Prices work, no, honestly, they do

Energy is higher in price now than it was last year - people are changing their behaviour:

The owner of Kleenex and Andrex is to power its lavatory paper factories using “green” hydrogen as Russia’s invasion of Ukraine pushes natural gas prices to record levels.

Kimberly-Clark will buy green hydrogen made from wind and solar power as part of a deal with renewables company Carlton Power for its factory in Barrow-in-Furness in Cumbria, which it claims will reduce its reliance on natural gas by 30pc.

Whether that’s entirely the way to go we’ll leave to Kimberley-Clark to work out. But it does show that changing prices changes peoples’ behaviour.

Equally, there are now those predictions that some vast majority of the population will be in fuel poverty this winter - spending more than 10% of household income on heating. They won’t be of course. For behaviour will change. Heating will be turned down - perhaps as far as was commonplace half a century ago when central heating was still a novelty - because prices change peoples’ behaviour. Don’t forget, that definition of fuel poverty is not what people do spend, it’s what they would spend to reach a certain level of heating.

The aim this past couple of decades has been to try to change peoples’ energy consumption - in both type and volume. We’ve been told that this all hasn’t been happening fast enough, that there must be more plans, more intervention, to make it all go faster. Now here we are having changed prices and we’re getting a tumbling rush to change type and volume of energy consumption.

As we’ve been saying all this time it might well have been simpler to use prices - for as we can see they work - all along. Rather than the planning which has led to this emergency surge we could have had a gentle and far less disruptive change over time. Not that this is just us, it’s the same thing the Stern Review said, it’s what Bill Nordhuas got his Nobel for pointing out.

If you want to change what everyone does then change the thing that everyone faces - prices.

The only mystery left is why everyone in power entirely ignored the science on this subject.

Sumptuary laws and the asparagus firing cannon

There’s a little tale - which we admit we can’t quite nail down right now - about the plethora of cutlery that sits upon an aristocratic dinner table. It doesn’t actually matter in the slightest which knife, which fork, is used to do what - nor even that they fire their asparagus at each other from cannons. What does matter is that they know and you don’t. That makes them inside the group, you outside it and that’s the purpose of the enterprise.

Still, nothing that can’t be solved by Madame Guillotine or by good manners (we are reminded of Prince Phillip eating with his fingers so that Lady Tebbitt did not feel awkward) but then those latter are rare enough.

But - the point is the definition of the ingroup and the outgroup.

At which point modern fashion:

But this is changing. With circularity now a cornerstone of mainstream strategies toward sustainability, consumers and brands are looking at clothes through a new lens. Circularity is focusing attention on the longevity of a garment’s appeal and its value in the future resale market. This is a radical departure for the value system of an industry that has historically hero-worshipped brand new clothes – preferably with tags on, and tissue-wrapped – and has tended to dismiss as irrelevant to the fashion conversation any clothes that have already been worn.

The history of capitalism can, in fact, be seen in clothing. As has been remarked we know that QE I had a pair of stockings, the day she received them is in her diary. It was capitalism that allowed the mill girl to also have a pair or two.

Fast forward to today and pretty much anyone can have a new outfit - of a type, to be sure - for an hour or two of work. New clothes simply do not work as a marker of distinction, of being part of the ingroup. It really is only very recently indeed that the wearing of the same outfit to a “do” or two was regarded as the most unfortunate gauchery. A new outfit for each was a minimum requirement of being fashionable. We even recall - and it really was only in recent years - breathless articles about how Kate or the like had “recycled” an outfit by wearing it more than once.

If everyone including the proles can have new clothing whenever then fashion isn’t performing its duty - of marking that ingroup and that outgroup. So, the definition of what is fashionable must change in order to preserve that function. Which is exactly what is happening.

One group arrowing in from one side wants to ban “fast fashion” in a modern version of sumptuary laws. Stop the proles from having access to cheap new clothes so as to preserve the distinction. From the other direction comes this insistence upon sustainability - change what fashion means away from having new clothes. For no other reason than that the proles can have new clothes so the marker of distinction has disappeared.

