Another thing about Mariana Mazzucato

That we disagree with near everything Mariana Mazzucato puts forward is not exactly a surprise to anyone. Her basic idea that government could and should direct the economy if only government were better at directing the economy fails, to us, on the grounds of how is government going to be better at directing the economy? Nowhere has really given us, nowhen, evidence that it can be after all.

But in more detail:

She is particularly critical of overseas takeovers that 'often come from foreign public institutions'. She regards this as 'hypocritical' in that 'we hear all this talk in the UK of needing more private sector and less state, then we sell if off to foreign states.'

We’d not want to make entirely too much of this point but it’s not as silly as she makes it sound.

When government runs something in the territory it is the government of it is subject to political as well as economic pressures. When government runs something in the territory of some other government it is subject only to those economic pressures.

For example, back when the British government did run the British electricity supply system what the workers were going to get paid was something decided - often enough - at Cabinet level. For union pressure, political pressure, made it so. Wages were politically decided. Or, another example, the nationalised steel industry. Famously, Callaghan was finally convinced that Steel plants needed to be of a certain size - economies of scale. So, the industry would and should be consolidated. At which point the political decision to award half of the one consolidated plant each to Scotland and Wales was taken. Meaning two sub-economic plants for political reasons.

When the French government - just as a speculative example - runs British power stations that domestic, British, political pressure doesn’t apply to the government decisions. No Briton does vote for the French government after all. So, decisions are taken on a more hard-headed economic basis.

Of course, part of the distaste for privatisation itself, let alone to foreign state actors, is that politics is taken out of the decisions making process. Even as we applaud that taking out, others insist that it should remain - that’s part of the base difference of opinion.

But foreign state economic actors are going to be, at the very least, freer of those contradictory domestic political pressures. Which is what makes for the greater economic efficiency of them. Precisely, that is, that foreign state actors think of shareholder, rather than stakeholder, primacy is what makes them desirable.

People aren't thinking about these recovery bonds

The latest suggestion is that there’s a huge great big pile of saved money just sitting around doing nothing. So, why not issue bonds and the government can get on with spending that money on useful stuff:

Starmer’s plan for British Recovery Bonds to encourage those savings to be invested securely in local communities, jobs and businesses looks like a far better substitute.

Households have indeed saved £125 billion so why not?

The mistake is to think that this £125 billion is currently doing nothing. Some portion of household savings will be under the mattress and that is indeed doing nothing. But then we don’t record as savings what is under the mattress, we don’t in fact know how much is there. Our records are of what is in banks. And banks do not just shovel money into the vault and leave it there. That’s just not how banking works.

Instead that money is lent out.

Yes, we can all shout that banks just create money when they lend and they don’t actually lend out deposits. But by 4.30 every afternoon they must finance their lending. If this were not so then no bank could ever go bust as a result of a bank run and we know they can therefore it must be true that a bank must finance a loan. Deposits finance lending even if the financing comes after the lending.

Thus that £125 billion in bank accounts is already being used.

The proposal is therefore not to mobilise the savings because they are already mobilised. It is, rather, to change the manner in which they are mobilised.

Some will say that government spending the money on lovely local things will be better than fructification in the pockets of the populace. We don’t think so and we do have - given the usual examples of how carefully government does spend money - reality on our side.

The idea that such savings are currently not being deployed depends upon the idea that there are those vaults of unused money. It ain’t so - Scrooge McDuck is a cartoon, a jest, not a guide to public policy.

Recovery bonds will change what those savings finance but that’s all. And the argument to be won is that the new deployment will be better than the old - a difficult task we insist. The idea that those mountains of cash are currently doing nothing is just Disney economics and that might be the way to run the Magic Kingdom but it’s of as much relevance to real life as a duck in a sailor suit.

MI5 reports PM ensures closer Cabinet working

Downing Street 

SW1 

“Good morning, Humphrey.” 

“Good morning, Prime Minister.” 

“What’s that lorry doing outside?” 

“It’s delivering another chair for the Cabinet room. You will now have 23 round the table, Prime Minister, as well as those who sit around the walls.” 

