The Bank of England’s Headline Stress Test: An Exercise in Really Weird Accounting

(For the previous blog in this series, see here.) This posting goes through the Bank of England’s headline stress test and explains that the reassuring conclusion that the Bank drew from them – that the UK banking system is in healthy shape – cannot be taken seriously because the Bank set the pass standard way too low. On the other hand, if we repeat the Bank’s stress tests but impose higher minimum capital standards in line with those called for under Basel III we find that the UK banking system is in very poor shape.

In this posting, I will go through the Bank of England’s 2015 headline stress test – the test based on the CET1 ratio – the ratio of CET1 (Common Equity Tier 1) capital to RWAs (Risk-Weighted Assets). The definitions of these terms were explained here.

In this test, the Bank sets its minimum pass standard equal to 4.5%: roughly speaking, a bank passes the test if its capital ratio (as measured by the CET1 ratio) post the stress scenario is at least 4.5% and it fails the stress test otherwise.

The outcomes for the 7 banks involved – Barclays plc, HSBC Holdings plc, Lloyds Banking Group plc, the Nationwide Building Society, the Royal Bank of Scotland Group plc, Santander UK plc and Standard Chartered plc - are given in Chart 1:

Chart 1: Stress Test Outcomes for the CET1 Ratio with a 4.5% Pass Standard

Notes to Chart 1 at end

By this test, the UK banking system might look to be in reasonable shape. Every bank passes the test, although one (Standard Chartered) does so by a slim margin of under 100 basis points and another (RBS) does not perform much better. Nonetheless, according to this test, the UK banking system looks broadly healthy overall.

However, the choice of a 4.5% pass standard is odd, because the Bank itself requires that UK banks meet not only the 4.5% minimum but also meet an additional requirement – usually known as a Capital Conservation Buffer (CCB) – of a further 2.5%, making for a minimum of 7%.

If we apply the Bank’s stress test to a 7% pass standard, we then get the outcomes shown in Chart 2:

Chart 2: Stress Test Outcomes for the CET1 Ratio with a 7% Pass Standard

Notes to Chart 2 at end

We now get a rather different picture: two banks (Standard Chartered and RBS) fail the test and two more (Barclays and HSBC) barely pass with surpluses of less than 100 basis points. Only three (Lloyds, Santander and Nationwide) are above the pass standard with room to spare.

As I evaluate the results in Chart 2 using the Bank’s own criteria, I can see two banks that did not remain above international agreed minimum standards and two others that nearly didn’t – that’s 4 banks out of 7.

Furthermore, even the 7% pass standard is less than the minimum required CET1 ratio that will be implemented under Basel III by the end of the stress period, as it ignores two additional components of the total minimum capital requirement that will be in place by then – the Counter-Cyclical Capital Buffer and the Global Systemically Important Banks (G-SIBs) Buffer. The first of these is an additional buffer meant to counter cyclical factors and is set at the discretion of the Financial Policy Committee (FPC); it is current set at 0% but can be set as high as 2.5% under the Basel III rules. The second is an additional buffer applied to institutions that the FPC deems to be globally systemically important: the values of these buffers were announced in February 2015: 2% for Barclays, 2.5% for HSBC, 1.5% for RBS and 1% for Standard Chartered. These additional buffers will all be implemented as additional capital requirements by the start of 2019.

It would therefore be prudent to include these components in the pass standard as well, and in so doing, to set the Counter-Cyclical Capital Buffer to its maximum possible value of 2.5%.

Chart 3 shows the outcomes if we apply these more stringent capital requirements as the pass standard in the stress test:

Chart 3: Stress Test Outcomes for the CET1 Ratio with the Potential Maximum Basel III Pass Standard

Notes to Chart 3 at end

In this case, no less than four banks (Standard Chartered, RBS, Barclays and HSBC) are clear failures with outcomes well below the pass standard aka the maximum possible required CET1 ratio under fully-implemented Basel III. Lloyds is exactly equal on the pass standard, Santander is only a tiny bit over it and only Nationwide is comfortably above. Overall, the banking system clearly fails the stress test exam – and this despite the fact that the stress scenario was a mild one!

