Surprisingly, we agree with Mariana Mazzucato here

Nature ponders the question of whether there are limits to growth. The answer is of course yes. Economic growth is, by definition, the addition of value. Once we run out of ways to add value then economic growth will stop. However, in this they also refer to another paper led by Mariana Mazzucato, in which this is said. With which we also agree, at least in part:

Economics has until now measured the price of everything and the value of nothing. That needs to change now. We need to measure the value of everything – the things that truly matter. We need to revalue health and wellbeing – and its sustenance through care without financial burden – as the central measure of success in society and economy.

Of course that first sentence is wildly wrong. As we’ve already pointed out, growth is more value add, GDP is the measure of value add. The whole thing is about value. Which means we do agree with the next part, that we need to measure the value of everything. Which, in large part, we do.

For what we’re measuring when we look at monetised transactions (we agree entirely that GDP leaves out non-monetised transactions on the simple grounds that counting stuff that doesn’t have numbers attached is difficult) is the value that individuals put on those things. Their utility maximisation leads to their valuing them at this.

So, the value add that we measure is that which is truly important to the people doing the doing, the people themselves. Which is, we think, as it should be.

Of course, we’re aware that this isn’t what Mazzucato means, that we all get to make our own valuations in our own lives. Her point is that we should be valuing everything as she thinks we should. But it’s still true that economics does value everything, the things which really matter. It’s just the valuations applied aren’t those that Mazzucato thinks they should be.

Ministerial Staff College

The Army learnt, over two hundred years ago, that before officers were given charge of major units, they attended Staff College. Yet our ministers are given charge of departments employing thousands of people without any training at all. No wonder the government cocks things up so regularly. At our Ministerial Staff College, they would be taught, on day one: “Central Government: includes Government Departments and their ALBs: Executive Agencies, Non-Departmental Public Bodies, Non Ministerial Departments, and any other non-market bodies controlled and mainly financed by them.” They would soon discover that Executive Agencies and Executive Non-Departmental Public Bodies (ENDPBs) are almost the same, i.e. the parts of their parent department that implement policy, except that Agencies are part of their parent departments whereas in theory, but not in practice, ENDPBs are independent. We do not need ENDPBs. 

If the Ministerial Staff College is to stand a chance of success, civil servants, no matter how charming, experienced and persuasive, should not be allowed near the place. Yes Minister may be amusing but it is also a dire warning. Teachers should be drawn from top business schools and retired ministers who achieved success in their day. Potential PMs should be taught not to move a minister who is just getting the hang of the job.  

Students of best ministerial practice would also learn that Public Corporations, such as the BBC, which are supposed to be independent, should not be considered integral by their parent departments – the DCMS in this case. It would not take the first Staff College intake long to work out that the Executive Agency is the only form of ALB that any department needs. Advisory NDPBs are merely committees and ministers can invite advisers to advise without such formal trappings. Non Ministerial Departments should not continue unsupervised but be assigned to the most relevant ministers. 

Executive agencies are excellent. Carrying out departmental policy requires a different mindset, and usually many more people, than devising policy and framing legislation. They will have, or should have, clear objectives and are required by law to publish annual reports on their achievements, costs, headcount, and the matters normally contained in any corporate report. The DWP is a flagrant example of a department that fails to understand this.  According to its latest annual report, 75,368 of its 80,250 staff occupy its HQ, an unusual Chiefs to Indians ratio. 

Governments wage war, from time to time, on ALBS, usually known as quangos, but then their numbers creep back up. In 2019, there were 295; according to the latest departmental annual reports, their number has grown back to 371. The DCMS sports no less than 45 of them, although its latest annual report claims only 38, including the BBC which is not an ALB at all. 15 are museums. The idea that we are governed by a museum culture may indeed have some merit. Certainly, the DCMS is not governed by numbers: in their annual report, the BBC headcount is 18,977, whereas according to the BBC’s annual report for the same period (p.262) it is 20,279. 