“Golly, it’s getting a bit squashed.” 

“We refer to it as ‘working more closely’.  It also provides more opportunity for the streamlining of government you have long promoted.  There will be more heads to roll, Prime Minister.” 

“I wondered why Michael was looking a bit peevish when I saw him on my run this morning.” 

“I thought I should forewarn his staff last evening. The trouble seems to have originated because Mr Gove considered Lord Frost to have lost out to Monsieur Barnier in the Treaty negotiations and to be responsible for the mess that has followed. Given your promotion of our chief negotiator to the House or Lords, that was considered to verge on the disloyal.” 

“Well actually, Michael is probably right about that.  I remember saying that the Northern Ireland protocol would only affect goods intended for onward transit to the south. Goods staying in the north would just be waved through.  Now it turns out that everything is buggered up.” 

“Yes indeed, Prime Minister, but Lord Frost had to placate the Brussels view that the UK could not be trusted to distinguish one from the other.  Monsieur Barnier says they are only doing this to protect the Good Friday Agreement.” 

“That’s balderdash.  There’s nothing in the Good Friday Agreement about customs because Brexit was not even on the horizon when we agreed it.” 

“You are, as ever Prime Minister, absolutely right but we do not want to embarrass the EU by pointing out the obvious. In a negotiation, it is very important to maintain good relations.” 

“Be that as it may, if Ursula can break it, so can we. Bear in mind, Humphrey, forsan et haec olim meminisse iuvabit. I asked Michael to sort out the Northern Ireland Protocol.” 

“Well that’s my point.  Brussels likes Lord Frost but they do not, and I am sorry to say this, have much affection for Mr Gove.  They regard him as ‘difficult’.” 

“Are you telling me the same thing applies to all the other cock-ups? We cannot export fish to the EU but they can catch the same fish in our waters and send it to us with no documentation.  We cannot send our pigs to the EU so East Anglia is over-run with pigs they cannot afford to butcher.  Furthermore, China has banned EU pigs so they are now sending them all over to us with no let or hindrance. We gave the EU six months to adjust to British import paperwork with no reciprocal agreement – I could go on. In absentia lucis, Humphrey, as you well know, Tenebrae vincunt.” 

“Please don’t remind me, Prime Minister. You are simply underlining the reasons why Brussels has asked to deal with Lord Frost rather than Mr Gove. You have been urging us to improve our relations with our largest customer and this is an important step in that direction.” 

“Humphrey.  That’s all very well but being the errand boy to Brussels does not really justify a Cabinet seat.” 

“We have thought of that, Prime Minister. We will announce that Lord Frost will “also be in charge of dealing with post-Brexit trade problems as well as overseeing domestic reform to “maximise” the opportunities of having left the EU.’”

“Does that make him Secretary of State for Trade as well? And Foreign Secretary?” 

“I have had a word with her Permanent Secretary, and I gather Ms Truss will be delighted to have the benefit of Lord Frost’s wisdom and guidance. Mr Raab likewise.” 

“Just as well we have lots of other things for Michael to do.” 

“Yes indeed, Prime Minister. Our media announcement will say Mr Gove ‘will continue to be in charge of civil service reform and liaising with the devolved administrations. The prime minister has put him in charge of a committee to address NHS waiting times, backlogs in the courts and other effects of the pandemic on public services.’” 

“Humphrey, you must be joking. We already have Secretaries of State for Scotland, Wales and Northern Ireland and they’re twiddling their thumbs because the devolved administrations of those nations are dedicated to keeping them in the dark.  This month, Edinburgh has come up with a plan for adult social care, which is more than we’ve been able to do, and they did not even ask for our advice.”

“Indeed.  And it will add 20% to the social care bill which, doubtless, they will expect us to finance.” 

“Well actually, Humphrey, they say social care provides ‘estimated financial value to Scotland’s economy of £3.4 billion’ or presumably £4 billion after the 20%.  In other words, it isn’t a cost at all but an income, so they won’t be asking us for a contribution.” 