Pulling all these results together. The UK banking system passes the stress test exam if we take the Bank’s preferred (low) pass standard of 4.5%, which just happens to conveniently support its preferred narrative that the system is sound. However, the banking system performs far less well if we take a pass standard to be 7% (which was the minimum required CET1 ratio by end-2015), and it unmistakably fails the test if we take the pass standard to be the maximum requirements that could be in place under Basel III by the end of the stress period.

Put another way, even if we blindly accept all the major features of the Bank’s stress tests but the pass standard – if we accept the Bank’s chosen scenario, its use of the CET1 ratio as its capital-adequacy metric, the Bank’s own calculations etc. – and merely alter the pass standard to come into line with what the minimum capital requirement might plausibly be under Basel III by the end of the stress period, itself hardly a demanding standard – then we get a very different outcome to the one portrayed by the Bank: the UK banking system would then revealed to be massively capital-inadequate.

At the risk of belabouring the obvious, there are two further points about the Bank’s credibility that cry out from these results:

First, if the outcome of the stress test happens to depend critically on the choice of pass standard, then the outcome of the Bank’s stress test is not robust and therefore neither reliable nor credible – and this is especially so if the Bank’s preferred pass standard happens to coincide with its own self-interest which is to reassure us that the banking system is sound.

Second, the plausibility of the Bank’s view that the UK banking system is in good shape should not be contingent on such finer issues as whether the pass standard should be 4.5% (i.e., the pass standard implemented by the Bank) or higher (e.g., the pass standard promised by the Bank): if the UK banking system really were in good shape, this resilience should come through in all the tests, not just the least demanding test that happens to be the one that the Bank prefers. Moreover, for the test to be credible, the pass standard should be as high as is reasonably plausible. Conversely, for the Bank even to be suspected of applying the minimum pass standard they think they can get away with – when higher pass standards would give more negative outcomes – is to undermine the credibility of the whole exercise. The Bank’s stress tests need to be above suspicion if they are to be convincing.

If you don’t find this argument convincing, consider the medical analogy. A doctor is performing a medical check-up on a patient. He has a choice of tests to conduct: Test 1 has weak power to detect a particular problem, Test 2 has more power and Test 3 is more powerful still. By Test 1 there is no sign of any problem, by Test 2 there are hints that there could be a problem and hence a need to follow up, and by Test 3 the patient is clearly poorly. However, Test 1 is so weak that the doctor is not allowed to use it; instead, the weakest test he is allowed to use is Test 2, and the best practice advice among medical practitioners is to use Test 3 or something even stronger.

So what does the doctor do?

He tells the patient the results of test 1 and the patient thinks she is fine.

In the next blog, I will examine stress tests based on the more reliable leverage ratio as a capital adequacy metric.

Notes to Charts

Notes to Chart 1

(a) The pass standard is the bare minimum requirement (4.5%), expressed in terms of the CET1 ratio - the ratio of Common Equity Tier 1 capital to Risk-Weighted Assets.

(b) The outcome is expressed in terms of the CET1 ratio post the stress scenario and post any resulting management actions. The data are obtained from Annex 1 of the Bank's stress test report (Bank of England, December 2015).

Notes to Chart 2

(a) The pass standard is the sum of the bare minimum requirement (4.5%) and the Capital Conservation Buffer (2.5%), both expressed in terms of the CET1 ratio - the ratio of Common Equity Tier 1 capital to Risk-Weighted Assets.

(b) The outcome is expressed in terms of the CET1 ratio post the stress scenario and post any resulting management actions. The data are obtained from Annex 1 of the Bank's stress test report (Bank of England, December 2015).

Notes to Chart 3

(a) The pass standard is the sum of the bare minimum requirement (4.5%), the Capital Conservation Buffer (2.5%), the maximum Counter-Cyclical Capital Buffer (2.5%) and the Global Systemically Important Banks Buffer, which varies across the banks. These percentages are expressed in terms of the CET1 ratio - the ratio of Common Equity Tier 1 capital to Risk-Weighted Assets.