Ministers are busy people with many claims on their time.  Ministerial Staff College should teach them how to prioritise and how to focus.  One key to how woeful this is at present is the length and dreariness of content of departmental annual reports. At 300 or more pages each, one wonders if ministers have even read their own department’s, never mind anyone else’s. Instead of clarification of priorities and quantified performance indicators (though there are some of those) we have fascinating things like half the workforce being female (as they are every year). 50 pages would be better than 300 if they provided learning as distinct from varnishing reality.

Sweating assets

The UK has launched a very imaginative scheme to help Ukrainian refugees to find sanctuary in the UK. The “Homes for Ukraine” programme offers compensation to UK homeowners who take a refugee into their home for at least 6 months. It is a clever idea, with features that run parallel to the so-called “gig economy,” in that it makes greater use of existing resources instead of putting in the time and investment it would take to provide new ones.

Unlike many previous refugees, the new ones will not be housed in temporary camps, created or converted for the purpose, nor will they be assigned temporary space in hostel or hotel accommodation. Instead they will move into underused private space that is already in existence. Furthermore, they will have the support of those who provide space for them, and will not need extra staff to be trained and employed to help them.

This is an example of what the City calls “sweating assets.” It’s a phrase used to describe extracting more value from an asset beyond its original intended use. It means extracting more value from resources already in place, rather than creating new ones. In this case the assets sweated are the spare space in the host’s accommodation, and a little of their spare time to help their new guest settle into the country that has welcomed them.

“Sweating assets” has received much attention in the 21st-century, but its roots go back earlier. In 1972 a McDonald’s franchisee put it to Chairman Ray Croc that they had buildings and staff and were incurring operating costs all day, whereas their overwhelming use came twice a day at lunch and dinner. McDonald’s breakfast was born, and was soon followed by the celebrated Egg McMuffin, designed for the purpose, along with other morning goodies. In 1977, the company introduced a full breakfast menu that included pancakes, sausage, hash browns, and more. Within 20 years, McDonald's was making $5 billion a year on breakfast alone. They had found how to sweat their assets to good effect.

In 2008 three San Francisco entrepreneurs found a way to use the extra space in people’s homes by constructing a site that would allow visitors to rent it, usually on a short-term basis, especially for holiday visits. Airbnb was born, and people were able to afford far less costly accommodation than that proved by hotels. That spare domestic space asset was sweated.

In a similar story, 2009 saw the birth of another idea, that the unused assets of private cars and the spare time of drivers could be sweated to provide a telephone ride-hire service that used modern technology to link would-be riders with willing drivers. Uber was born, and the face of urban transport changed. People were able to secure a ride, even when there were no taxis around, and they could secure it at a lower cost.

Less dramatically, other assets have been sweated, including the drive-ways of private homes rented out as parking spaces during times when it was not being used by the owner’s vehicle.

Sweating assets has environmentally-friendly elements, because it makes the development and use of new assets less necessary. It just makes more use of the current ones. It depletes fewer resources. It is, of course, disruptive. Most innovative ideas are, as the old vested interests have to give ground to the new opportunities.

The new “Homes for Ukraine” programme will not be disruptive, however; it was the war that did that. Instead the new programme will be constructive, sweating the asset of spare domestic space to give our new guests the best chance of a better life because of it.

Mr. Piketty suggests we become what we fight

There’s a certain logical problem with this suggestion:

To implement this type of measure, it would be sufficient for western countries to finally set up an international financial registry (also known as a “global financial registry” or GFR) that would keep track of who owns what in the various countries. As the World Inequality Report 2018 has already shown, such a project is technically possible and requires the public authorities to take control of the private central depositories (Clearstream, Euroclear, Depository Trust Corporation, etc) that currently register securities and their owners.

So government will own the bodies that register ownership. So as to increase the control government has over who owns what. This is not us being unfair about what Mr. Piketty suggests:

In Europe and the United States, everything is done to distinguish useful and deserving western “entrepreneurs” from harmful and parasitic Russian, Chinese, Indian or African “oligarchs”. But the truth is that they have much in common. In particular, the immense prosperity of multimillionaires on all continents since the 1980s and 90s can be explained to a large extent by the same factors, and in particular by the favours and privileges granted to them. The free movement of capital without fiscal and collective compensation is an unsustainable system in the long term. It is by questioning this common doxa that we will be able to effectively sanction autocracies and promote another development model.