“Sometimes I am glad I am not an economist. And before you ask, his Permanent Secretary assures me that Mr Hancock will appreciate Mr Gove’s chairmanship of the committee to address NHS waiting times.  He had been considering leaving that to Sir Simon Stevens but he does not want Sir Simon to take the credit when it should be all hands to the pump.” 

“I suppose you are going to tell me, Humphrey, that Mr Buckland, the Chancellor, Mr Kwarteng and all the other Cabinet ministers involved in this committee are equally pleased?” 

“’Equally’ is indeed the mot juste. You really have devised a brilliant plan.  The new Cabinet will not have 23 members at all – just you, Mr Gove and Lord Frost.  All the others will be redundant.  And almost all of their civil servants can go with them.  If I may say so, Prime Minister, you are a genius.” 

“Humphrey, you are too kind. Alea iacta est. Thank you.” 

The next day

“I’m sorry Prime Minister but the media have got the wrong end of the stick. They have the impression, extraordinary as it may seem, that Lord Frost lost all those points in the negotiations and Mr Gove is the hard man trying to correct them.”

“Extraordinary!”

“We must justify Lord Frost’s appointment to the Cabinet by making it clear that he is the hard man and Mr Gove is the softy.”

“Isn’t that ‘spin’. Humphrey?”

“No Prime Minister. It is realpolitik. And Lord Frost does indeed talk a hard game which adds a little verisimilitude.”

“Oh very well, Humphrey, but you’d better get Michael to back it up.”

Just a little observation about being a nation of fat porkers

Much is made these days about how we’re all obese and falling over like weighty flies at great cost to the NHS. So much so that supermarkets offering us a deal on food prices must be banned from doing so.

As we’ve noted before we don;t in fact believe all of this. Obesity saves the NHS money anyway and it’s up to each one of us how we live our lives and meet our end. The restrictions aren’t justified and shouldn’t be justified that way anyway that is.

Some of the evidence called into play doesn’t quite make sense:

What would most surprise a time traveller from a hundred years ago about an affluent 21st-century society like ours? Cars would hardly be a shock: the Ford Model T began production in 1908. Similarly, tower blocks and skyscrapers were already becoming familiar a century ago: Chicago’s Home Insurance Building, considered the world’s first skyscraper, was built in 1885. No, the most striking change would be the people themselves. The physical appearance of the average person today is radically different to the average person of 1921. We are much fatter now.

That’s true of the great bulk of us, yes.

We are so accustomed to our prejudices against fat people that it’s easy to forget they are the accidents of a particular cultural moment. The two oldest carvings of human beings (the Venus of Hohle Fels from about 35,000 years ago and the Venus of Willendorf from about 25,000 years ago) depict women who would now be classified as obese. Even if, as archaeologists suggest, these statuettes were not intended as portraits of ideal beauty, they were evidently symbols of power. The paintings of Rubens are almost a cliché of changing beauty standards but they also represent different social attitudes. It was not just Rubens’s nymphs and pagan goddesses who were fat: his Virgin Marys and even his Jesuses were too. Fatness suggested authority and moral solidity.

Not just the moral solidity. Fatness suggested being rich. Because only richer people were gaining that sustained excess of calories to make them so.

Which tells us something important about this past century. This is the first time in human history that the majority of the people have been rich - because this is the first time in human history that the majority of the people have been able to have that sustained excess of calories to be fat.

We can indeed mutter all sorts of things - about swimsuit design perhaps - over the problems that generalised obesity brings to us as a society. But we really do have to remember that this is a victory, that it’s even possible.

For that we are all fat may or may not be a problem but that we all can be is indeed that victory of technological advance over Malthusian constraints.

Reasons for optimism - education

The grounds for optimism concerning UK education at both school and university levels are based on the assumption that it will change. Critics have not been short of ammunition, pointing out that children from East Asian countries regularly score well ahead of their UK peer group in ‘hard’ subjects such as mathematics, physics and engineering.