(b) The outcome is expressed in terms of the CET1 ratio post the stress scenario and post any resulting management actions. The data are obtained from Annex 1 of the Bank's stress test report (Bank of England, December 2015).

We can't help but think that numbers are important

We find ourselves somewhat ticked off. Not because people are trying to persuade us of something, that's just normal. But that they're willing to, umm, brush over perhaps, the numbers in order to convince us of their desired course of action. And that's not the way it should be: numbers are important, the proper appreciation and quotation of them allows us to actuallly work out what is the truth of any matter. Yes that isn't how they are being used. On the NHS and the exploding livers brought about by booze:

The recent report into life on the liver ward makes sobering reading. John has alcohol-induced dementia (Korsakoff’s syndrome) and doesn’t know where he is. Rita has cirrhosis of the liver and is homeless. Her life has spiralled downwards as a wine habit segued into damaging dependence. It’s easy to feel sorry for the Johns and Ritas, though most of us think it’ll never happen to us.

But will it? Are we becoming a nation of drinkers and drunks? The UK death rate from liver disease has increased fourfold in the past 30 years as cheap alcohol has flooded our shores and our gullets.

In the rest of the piece it actually says nothing at all about possible other causes of such cirrhosis or liver disease. Which is odd:

Common causes of cirrhosis are long-term alcohol abuse, hepatitis B and C infection, and fatty liver disease. Of those, hepatitis B and C together are said to be the leading cause of cirrhosis (WHO).

Agreed, that second number is not coming from the UK but there's obviously some amount of those other causes going on. That someone wants to persuade us to drink less, well, go ahead. But can't you do it using the actual and real numbers? And then of course there's Bill McKibben:

I’ve spent much of my life chronicling the ongoing tragedies stemming from global warming: the floods and droughts and storms, the failed harvests and forced migrations. But no single item on the list seems any more horrible than the emerging news from South America about the newly prominent Zika disease.

Spread by mosquitoes whose range inexorably expands as the climate warms,

Or as implied, Zika is caused by climate change. Well, no. This is the spread of a virus into the extant mosquito populations of the areas affected.

And yes, we do think this is important. Because numbers are the secret to science and science is how we make sense of the world. Rather than rejecting the Demon Rum or worshipping Gaia. as the sign says, "Down With This Sort Of Thing". If we want to discuss what we should do about the world let us do it on the basis of facts: as represented by actual numbers, not incantations pulled out from who knows where.

Women Drivers & The Counter-Productive European Court of Justice

My car insurance is due soon. I hadn't kept up with all the arcane ways that EU legislation affects UK business, but being curious about whether women still get cheaper car insurance than men on grounds of being statistically safer drivers who have fewer accidents, I looked online and found this:

The European Court of Justice (ECJ) has ruled that the long-established practice of setting insurance prices according to gender is illegal discrimination. The Court's decision forced members of the European Union to introduce a ban on gender-based pricing.

So, in basic terms, car insurers used to yield to market-based risk calculation (using a reliable tool called actuarial mathematics) and offer statistically safer drivers cheaper premiums (perfectly sensibly, in my view). Then the EU decided that it's much better to ignore all this data and assent to a spurious anti-unfair-discrimination policy, while failing to see the irony that in penalising statistically safer people for purposes of parity they are unfairly discriminating against safer drivers. This is beyond absurd. The primary measure of unfair discrimination in actuarial analyses is not treating different people differently, it is treating different people the same. Women are statistically safer drivers than men, which means they are cheaper customers, which means to increase their premium to the same as men is to unfairly discriminate against women.

The reasons why women are safer drivers are well known. Women are, on average, less likely to have fast cars, they drive fewer miles, they drive slower, they take fewer risks, and they are less aggressive than men. Giving women a lower premium based on those facts amounts to a simple and rational statistical evaluation of risk. The same is true of other considerations too - age, post code, miles per year, type of car, and so forth - each of these are important factors in risk evaluation, and the ECJ should leave well alone. The free market is the best tool for eradicating unfair discrimination in business, because pretty much any time a company decided to discriminate against women, black people, gay people, tall people, fat people, or whomever, they would pay for it with a reduction in profits*.