They’re firing asparagus at each other from cannons for no reason other than to mark that distinction between ingroup and outgroup. The rest of us should probably just leave them to it, pay them no mind. We can get on with enjoying what capitalism hath wrought, a world in which copious clean and new clothes are available to the entire population. It has, after all, taken us many millennia to get here.

This is not how competition works, no, really, it isn't

Certain examples of childcare cost vast fortunes:

More than 20 councils in England and Wales have paid the equivalent of £1m a year or more to place a single child in a private children’s home as the cost of specialised care soars, data released to the Guardian shows.

The reason?

The most costly placements were to look after some of society’s most vulnerable children, often at very short notice. Some were as young as 12 and needed four staff watching them 24 hours a day. Many had issues of serious self-harm and of hurting their carers, and in some cases a judge had authorised for them to be locked up in a secure home.

These children, deemed a risk to themselves and others, qualify for places in secure children’s homes, all run by the state or voluntary sector. But there are now only 14 of these specialist therapeutic institutions in England and Wales, not nearly enough to match the need. On any given day, approximately 50 children are waiting for a place, according to Ofsted, the inspectorate.

Children who cannot find a place in a secure children’s home are usually detained elsewhere, often in flats or other accommodation with large teams of agency staff.

Vast resources of labour and time are dedicated to caring for these very children. That’s why it all costs so much. But what is being blamed for these costs?

However, profiteering is a growing concern for us

Well, no, that’s something that needs to be proven, not something that is to be assumed. Show that having state owned, state run - perhaps council owned, council run - facilities at the margin are cheaper. At the margin because this is the margin. These costs are paid for those who could or possibly should be in those voluntary or state run homes but are not given a lack of capacity. When capacity becomes available they are moved into them.

This is all about the edge cases - the margin.

All of which being exactly the sort of information we don’t think we’re going to get. For on this same subject The Guardian has another piece in which we are told:

“But I think part of the competition in this market has meant that basically a provider can charge what they want and it may or may not relate to the cost of caring for the child.”

No, really, that’s not how competition works. That’s the effect of not enough competition. not of the existence of it. And if the people totting up the costs are going to get things so badly wrong then what weight would we put on anything else they say about costs or institutional structures?

What we need to know is what is going to be the cost of expanding those not-for profit homes some capacity of which - this is talking about the margin, recall - will go unused at times? Is this more expensive, to have fully staffed and funded capacity sometimes to often unused, than paying hiring fees on the outside market sometimes?

For if we don’t ask the right question we’ll never get the right answer, will we?

At least it's in the open now

Sir Ed Davey:

In 2012, he introduced a strict regulation that means companies have to halt work if they trigger tremors over 0.5 magnitude.

Shale gas firms have said commercial fracking cannot take place under the rule. Appearing on Channel 4 in 2019, Sir Ed said the rule had “actually meant that the fracking industry has not developed in this country at all”.

“I’m very proud that you’re looking at the person who basically stopped the fracking industry in this country,” he added.

The rule was there - is there - in order to stop fracking. Not because that level of quake or tremor is actually important, but in order to stop fracking. Therefore, if we do wish to have fracking - something we think we should at least - then there’s no problem with overturning this rule. Because it’s only there to stop fracking, not for any reality-based reason.

It’s also possible to mutter about delusion:

In the same interview, he said fracking was not needed because of the “success of our renewable policy, particularly in offshore wind, means we’re not going to need anywhere near the amount of gas we did before”.

If this were true then we’d not be having the current little problems now, would we? That we are having the current little problems tells us that this statement is not true. And beliefs that fail in the light of reality are indeed known as delusions.

Sir Ed told The Telegraph he stood by what he had said in 2019, saying: “Fracking across Britain’s countryside would not mean lower heating bills as gas prices are set internationally and would not provide energy security now or in the long term.