There has been concern that the measures which purport to show a higher percentage passing with higher grades are in fact measuring grade inflation, and that the subjects have been dumbed down to make high scores easier to attain. There is concern, too, that a typical UK university is no longer what Disraeli called “a place of light, liberty and learning,” but a place that will not tolerate the expression of views that might offend some people. Critics also allege that in a scramble for diversity, political correctness and equality, universities have lost sight of quality.

There are, however, indicators that suggest these criticisms may soon be met. Every year more schools choose to be self-governing as ‘free’ schools or to attain ‘academy’ status. This combines with the parental choice that has become widespread to create a situation in which parents can put pressure on the system by preferring schools with rigorous academic standards rather than ones which pursue a ‘woke’ agenda of social and diversity awareness instead. Since the schools’ revenue from the state is based on enrollment, the choices of parents will increasingly lead schools to follow the preferences of parents and students or risk closure.

An important technological development will speed the process of change. The application of artificial intelligence to education makes it possible for each child to have an individual electronic tutor that can teach them at the pace they are capable of attaining. These will be accessible outside the classroom as well as within it, and will transform the way children are taught. Teachers will no longer have to attempt to lead a class forward all at the same pace.

Further grounds for optimism about the future of education spring from the fact that variety will increase as both schools and universities have the option of specializing in particular disciplines. Some will choose to become centres of excellence in subjects such as mathematics or music, and as they acquire that reputation, will attract the brightest and the most promising students in those subjects to their doors.

University education has become increasingly international, and will almost certainly continue to do so. UK universities have many students from other countries studying at them, and increasing numbers of UK students are choosing to study at foreign universities. This enables students to choose the institutions and courses best suited to their needs and abilities.

The greatest improvement will come from the change in which the state no longer provides education, but guarantees access to education instead. The state will provide most of the money for education, but it will be directed to independent, self-governing institutions rather than to state-owned ones. This leads to competition between providers of education, and will raise standards accordingly.

We're afraid we just don't trust the Fabian Society

That the Fabian Society is always going to insist that Tories bad and spending more - much, much more - of other peoples’ money good is just obvious. To have a report that says that not spending more - much, much, more - of other peoples’ money is going to cause civilisation to collapse in a heap is thus just part for the course.

We can argue against such claims, of course we all can. That special measures introduced for the pandemic get un-introduced at the end of it seems sensible to us, just as the one example. That the special welfare provisions put in place end seems to us no more remarkable than that the pubs are allowed to - eventually - reopen. Special times do indeed lead to special measures and normality is accompanied by the reversal of them.

This is not the Fabian way:

Government failure to maintain the £20 a week Covid top-up payment for universal credit will overwhelmingly hit the incomes of working and disabled people, and put more than 700,000 into poverty, according to a study by the Fabian Society.

That Fabian way being that any increase in spending must become permanent because more spending of other peoples’ money is good, d’ye see?

The thing is we just don’t trust them. From their actual report:

Poverty is measured as 60 percent of median contemporary income, after adjusting for housing costs and size of family. Note this is a different measure than we used in our previous report Double Trouble (for that study we used a fixed-line measure of poverty rather than a poverty line based on changes in median income, to avoid the perverse situation where rising unemployment leads to a fall in the cash value of the poverty line).

The reason we don’t trust them? They change their definition of poverty according to what best suits the insistence that more must be spent. Always.

When it is convenient, as in this report, to use a measure of relative poverty to argue for more tax and spend then they do that. When a relative measure would lead to less tax and spend - this being their complaining above about perversity, that when median incomes fall this means that fewer are in relative poverty, or that the relative poverty line falls - then they switch to an absolute measure of income.

This is intellectual casuistry and no, we shouldn’t trust people who do this. Humpty Dumpty is meant to be a joke in a children’s book, not a blueprint for the design of national policy. Sadly, so too is the Queen of Hearts and her efficient manner of dealing with such behaviour only a joke.

The first rule of economics - incentives matter

There is indeed a problem with the development of antibiotics. Far too many bugs are gaining immunity to the ones we use - largely because we use them and evolution happens. Far too few new antibiotics are being developed. This is a problem we’d like to solve because we’d really not want to return to a world in which sepsis is the likely outcome of any surgery.