Of course, we know the probable motive in the ECJ's equalisation of gender - it is to guard against people with identical data having different premiums based solely on gender. But that misses the whole quintessence of how competition works in the free market. Suppose we have Jack and Jill, who are the same age, with the same car, same post code, and driving the same miles per year - the ECJ would have it that they should be given equal premiums because to do otherwise would be to discriminate on the only variable factor - gender.

But that is not what happens - while the data picks up facts like age, car type, post code, and miles per year, it doesn't account for those significant differences - speed of driving, risk-taking, aggression and other factors of mentality behind the wheel that make women more likely to be safer and have fewer accidents, and better candidates for cheaper premiums. The ECJ is guarding against the general being applied to the particular - but this is part of what makes competitive business healthy. In a free market we can work under an assumption of cheaper insurance premiums for a safer driving record at the individual level anyway - so it's a law that only actually compounds what already happens.

But we can extend far beyond that too - competing firms can solicit new custom by offering deals to acquire that custom. This proves very effective in the insurance market: some providers specialise in good deals for modified cars (like my modified Subaru), some specialise in good deals for women, some specialise in good deals for the elderly, some for first time drivers, and so on. Insurance companies have asymmetry of information when it comes to those vital premium-changers - they have transparency with data like age, post code, miles per year, type of car - but they don't have anything like the same transparency with things like speed of driving, risk-taking, aggression and other factors of mentality behind the wheel - which is where the actuary matters.

A company that's free to offer deals for women is acting on probability related to those invisible factors - but that also means women are free to look for insurers sensitive to such data, as are Subaru drivers, as are the elderly, and so forth. That's how beautifully the market for insurance rewards this innovation. If women are consistently safer, then they are consistently on average cheaper customers, which rewards those companies that are prepared in response to lower the premium for women. But if the data is spurious and women are less consistently as safe as the premium indicates then those same companies will incur a loss and adjust their women-favoured premiums to accord with that. It's a hugely efficient system that the ECJ hasn't properly factored into its considerations.

Gary Becker and Timpson

One of Gary Becker's great points was that irrational, or taste, discrimination is costly to the person doing that discriminating. That then leaves an opportunity to others, in that those being discriminated against are thus cheaper than an objective evaluation of their skills would indicate, meaning that those others can hire workers at less than their likely productivity. It's possible for us to take this idea further too, as we've mentioned before: if you think that taste discrimination is going on then you must also believe that those profit opportunities exist. At which point we've a useful metric to use to see whether we really do think such discrimination is going on. Which brings us to this from John Timpson:

Most of the Timpson drama is provided by the colleagues who run our shops, many of whom have overcome considerable personal challenges to make a success of their lives (10pc of the people on our payroll have a prison record). We pick everyone for their personality, consequently they have some fascinating stories to tell.

We are entirely willing to believe that those with prison records are discriminated against, some fairly, some not. Indeed, one of us, decades ago, deliberately hired a book keeper straight out of his prison sentence for fiddling the books of his previous employer. We knew that his being jugged has scared the Bejayzus out of him and that it wasn't going to happen again. We know, from personal life, of other such cases as well. We would not be surprised at all to find that Timpson is able to profit by taking advantage of that taste discrimination. Or perhaps we might say that it's a matter of asymmetric information here: not everyone who has served time is a lemon in the Akerlof definition, but how do you tell? Get that right and there is an opportunity.

But our deeper point here is that this can be used as a measure of other discriminations. Who does believe that deliberately and specifically hiring women because they are currently underpaid (as Dame Stephanie Shirley famously did with female programmers at FI Group 50 odd years ago) will lead to greater profits? Or insisting upon job shares? Or hiring those of a rather greater melanin blessing than the average of the UK population? For to believe that there is such discrimination is to insist that there is such a profit opportunity. A non-belief in the opportunity is a non-belief in the original accusation of taste discrimination.

We do not, by the way, insist that no such discrimination occurs. We don't think it does, not to any great extent, but that's different. There are those who insist that it does: at which point our question is, well, why aren't you out there making your fortunes by exploiting it?