That is, in the name of fighting an economic autocracy we should all become economic autocracies. For one of the major powers that Putin holds over the Russian economy is that ownership rights, ultimately, depend upon his favour. The saga of Yukos is evidence enough of that.

Thus, the suggestion is that we should hand such power to our own governments so that they hold such power over us.

It’s also worth considering the role of jurisdictions like Cyprus in all of this. Russian use of that place isn’t, in fact, about taxation - Russian taxes, well, those imposed legally by the state, are low by international standards - it’s about access to at least a modicum of the rule of law. Also, given that the Russian state is not the only taxation body in the Russian economy it’s to provide a certain security against extralegal taxation.

Piketty’s claim is that in order to deal with people fleeing that authoritarian state, with its by and large absence of the rule of law over matters economic, we must hand our own governments the same powers over us as the authoritarian state already exercises over those fleeing it.

As if we should deal with the Nazi confiscation of emigrants’ valuables in the 1930s by taking the power to confiscate the valuables of those who might emigrate from our shores.

Somehow we don’t think that fighting fascism by becoming fascists quite works as a logical construct.

The bit that Polly Toynbee is missing about the energy transformation

Whether there should be an energy transformation isn’t the point here, not at all. What matters is the method used to find out whether there should be one, then the method of deciding upon the detail of how it is done. It is the method, not the goal, that matters that is.

Polly Toynbee talks about fracking disparagingly:

Keeping his Cop26 pledges means rejecting the frackers: Jacob Rees-Mogg in this cabinet, Steve Baker and loud noises off from Nigel Farage. The right’s fracking fascination is a mystery when it would take years for the gas to flow, if it works at all without damage, amid ferocious local opposition. Why aren’t mighty turbines just as excitingly macho? The Renewable Energy Association’s CEO, Nina Skorupska, tells me that the companies she represents, “could construct more than the terawatt-hours imported from Russia within 18 months if the obstacles were unblocked”.

And also of the joy that more windmills would bring. Well, maybe both those points, fracking bad, windmills good, are true and maybe they’re not. Polly’s complaint, as we can see, is that the decision is currently being driven by political prejudice. Or, to be more accurate, that’s what Polly claims is driving the varied people shouting about the decisions.

We can also be less vituperative about it. The political argument above is about whose plan should succeed. But that’s the wrong way to approach the problem in the first place - the plan should be to have no plan.

The grand experiment we call the 20th century showed us that GOSPLAN does not work. That West and East Berlin started from the same point in 1945 - a bombed flat plain of rubble - and the one was 3 to 4 times richer than the other by 1989 was that experiment. Planning by nerds with slide rules - even by today’s spreadsheets - is not the way to build a socioeconomic system that maximises human utility.

What is required is that free market system, where anyone can have a go. Yes, certainly, internalise the externalities with Pigou Taxes. There will be planning laws, of course there will be. But those concerning earthquakes (or seismic tremors, to taste) must be the same for fracking, geothermal and mining operations. Planning laws for fracking pads must be the same as those for windmills and seashore connectors to offshore and oil and gas pipelines.

That is, the system can indeed and should set rules. But those rules need to be neutral as to the technology employed and by whom. Capitalist and socialist of varied forms (consumer or worker coops for example) and government owned and whatever other variation anyone desires to try.

Set the rules in that neutral manner and the outcome of the process will be the correct one. For we have created that correct structure of incentives and therefore the outcome is, by definition, the utility maximising one. That might mean net zero in 2040, might be in 2150. Perhaps electric cars, or hybrids, or fuel cells, or synthetic petrols from green hydrogen by electrolysis, will win out as the preferred technology. Or buses - stranger things have happened in history. Or fracking or solar or wind or fusion or whatever.

Our aim is to maximise human utility over time, as the Stern Review pointed out. This does require setting the general rules as Nordhaus gained the Nobel for saying. 93% of polled economists insisted that rule setting, not plans, was the way to do this. The IPCC’s own economic models point out that a properly priced globalised neoliberalism produces the optimal outcome.