The problem is one of incentives. It costs hundreds of millions to billions to develop a new antibiotic. The patent which allows that cost to be recouped lasts 20 years from filing, usually about 10 years from approval. But the entire point of having this new antibiotic is that we’ll use it very sparingly as the last resort. Only those infections that don’t succumb to our extant supply will be treated with it. Further, we really don’t want widespread use because that would just encourage that evolution thing to make it not work again.

A system based upon volume sales therefore doesn’t work as a development incentive for new antibiotics.

The answer is, obviously, change the incentives. Some say that therefore drug development, or perhaps just antibiotic, should become a government function. The recent success of that in the development of coronavirus vaccines might show that not to be the path to take. Changing the incentives for the system we know works, those private developers out there, seems more sensible:

And the UK is experimenting with a new subscription-style payment model that pays drug companies upfront for access to novel antibiotics, so decoupling profit from volume sold.

More detail here:

The NHS is offering 2 contracts to pay pharmaceutical companies at the start of their work for access to innovative antibiotics, incentivising them to bring new classes of the drugs to patients across the UK for the first time in almost 30 years.

Of particular interest are antibiotics that can provide alternative treatment options for serious infections, such as bloodstream infections, sepsis and hospital-acquired pneumonia.

The high cost and low returns associated with antibiotic research and development makes it commercially unattractive. This is why the drugs will be paid for by the world’s first ‘subscription-style’ payment model for antibiotics and will be made available to UK patients as soon as possible, potentially as early as 2022.

We do not say that scheme will be perfect - human design never is in this vale of tears. Rather, that the development of antibiotics faced an incentives problem. The answer is to change the incentives. Because, you know, incentives matter.

Reasons for optimism - technological environmentalism

There are many differences between behavioural change environmentalism and technological environmentalism. The latter does not involve us all living more simply, becoming poorer, turning our back on progress, being prevented from doing the things we want to do, and living narrower lives, denied the opportunities to live more comfortable ones filled with new opportunities.

Children might have fun camping out on the streets and claiming that extinction of the race is imminent because we have “destroyed their future,” but the reverse is true. The human race is not threatened with extinction, and their future has been saved, not destroyed. Pointing to the worst-case scenario of the Intergovernmental Panel on Climate Change (IPCC), the Representative Concentration Pathway (RCP) 8.5, environmental activists have predicted massive rises in ocean levels and in global temperatures. The reality is that RCP 8.5 will not happen. We have already done enough and are doing enough to prevent that outcome.

RCP 8.5 assumed a continued increase in coal-burning, whereas coal-fired power stations are being phased out, their place taken by the much less polluting gas-fired stations, and by non-emitting renewables such as solar, wind and nuclear. This process is increasing, with oil use declining from a peak, and set to be phased out, first as a transport fuel, then as a power generator. Vehicles in future will not use fossil fuels or emit the carbon and pollution they generate.

A number of technological innovations are assisting the process. Cultured meats will cut down on the number of cattle and the greenhouse gas methane they produce. Genetically modified crops produce more food on less land, without needing the concentrations of fertilizers and insecticides that would otherwise be needed, or the depletion of rainforest land. Tree cover has increased in many countries, and will increase as less land is needed for food, and new tree strains are developed, including faster-growing versions of big carbon absorbers such as white oak and horse chestnut.

New and efficient forms of carbon sequestration are being developed, with the aim of achieving a net carbon reduction over the century, rather than simply curbing its increase. Some involve it being stored in the oceans, some in deep caves. Innovative techniques for converting it into fuel or feedstock show promise, but are not yet at a commercially viable stage.

The upshot is that we are not facing extinction, or even RCP 8.5. The most likely outcome might well be RCP 2.6, the least damaging of the IPCC four scenarios. Under that circumstance the temperature rise would not reach 2C before it began to decline. These are circumstances well within our power to deal with, and ingenuity might make that ever easier than it seems now. 