What a hopelessly mixed up policy the BBC is proposing

The BBC, Britain’s state-protected broadcaster, gets its funding from a tax of £145.50 on every household that possesses a TV capable of showing live broadcasts. That means live broadcasts from any broadcaster, so even if you never watch any BBC channels, you still have to pay. The exception is people over 75, who get their TV viewing for nothing because past governments ruled that television was an important source of companionship for the over-75s, many of whom live alone. This week it has been suggested that since the BBC is short of money, the over-75s should be asked to pay the licence fee voluntarily, even though they do not have to.

What a hopelessly mixed up policy this is. Firstly, Britain should not even have a state-sponsored broadcaster. It might have made sense in the 1930s when broadcast technology was new, and required fabulously expensive national infrastructure, but no longer. Increasingly, the BBC looks like a dinosaur among a growing number of independent and international broadcasters. But it has a near-monopoly grip over Britain’s media sector, of the sort that Rupert Murdoch can only dream of. Plainly, it should lose that protection and operate as a commercial broadcaster, using whatever mix of subscription and advertising it deems fit.

Not only should we not have a state broadcaster, nor should it be financed by what is in fact a poll tax on households. Nearly everyone has a TV, so the licence fee is more of a universal tax to support a state service, rather than a subscription for a broadcast package of your choice. And the same tax is paid by all households, rich or poor (apart from those comprising 75-year-olds, of course). So that is hardly a fair system either.

But if we are determined to keep this unfair license system and we really think it essential that people over 75 should be able to watch television without having to worry about the cost, there are better ways of doing it. One would be simply to raise the state pension by the equivalent £145.50 a year. At least then, the money would go to poorer households, because richer ones pay tax on their pension income. Again, the sate pension is an unfair and poor-value system (and it is also a Ponzi scheme, relying on current contributors to pay current pensioners), but this uplift would be better than what we have now.

There was a time when pensioners were, almost by definition, poor. That was the thinking behind making it universal at age 65 (for men, and 60 for women) when it was introduced in 1911. At that time, most people were in some form of manual labour, and by age 65 there was a fair chance that you were so exhausted by a lifetime of it that you could no longer do much useful work, and therefore could not support yourself. Today, however, pensioners are on average richer than the working population.

So it is certainly unfair to make the younger population pay to subsidise the TV viewing of everyone over 75, many of whom will be far richer than they. The Queen, and Rupert Murdoch, are both over 75: but why should a single mother in depressed Middlesborough pay higher taxes, or a higher licence fee, so they can get free television?

This is the kind of absurdity you get when things like broadcasting and pensions are run politically. Now we are trying to make the over-75s feel guilty for the absurdities that the political process has created. They should not fall for it.

As we've been known to say before, let's stop government doing some things

As our friends over at the IEA point out, close regulation and control might not in fact be the best way of managing matters:

Four in five sets of UK traffic lights should be torn down to reduce travel delays and boost the economy, a leading think-tank has claimed. The proliferation of traffic lights, speed bumps and bus lanes seen in Britain in recent decades is “damaging to the economy”, the report from the Institute of Economic Affairs (IEA) finds. It estimates that a two-minute delay to every car journey ends up costing the UK economy about £16 billion every year. “Not only is a majority of traffic regulation damaging to the economy, it also has a detrimental effect on road safety and the environment,” the report claims.

The full report is here.

There have been a number of empirical proofs of this contention. Traffic flowed better when a notorious set of lights in Beverly failed, a Dutch town has seen better traffic flow since mostly abandoning any detailed control. So, in the specific sense of traffic management, in certain conditions (we would not go so far as to say all) it is better to set general rules and then leave it to individuals to navigate their environment than it is to try and set detailed prescriptions for how each must act. Keep left, yield when necessary, be alert to what others are doing: rather than this file may move forward now, that in 30 seconds and so on.

What interests us is that this does, we are certain, apply in a more macro sense too. Yes, certainly, the economy as a whole needs certain basic rules. Don't cheat, play fair, do the best you can perhaps, but what it doesn't need is detailed rules. Bakers may only start to bake at 4 am, only shops at train stations may open on a Sunday, only those with a two year apprenticeship may drive a taxi in London, only a licenced electrician may change a kitchen plug.