And if that were true then the American natural gas price, driven by fracking, would not be a fraction of the UK or the varied European (there are many different European gas prices and yes indeed, they differ) ones.

So, we seem to have energy policy based upon a series of delusions. Any wonder that we have problems with energy policy?

Isn't this a problem that requires a solution?

The private schools have been taking the mickey out of the education system - so some say:

What does the dramatic fall in GCSE grades tell us? That private schools were gaming the system

We also seem to have a problem of bias - unconscious or not - in those who teach:

Unconscious bias in marking could be contributing to the underperformance of children from poorer backgrounds, researchers have suggested.

Teachers were more harsh in their grading of students from a lower socioeconomic background, a study from the University of Sussex appeared to show.

Those behind the study insisted it was not an “attack on teachers”, but rather should be used “as a mandate for educational institutions to better support teachers” with training to mitigate potential biases.

The findings, based on an experiment with 416 teachers, found a grading difference of 4.4 percentage points being awarded to those of higher and lower socioeconomic status.

None of us - well, all those other than the parents of richer but dimmer children - want the system to be this way. While many won’t go with the modern liberal insistence upon an equal outcome for everyone we do think we could find a solid majority for the old-style liberal ideal of at least all being judged by the same standards.

The dual accusation today being that this is not what is happening. Therefore we need a solution.

One does occur. Grading, that sorting into academic sheep and vocational goats, could be done by a double blind test. Something external to the organisations doing the teaching, against some known and set parcel of standards. Those doing the grading not knowing where the test comes from, those taking the test not knowing who will grade.

That would seem to solve the problems being complained of. All that’s left is to work out a name for this new system. Given that it is to examine the performance of the pupils, against some set and sacrosanct standard, we propose the portmanteau “examination”.

Who knows the system, if not the word, might catch on.

We think this is a fun thing to complain about

A little off our usual beaten track but fun all the same we think.

The GI bill has near-mythic significance in American history — generations of veterans got an education and an easy home loan, the sort of thing that pulls families up into the middle class.

That benefit has never really been available, though, to one group of Americans who serve in the military in very high numbers — Native Americans living on tribal land.

There’s a reason for this too. While there are attempts at workarounds there’s a simple and basic problem here. Land on or in tribal lands is inalienable - it cannot be sold outside the tribal members. In fact, in many to most cases, it cannot be sold at all - leased, perhaps, but not sold.

Given that a mortgage depends upon the, umm, mortgage - technically, the mortgage describes the process by which the security can be collected if the loan is not repaid - then the absence of the ability to have a mortgage on the land prevents there from being a mortgage.

Or, the other way around, inalienable land cannot be pledged as collateral therefore it’s not possible to gain a loan against inalienable land.

We’re not sure there’s any real way around this - any workarounds are always going to be less than that liquid and cheap system which is the American mortgage market. We’re also entirely aware of why that Native American land is inalienable. The results over the centuries when it hasn’t been are both obvious and distressing.

Another one of those proofs that there are no solutions, merely trade offs.

But we do still think it’s a fun thing to be complaining about. The system is deliberately set up to insist that outsiders cannot buy that land. Therefore you can’t get an outsider to finance a mortgage on that land. Well, yes?

You heard it here first - watch out for the Student Loans Company

We’ve noted before that we can be accused of cynicism although we prefer to call it mere realism. It won’t be long now before someone starts to buy votes - sorry, alleviate the terrible economic position of arts graduates - by writing off debts to the Student Loans Company.

Millions of Americans received welcome news on Wednesday when Joe Biden delivered on a campaign promise to provide $10,000 in student debt forgiveness.

Borrowers who earn less than $125,000 a year will be eligible for loan forgiveness, with those whose low incomes qualified them for federal Pell Grants receiving up to $20,000 in relief. About a third of US undergraduate students receive Pell Grants.