There is a profoundly conservative assumption by some that the present status quo must be preserved at all costs, and that we must all take drastic and immediate happening to stop it changing. Not everyone shares that view. Some take the view that things change, and that coping with the change is a more reliable and achievable goal that trying to stop it.

Who? What! Us?

The argument in favour of a technocracy shielded from the whims of politics is that the technocrats will get the technical details right in the absence of political pressures. That does assume that there won’t be politics within the technocracy and among the technocrats, obviously. Also, that people with technical knowledge end up taking the technocratic positions.

At which point the latest from Brussels on vaccines.

Sorry, but the reality is a little more complex – and not quite such a stunning UK victory.

True, Britain got a month’s head start on the EU by approving the Pfizer-BioNTech vaccine at the start of December, and then AstraZeneca’s at the end of that month. It had to accept the terms offered by the pharmaceutical companies, however, both in paying a higher price per dose, and by waiving their civil liability in the event of adverse effects.

Yes, this is by a journalist but it’s clearly the story they’re telling themselves internally. This is where we get to test that claim to technocracy - liability. For it’s an entirely standard part of a vaccination program that the manufacturers are shielded. This is why the decision to shield them here, this is why there’s the vaccine compensation fund. The vaccine will kill some few people and will damage some still small but larger number.

No, not might, could, but will. Doing anything to 500 million people will damage some and kill some smaller number. That’s just the way reality works, it would be true of asking people to cross the road or spend an extra 5 minutes in bed. The benefits, overall, of vaccination are so great that this is just a cost that we have to bear as a society. Or even, a cost that some few of us will bear directly and the rest of us compensate for financially - however much money doesn’t make up for everything.

That the technocrats of Brussels didn’t know this is the indictment of the system. After all, if we’re not gaining the benefits of the technical knowledge then what is the purpose of a technocracy?

It is possible for the idea to work. This discussion with Kate Bingham shows how. Select an actual expert and give them the freedom to do expert things and it does indeed work. Politics being the process by which the expert is selected, the boundaries of the necessary freedoms determined. But of course those experts are not found within the political system in normal times which does rather kill the technocratic case more generally.

This sounds remarkably like a self-solving problem

It’s possible that this is all true and yet even if it is it doesn’t sound like a problem:

The results are pretty bleak. You’ll have heard a lot about the extra saving going on during lockdown. People not being able to spend on holidays or restaurants has led to a staggering £125bn in extra savings. But this report crucially notes that not everyone is racking up the cash. Pre-Covid, 10.7 million of us were over-indebted or had low savings. That has now risen to 14.2 million.

The generational aspect of this is huge. Overall, the number of financially vulnerable adults rose by 3.7 million (or 15%) to 27.7 million. For those aged 18-34, the rise is 40% while it has actually decreased among retirees. There’s some rubbish written about income inequality having soared during the pandemic (it hasn’t, although the savings increase has been top heavy since it’s the rich who splurge on holidays). However, I’m increasingly worried by the prospect of an unequal recovery in the coming months with the rich and old out consuming while unemployment rises and the young (particularly, poorer parents) are left to struggle with higher debt. That’s not a society building back better, it’s one growing apart.

Nice to see that confirmation that income inequality hasn’t increased - it doesn’t in recessions. The richer among us gain more of their income from profits than the poorer do. As profits are what crash in recessions inequality of income falls during them.

But that inequality of recovery. It’s worth going back to a cod-Keynesian model. During a recession savings rise, cutting into demand and thus compounding the fall in the economy. The solution is for savings to be spent, increasing demand and thus ending the recession. The argument about government deficits and pump priming and all that is simply to accelerate this process.

OK. We also know that the people worst hit in recent times are those in consumer facing services. These being the very things we expect to boom as the lockdowns end and those savings are unleashed into the economy. It’s the very unleashing which increases demand and thus employment and the incomes of those who provide the things being spent upon.

That is, even if this is all an actual problem it seems to be one of those self-solving ones. Assume that we have a recovery and the worry goes away, doesn’t it? Because this is the very worry that a recovery will deal with.