The analogy is pretty direct really: leaving adults to navigate their local environment dependent upon the local conditions leads to smoother flow. Leaving most people, most of the time, to their own devices in navigating the economy leads to a better flow through said economy. And, of course, flow here is what we mean by economic growth: that's what it is to a great extent.

This is not to argue for no regulation: it's to argue for the necessary minimum to produce the flow. Traffic will not flow smoothly if people start to drive on the right in the UK (as the joke has it, odd plates the day before even). The economy will not flow, will not grow, if we do not have rules about what is whose and how exchange takes place and is acknowledged. But once the general rules are set then leave people to it. It is, perhaps, to argue for the common law approach to regulation: anything we've not said you may not do you can. Rather than the Roman Law approach, and yes we know this is over egging the difference a little, which is that only those things we've said you may do may be done.

An analogy rather than a hard and fast comparison, but the underlying point the analogy is noting is that local conditions are much too complex, to changeable, for any centre to be able to provide prescriptive rules for all circumstances for both traffic and the general economy. Thus we should concentrate on producing the decision making rules, simple ones, by which people can navigate those local conditions.

If you prefer, if it turns out that just us normal folk can guide a tonne or two of metal capable of 70 miles an hour and up through the complexities of life better than the bureaucrats can tell us how to do it then we're entirely capable of sorting out our desired toothpaste, sugar consumption, booze quantity, weight, exchange and style of living without their intervention.

Which leads us to something we say quite a lot around here. It's amazing how much better things can get if we just stop government doing some of the damn fool things it already does.

Watch the Somali pirates and the process of state creation

That's not exactly a terribly flattering picture up above there but it is a typical one of the process of state creation. Yes, this is how polities are born: men with guns enforcing it. as the newspaper says:

Somali pirates who raked in millions of dollars in ship hijackings have developed a lucrative new racket - acting as armed "escorts" to foreign trawlers that steal the country's fish. In a striking case of poacher-turned-gamekeeper, the same armed gangs who once preyed on the trawlermen are now acting as their bodyguards, earning huge "protection fees" in return for letting them poach Somalia's rich fishing stocks.

this is not poacher turned gamekeeper so much as the transition from Mancur Olson's roving bandits to stationary bandits. Olson's point being that it always has been the men with the weapons who decide how things get done and who gets what. But for the general population it's rather better when those men with guns decide to farm the population or a resource on a continual basis, rather than simply steal whatever and everything. For, eventually, it will click that slicing a bit off the top while growing the pie increases the amount that can be stolen. Thus even though the ruling class might be robbers, even robber barons, it is still possible for things to advance.

The way to look at this particular story is that this process is just starting in that part of the world. The other way to look at it is of course that it wasn't all that long ago that it was happening in our part of it. 1066 was most certainly exactly the same and there's various incidents since that we could say very much resemble it. Government isn't therefore just the name for what we do together. It is, rather, what is imposed upon us and the best we can hope for is an enlightened stationary bandit. Or, as we might also put it, one with enough guns to stop others imposing upon us but with not enough other powers for that very government to impose upon us.

Google's tax bill is nothing to celebrate

Google is to pay the UK £130m in back taxes. This has been hailed as a great victory against international corporations, which make profits in the UK but 'do not pay their fair share' of taxes'. Many others, like Amazon and Facebook, have also been cited as delinquents. A great victory for the UK Treasury? A boon for UK taxpayers? Hardly: by my calculations, £130m will keep the UK government going for just 91 minutes. If governments spent (and overspent) a lot less, individuals and firms might be more willing to pay tax to fund them.

The fact is that economic reality has changed (as it necessarily does) and companies are no longer as rooted to the land, in their factories and plant, as they were. Many, particularly in IT and services, can locate just about anywhere on the planet that they choose. And of course a number of enterprising countries are delighted to host them.