That is, we don’t want to make a decision on what the plan is. We want, instead, a plan not to have a plan. Which is the point that near everyone in politics is failing to grasp - which is also why politics is such a lousy way of solving problems. It’s not that the answers are wrong, it’s the inability to even understand the question in the first place.

An Offer You Can’t Refuse

Russia’s request to China for military supplies opens a Pandora’s box. It’s not clear when this request was made. If some time ago, it tells us that Putin always had a Plan B, and that the Americans have been slow to take pre-emptive action. It is more likely, however, that the request comes to us hot off the press, confirming stories of Russian battlefield discomfiture, with generals dying on the front line; and intelligence deficiencies, with top FSB officers under house arrest. Over the weekend, the US talked up the urgency, but this could be diplomatic dramatics, as Jake Sullivan, the US National Security Advisor had Monday’s date in Rome with Yang Jie Chi, China’s top diplomat, in his diary for some time. Now it looks as though Sullivan’s place in history rests on making an offer which Yang can’t refuse.

China has to choose between imperfect options. It is in the business of challenging America, but Russia presents an unappetising prospect. A sense of Putin’s self-destructive course comes from the attitude of Russia’s neighbours. Poland has taken in half of the 2.5m refugees fleeing Ukraine, adding three percent to its population in two weeks, without, as its prime minister, Andrzej Duda, proudly stated yesterday, putting a single refugee in a camp. Duda went on to express his aversion to Russian influence in the most strident terms. Putin faces the same from all in Russia’s ’hood, who remember their pre-1989 subjugation; his genius has been to add Ukraine to the roster of his irreconcilable neighbours.

If Sullivan needed to take a dark tone when he met Yang, he had plenty of options. For example, China holds around $1tn of US government bonds. This is around one third of its holdings of foreign reserves. These reserves are parked outside China, in counterparty Central Banks or specialist “custodian banks” in New York City. If Biden wishes to sanction China summarily, it only takes an Executive Order to freeze its holdings. The US Treasury would continue to pay interest to the blocked accounts, keeping America’s credit rating, but China would lose the benefit of its reserves. This would have similar effects to the sanctions on Russia two weeks ago. Not what Yang wants to go home with.

On the other hand, for all that Putin may have forgotten that more flies are caught with honey than vinegar, Sullivan need not make the same mistake. He has battlefield intelligence to share, updates which Putin will have glossed over - indeed may not know - and which China cannot get independently. Then he has the open heart of the United States to offer, not to say its open purse.

The terrible exploitation of markets and capitalism

As we all know - for we’re told it often enough - both markets and capitalism simply dreadfully exploit. We agree with this fact, which is good for fact it is and one doesn’t get to argue with facts. We do, however, insist that the exploited and exploiter need to be correctly identified.

Germany has warned that an immediate boycott of Russian gas and oil supplies could hurt its own population more than Vladimir Putin, bringing mass unemployment and poverty.

“If we flip a switch immediately, there will be supply shortages, even supply stops in Germany,” the economic and energy minister Robert Habeck told public broadcaster ARD on Sunday, as Europe’s largest economy intensely searches to diversify its energy supplies in the medium term.

The Green party politician predicted “mass unemployment, poverty, people who can’t heat their homes, people who run out of petrol” if his country stopped using Russian oil and gas.

The normal insistence is that it is the producer that exploits the consumer. That profit that is made over the cost of production. But look now at the effect of not having that production. Mass unemployment and poverty.

So, a reasonable conclusion is that it is the consumption of what is produced which provides the major benefit in the system. Not the production, not even the manner of production, but the consumption.

That is, we can identify those who make out like bandits in this system of market capitalism - it’s us, the consumers.

Jack Monroe has not grasped the correct end of the stick here

We’ve long pointed out that food banks are wondrous things. People would be hungry without them, hunger is bad, therefore food banks which reduce hunger are good things. Unfortunately Monroe gets the expansion of food banks the wrong way around:

The Trussell Trust has consistently reported, for the last 10 years, that more than half the people referred to its food banks for emergency aid are there because they are in debt to the Department for Work and Pensions (DWP). Those numbers have steadily increased year on year; not, as some MPs claim, because availability of food banks has increased. Food banks expand according to the need for them, not the other way around.

No, that’s not how new technologies work nor spread.

