completion on time and to budget, into public procurement than it is about either gaining the finance to build something or the price that is paid for that finance.

Thus, changing the price paid for the finance doesn’t change the argument in favour of PFI at all. Yes, it’s superficially appealing to pay nothing to the Bank of England for the finance rather than 5% to hte City, but compared with things like the 276% cost over run of the Humber Bridge it’s not the point at all.

These people are mad

There’s always someone willing to take advantage of a good crisis, isn’t there?

British railway passengers could be subject to airport-style screening at intercity stations, under plans being considered by the European Union in response to the Arras train attack.
Train operators could be obliged to introduce surveillance cameras in every carriage and stations instructed to install scanners for passengers boarding high-speed trains, under options being discussed following the foiled attack.
For the first time, Brussels officials are drawing up plans to create common EU rules on railway security. At the moment it is a national competence.

Before deciding whether to let the bureaucrats in Brussels make the rules it’s necessary to work out whether the rules themselves make sense. That is, let’s test the competence of the proposed rule makers, shall we?

Fortunately we’ve a method that allows us to do this: cost benefit analysis. Predictions are that soon enough we’ll have some 1.4 billion high speed rail passenger movements each year in the EU. So, if we’re to scan passengers, that means 1.4 billion passenger scans. Say, given the inevitable queues, this costs each passenger 10 minutes. And let’s simply ignore the cost of the scanners and the people to man them. 14 billion minutes, 230 million hours, that’s quite a lot of time being spent there. And we should value time at something….the Sarkozy Commission recommended that this sort of time should be valued at “undifferentiated labour rate” or minimum wage for ease of calculation.

230 million hours at, say, 7 euros an hour? That’s €1.6 billion euros a year, just in the time spent being and waiting to be scanned. Hmm…and so what’s the benefit?

Well, in order for this to be of benefit overall we’ve got to look at what will be saved. Lives, presumably. And we do know the statistical value of a life. Around and about €5 million in fact. That means, that to be of benefit, these scanners must save 320 lives a year. Each and every year.

Do we have 320 people a year being killed by terrorist attacks on trains? Are we likely to? Not that we can see it has to be said.

So, rather than imposing all of this cost on the good people of Europe it would seem more sensible to simply stay with the system we have. Punch any bearded nutters who start waving AK 47s around. After all, we do have good evidence that the current system works.

If even business doesn’t get this then what hope?

One of the standard bits of economics that we need to explain again and again is the incidence of taxes. Corporations don’t pay profits taxes, shareholders and workers bear the burden. similarly, business, in the form of a business that uses commercial property, doesn’t pay business rates: they fall upon the landlord. But if business itself doesn’t manage to grasp this point then what hope of getting everyone else to grasp it?

The Government’s “business tsar” has backed an emphatic call from the nation’s retailers for a fundamental reform of business rates to boost Britain’s productivity.
Sir Charlie Mayfield, chairman of the John Lewis Partnership and president of the British Retail Consortium (BRC), has thrown his weight behind a chorus of complaints from the bosses of Britain’s high street traders that the hefty business rates tax is hampering investment in the sector.
An overwhelming 95pc of 100 UK retail bosses surveyed by the BRC said that a reform of business rates would boost the nation’s productivity.
“Business rates bills have continued to rise when property values have fallen,” Sir Charlie said.
“Retailers are now paying £2.40 in business rates for every £1 in corporation tax. Reforming the rates system would be a welcome boost for retailers and help drive investment in training and technology,” he added.

The level of business rates makes no difference at all to the operating costs of those who rent buildings or space. The total rental value is determined by what people are willing to pay to occupy such space. How that is split between landlord in rent and government in rates is irrelevant to that price the occupier will pay. Thus the incidence of the rates is not upon the operating business but upon the landlords.

And reducing taxation upon landlords is not going to make any difference at all to the adoption of technology nor productivity.

What this is is a rather more naked call from landlords that they should be taxed less: any reduction in the rates bill will lead, as above, to their being able to increase rents. And of course there’s a few retail chains that own their properties, rather than lease them…..such a reduction in rates would privilege those businesses over others.

We’re not so naive as to believe that any part of Britain’s taxation system is perfect but business rates are one of the better parts of it as is. Taxing landlords and their rent is closer to a land value tax than anything else and as such is one of the least distortionary taxes and one with the lowest deadweight costs. Don’t reduce it.

The suggestion is that Labour should sponsor its own Militant entryism

At least this is how we read this:

Labour leadership frontrunner Jeremy Corbyn has unveiled plans to give grants to working-class party members to help them become MPs to stop it being dominated by people from affluent backgrounds.

Data from his campaign team claims Labour now has more MPs who went to private school – around 12% – than those from manual working backgrounds.

Corbyn would set up a diversity fund to help party members who are shortlisted in one of the top 100 target seats at the next election while they are trying to win selection. Campaign costs can amount to £4,500, his team claims.

We suspect that it will not just be those of working class backgrounds who are aided through the candidate selection process in this manner, but those who hold the correct views. Correct here meaning somewhere over on the magic money tree side of socialist views.

As The Beard pointed out, history runs first as tragedy and then as farce. And some of us are sufficiently greybeard to recall when the Labour Party expended great effort to root out the Militant Tendency. Now the suggestion is that the Labour Party should actually subsidise such entryism.

Yes, there is an element of farce to that, isn’t there?

Perhaps we should take Corbynomics seriously?

Given the polling numbers perhaps we should at least think about taking Corbynomics seriously? So, to the fountainhead of all things Corbynomics, Richard Murphy:

This process requires three things. First, high quality economic data on what is really happening in the economy, and far too few economists have any experience with that.

That is rather funny for as we’ve repeatedly pointed out Murphy has only the shakiest grasp of economic data. However, there’s more here. For what he’s really saying is that if only the policy makers had more information then they really would be able to plan that economy. Which rather runs foul of the point made in Hayek’s Nobel lecture, that we simply cannot get that sort of information out of an economy in anything like useful time:

This brings me to the crucial issue. Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. While in the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable, in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, for reasons which I shall explain later, will hardly ever be fully known or measurable. And while in the physical sciences the investigator will be able to measure what, on the basis of a prima facie theory, he thinks important, in the social sciences often that is treated as important which happens to be accessible to measurement. This is sometimes carried to the point where it is demanded that our theories must be formulated in such terms that they refer only to measurable magnitudes.

It can hardly be denied that such a demand quite arbitrarily limits the facts which are to be admitted as possible causes of the events which occur in the real world. This view, which is often quite naively accepted as required by scientific procedure, has some rather paradoxical consequences. We know: of course, with regard to the market and similar social structures, a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.

And we also have a certain empirical problem as Cosma Shalizi has pointed out at great length. we do not in fact have a utility function that we can attempt to optimise. And even if we did we’d need another 100 iterations of Moore’s Law to be able to run a computer to optimise that function that we don’t have.

Both theory and empirics tell us that Corbynism won’t work. Simply because an economy is too complex a thing to plan. Therefore, let us not take Corbynomics seriously.