Moreover, with increasing volumes of trade done internationally over the internet, supplies sourced from many different countries, and semi-manufactures created in yet others, it is by no means clear where such companies' profits are actually made. A government might claim it is theirs, but they will be competing with others who think differently. If we are going to tax international corporations, we need to find a better way of doing it.

In any case, the tax that is supposedly paid by corporations is in fact paid by people. Studies show that three-fifths of the impact of corporation tax falls on the workers, reducing their wages. Of the remainder, some falls on shareholders by way of reduced dividends, making it harder for enterprising firms to attract new capital and create more jobs. Some is borne by customers in the form of higher prices.

Remember also the enormous benefits that firms such as Google, Facebook and Amazon bring to ordinary people. They have become successful international companies precisely because they offer people goods and services that they pay for quite willingly. In other words, they add value to our lives. Indeed, these companies add a lot of value to our lives. It would be well worth having them operating in one's country even if they paid the government no tax at all. Worth it solely for the benefit they bring to the public.

If only one could say that governments were equally valuable....

Isn't this the point of the NHS in the first place?

We're sure it is you know, the point and purpose of the NHS. At least, whenever we suggest introducing a bit more competition into the system we're told that this is the reason we shouldn't. For, you see, if we avoid the chaos and inefficiencies of competition, of the wasted capacity that must be there to allow competition, then the NHS will be a cheaper method of providing health care than alternative systems. And when we've looked at comparisons like those done by the Commonwealth Fund we find that the NHS is rated very highly because it's cheap, despite the fact that it's not all that good at actually curing people. But then we get this complaint from King's Fund:

Britain’s spending on its health service is falling by international standards and, by 2020, will be £43bn less a year than the average spent by its European neighbours, according to research by the King’s Fund.

The UK is devoting a diminishing proportion of GDP in health and is now a lowly 13th out of the original 15 EU members in terms of investment, an analysis for the Guardian by the thinktank’s chief economist shows.

But isn't that the point? The NHS is the Wonder of the World precisely because of its method of organisation? The one that allows us to have equitable and above all cheap health care as the state simply provides it? So how can lower funding than in other countries, with their less efficient systems and structures, be a problem? Isn't this supposed to be a sign of how marvelous the NHS is? That it does better on less?

Then again, we're not sure all that many arguments about the NHS are all that informed by logic: hysterical emotionalism seems to be par for the course.

We're against regulation because it keeps the poor poor

There's a certain absurdity to the regulatory state around the world. In some US states they insist that you go get a 3 year cosmetology degree in order to be allowed to legally work as a hair braider. We here in Britain shouldn't laugh too loudly: We've told that one of us broke the law by doing a bit of simple electrical work in our own kitchen just recently. That is reserved to those who have the correct chitty from government. But why is it that we are against such regulation of who may enter an industry, who may offer their services? Because, quite simply, it keeps the poor poor:

We examine the relationship between entry regulations and income inequality. Entry regulations increase the cost of legally starting a business relative to the alternatives—working for someone else, entering illegally, or exiting the labor force. We hypothesize that such regulations may cause greater income inequality, because entrepreneurs at the bottom rungs of the income distribution may have relatively greater difficulty surmounting costly barriers to entry. Combining entry regulations data from the World Bank Doing Business Index with various measures of income inequality, including Gini coefficients and income shares, we examine a pooled cross-section of 175 countries and find that countries with more stringent entry regulations tend to experience higher levels of income inequality. An increase by one standard deviation in the number of procedures required to start a new business is associated with a 1.5 percent increase in the Gini coefficient and a 5.6 percent increase in the share of income going to the top 10 percent of earners. Although we cannot eliminate the possibility of reverse causality, we are unaware of any theory that posits that income inequality causes entry regulations.

We're happy enough with the idea that a lorry driver should have some proven ability to drive a lorry before being let loose with a 40 tonne behemoth. But much less certain that we need quite as much restriction on who may do what as we currently have. And why not decide to provide that ladder up out of poverty and inequality by making it easier for people to get those first and entry level jobs?

Or, as we never tire of saying, it's surprising how often the solution to government identified problems, like poverty and inequality, is to stop government doing the damn fool things it already does.