And food banks are new technologies. They really didn’t exist back in the year 2000 when the American idea was adopted and copied here. That problem of the state being incompetent at handing out free money was not newly created at that date - we’ve direct personal experience of that truth. What was new was the ability to solve that problem of the state’s incompetence.

Think for a moment how new technologies do spread. Mobile phones have rather increased their market penetration since the 1980s. This is not because the need for communication has increased but because the ability to sate that previous need was invented. Smartphones really started with the iPhone in 2007. The fastest adopted technology in all of human history did not spread because the requirement for cat pictures changed - it was because the ability to sate that previously extant demand for cat pictures was invented.

This was also true of all those domestic technologies which have appeared in the past century and a half. Automobiles sated the desire to travel, not created it. People did wash clothes before the washing machine, that was simply a better way of doing it. Flush toilets were not near universally adopted because there was some new need to go potty but because we had a better technology to suit that fundamental need.

The state has always been incompetent at the details - things like getting the right amount of money to the right benefit claimant at the right time. Food banks are a new technology which aids in solving this extant problem. Jack Monroe simply has this the wrong way around. New technologies - and yes, a method of organising something is a technology - spread because they solve extant problems.

Fascinating, yes, but why is it happening?

The Observer treats us to a story on the music scene of car smugglers into Bolivia. No, it is interesting, who can fail to be fascinated by the rich variety of our species?

The one thing we thought a little odd though was that there is no explanation of why there are car smugglers into Bolivia, why there is this subculture which has a music scene? Britain does not have such groupings arguing over Ed Sheeran v Dua Lipa nor even the relative merits of drill or grime to smuggle automobiles to.

The answer being that the groups are - as should be obvious - created by the government.

Since December 2008, Supreme Decree 28963 has gradually reduced the age of vehicles that may be imported. Since December 2014, the maximum age of cars permitted for import is one model year old. Additionally, Bolivia has prohibited the importation of diesel vehicles with engine displacement smaller than 4,000 cubic centimeters, all vehicles that use liquefied petroleum gas, and cars with right side steering.

Immediately making a market for several year old right hand drive small engined diesels. There are also substantial taxes, up to 50% we seem to see. There is local production of precisely and exactly zero vehicles so it’s not even that there’s a local industry being protected.

Someone, somewhere, thought it would be a good idea that Bolivians should not be allowed to have the cars that Bolivians wanted. So, the law was enacted and so Bolivians gain the cars they desire without the law.

We can’t help but think that it might not be simpler, even a better idea, to allow Bolivians their vehicles of choice. But then that would mean being a free and liberal society and apparently that would never do.

One person's discrimination is another's business opportunity

A little note in an obituary this week:

Mary Coombs, pioneering woman programmer on LEO, the world's first business computer – obituary

She joined the computing team at J Lyons in 1952 when there were just three programmers, all men, and went on to write payroll programs

The little note itself:

Family commitments meant that she ceased full-time programming in 1964, but continued to work part-time editing computer manuals

That’s the way it was done back then. Married women with children tended not to work. No, not entirely and wholly the gross sexism of the patriarchy. Household technology was still undeveloped back then and it did take the full time labour of one person to run a household. The sexism was that it was the woman who did so, not that someone had to.

It’s also possible to note that Gary Becker was right about discrimination. If skilled labour is being kept out of the workplace for unreasonable reasons then that’s an opportunity for someone else to gain that labour on the cheap. Which is exactly what Dame Steve Shirley did. (Her TED talk more than makes up for the pompous foolishness of most of the rest of said TED talks.) Deliberately and specifically went off to hire those skilled programmers now stuck at home with the toddlers. Did very well too, making a fortune and also programming Concorde’s black box for example.

One person’s discrimination can be, as Becker said, someone else’s business opportunity.

It’s also possible - and profitable as a logical exercise - to run this back the other way. There are many claims about discrimination today. But if we do not find people deliberately seeking out this discriminated against and therefore cheap labour perhaps it’s not in fact taste discrimination, but rational discrimination that is the issue? In fact, we tend to use this as a filter of such claims ourselves. When such a claim is made we ask, well, where are the people attempting to hire? And if there aren’t any, why not?