Hundreds of millions of Americans also received the unwelcome news that they’ll be paying for this too. The debt doesn’t go away - the college courses have already been paid for after all. The burden of that debt is now taken off the shoulders of those who arguably should not have gone to college and put onto those of everyone else in the economy. That’s those who did pay off their college debts and also those who didn’t go to college at all.

This is true whatever circumlocutions are used. The Federal Government was going to collect that money at some point. Now it won’t - meaning that there’s either less to spend, or taxes must rise to maintain spending, or everyone suffer the inflation caused by money printing to fill the hole.

This is also concentrated on those arts graduates who failed, having gained a college degree, to get a median pay college degree type job. That is, those who arguably should not have gone to college in the first place.

As to why, well, we’re two months out from an election and what politician needs more than that? Produce, from the hat, a concentrated benefit with diffuse costs and thereby gain the votes of those who benefit - it’ll take a long time for the costs to become apparent. The specific sadness of this particular piece of politics being that who does actually believe that low earning arts graduates would ever vote anything other than D anyway?

The expense being dumped upon the populace doesn’t even work that is, buying what is already bought.

The policy is of such amazing cynicism - and stupidity - that of course someone will be recommending that it be applied to our own Student Loans Company in 3…2…1…you heard it here first folks.

The actual point of asking students to pay their own freight is to stop students doing degrees that aren’t worth it. Killing the debt, the price system, thereby kills the entire point of the policy.

The TUC is being very silly about the £15 minimum wage

The TUC has decided to call for a £15 minimum wage. We assume that it’s all because the Americans have had that Fight for $15. The TUC seeming not to know that $15 is a different sum from £15.

More importantly, $15 an hour in a country where the median wage is $30 (-ish) is very different from £15 where the median wage is £13.57. That second is moving into Lake Woebegon territory, where all our children are above average.

Yes, this is important:

Inevitably, the TUC’s proposal will prompt warnings that higher pay will come at the expense of jobs. But this argument has been deployed ever since Tony Blair’s government introduced the minimum wage in 1999 at £3.60 an hour. The massive job losses predicted then have not happened and there has been no trade off between tackling poverty pay and employment.

In large part, that is because increases in the minimum wage have been gradual over the past quarter of a century. The Low Pay Commission, the tripartite body that recommends the level at which the minimum wage should be set, has continued to push the boundaries to see how high the wage can go without any deleterious effects. Its conclusion is: so far, so good.

Actually, the Low Pay Commission report on the effects of the minimum wage said that it cost some 30,000 jobs at that original and low level. As ever in economics the point is not that some of this will happen, it’s how much of this will at what price? A minimum wage of £1 an hour in an economy of £13 wages has a trivial effect simply because near no one is paid £1 an hour in such an economy. A £50 an hour minimum will have a large effect. What we want to know is how much effect at what price?

Fortunately the government commissioned a report on just this point. Arindrajit Dube is a very pro-minimum wage researcher so it’s not like us, or the New York Times, shouting that the only real minimum is £0 an hour (true by the way, for that’s what you get if you’ve no job). Dube’s specific task was to look at what portion of the median wage can that minimum be pushed up to without startlingly bad effects elsewhere?

The answer is in that 50 to 60% range of the median. Not a huge surprise really, as that result can be seen in work from back in the 1950s too. Not that many people get paid much less than 50% of the median wage so the effects of pushing the minimum up to that are there, they most certainly are, but they’re not large. The effects fall on the disabled, the young and untrained, we would and do argue that those costs are too high. But the more general effects of shafting large numbers of workers through unemployment arrive in that 50 - 60% of median range.

Sajid Javid at one point announced a policy of getting the minimum to 66% of median. This being pure politics - 66% of median is the normal definition of “low pay” so pushing the min up to that level of med. would allow one to crow that “I’ve abolished low pay!”. Except, of course, for all those on £0 as a result.

One more thing. We talked (OK, emailed) directly with Professor Dube when his report came out. There are two median wages we can use. There’s the full time, full year median, which is some £15.65. There’s the all workers - so including part time and part year - of £13.57. Which of these does that 50-60% range refer to?

Sadly for those who would like a much higher minimum wage it’s the lower of those two. Even if we accept all of the assumptions being made about the minimum wage. We don’t care about the young, untrained or disabled, we’re OK with there being some unemployment effects but not too many, then the maximum sensible minimum wage for the UK is £8.14 an hour.

The TUC’s decided that £15 looks much better on the basis of a comparison with a different country, with a different wage structure, in a different currency. But Fight for £15’s a good campaign slogan.

Have we mentioned before why we think that politics is a bad way to run an economy?

There's a certain rub to this plan

Not the specific plan for semiconductors, but the plan to have a plan about a business sector such as semiconductors:

Smarter, more precise policy can benefit our own chip industry much more, as would being mindful of the Chinese acquiring vital IP for peanuts.

Smarter policy would be a benefit, of course it would. But that runs into a problem. How do we gain smarter policy?

Biden’s Chips Act overwhelmingly favours the big SoCs, which very much reflects the lobbying behind it.

Any policy which depends upon politics for either design or implementation is going to be subject to political lobbying. Which is why such a plan will reflect the weight of political power in any particular direction. Not, in fact, what is sensible or smart to do about the problem under discussion.

This next part should probably be read to the sound of massed ranks of own trumpet blowing. But one of us here is one of the half dozen or so global experts on one of the rare earths. Used to deal with more than 50% of the global market in fact. The British government has a critical minerals policy it has been working on for some time - which does indeed include the rare earths. That expert here at the ASI has even written a whole book on the subject. And yet in that multi-year process of devising that national plan on the subject where this global expert could offer some insight there’s been not the one single contact from those devising the plan. It’s not as if they’d have to look far - we are, after all, only a couple of hundred yards from Whitehall.

Yes, there’s an element of “But why didn’t they ask us? Aren’t we important or famous enough?” here for those who would like to impute such. And yet it is something of a failure all the same. If we had been asked our advice would have been to spend a couple of million on certain basic research, not the many millions on subsidising a factory using old technology but that’s almost by the by. A planning process that doesn’t use expertise available on the doorstep is a less than exhaustive planning process, isn’t it?

Or, as we might also put it. Planning through the political process ends up being those elected because they’re good at kissing babies doing whatever they’re told by those who shout loudest at them. This isn’t a good way of building plans - nor of running the country.

The argument for minarchy is watching what governments do

We’ve said often enough that if we assume that what is said about climate change is entirely true then the policies to deal with it are still wrong. We’re confident in that because the Stern Review, the Nobel Laureate William Nordhaus and the vast, vast, majority of other economists all tell us that the policy decisions are wrong. Don’t try and be clever and plan everything, make the one single change to the price system and leave the market be to work it out from there. The carbon tax that is - not what all governments are actually doing instead.

One example of which is Drax:

Mike Childs, head of research at Friends of the Earth, said: “For over a decade the Government has known that in some circumstances burning biomass to make electricity can be worse than burning gas or coal.

“Yet they failed to set strict enough standards on what can be burnt and where it comes from.

"Instead, Drax has received billions of pounds worth of public subsidies."

Commissioned by the Department of Energy, the 2014 report looked at the carbon intensity of burning wood for power.

It found that using forest “residues” for fuel was less carbon-intensive than burning gas and coal over a period of 100 years, but that using whole trees was worse than burning coal when measured over 40 years and 100 years.

Add in the emissions from transport from North America and it’s a complete failure as a policy. But it’s subsidised to the tune of near a billion a year. Which is, even at the interface of government and the energy business, real money.

From which we derive our more general case. The argument for having less government, for minarchy, is watching what governments do. That also means that we’ve a corollary to Occam’s Razor - Adam’s Shaving Brush perhaps. The solution which involves less government is less likely to be counterproductive.