To entirely misunderstand fertility rates

A complaint - in The Guardian where else - that the United States doesn’t have that all encompassing womb of paid maternity leave, free child care and on and on that is more normal in the social democracies of Europe. This is what is causing the American fertility rate to fall:

But the reality of why American families are smaller is not about a failing national character or a decline in women’s femininity. It’s about money.

We agree it’s about money often enough but the analysis here gets it the wrong way around. For the surprising thing about the US fertility rate is how high it is compared to those social democracies. It’s higher than the EU average, certainly. What’s more, there’s a very strong relationship between higher incomes and lower fertility. American incomes tend to be higher than EU and when accounting for that the US rate is very much higher than we’d expect it to be.

Far from the absence of all those cocoons lowering the American birth rate the thing to be explained is why it’s so high.

As to why the link between average incomes and fertility the usual explanation is opportunity costs. In a richer society there are simply more things to do which means less of any one of them get done.

The complaint also goes wrong in detail:

Women, after all, are paid notably less than men, a trend that is especially dramatic when women of color are compared with their white male peers,

The opportunity costs of having children are therefore lower for women in the US as they’re giving up smaller - compared to US men that is - incomes. The disparity in incomes being greater for blacks as is also the fertility rate.

We’re fine, really, with discussions about what ought to happen here. Perhaps that just society does require all be taxed to raise other peoples’ children. But as with any other discussion of what ought to be it’s necessary to get right and understand what is already happening. Given that the US fertility rate is higher than that of Europe a demand to adopt European policies to raise the American fertility rate seems doomed to failure.

Reasons for optimism - energy

Until quite recently there was a fairly common view that energy would become scarce and more expensive in future. The talk was of “peak oil,” in the belief that not many reserve supplies were there in the ground to be exploited. This would allegedly have made it too expensive for oil companies to research and develop new sources of supply. The mistake was to think of the price of oil in terms of the supply of it, rather than looking at the demand.

Even before the pandemic the development of energy alternatives was bearing on the price of oil. The development of hydraulic fracturing (fracking) led to large quantities of natural gas being commercially exploitable. This, together with US fracked oil, put limits on international oil price rises and led to the US becoming self-sufficient in energy and a net exporter of it once the law was changed to allow this.

The quite rapid drop in the price of non-fossil-fuel energy sources such as photovoltaic solar and wind energy has made them viable competitors in an increasing number of instances. This has combined with governmental decisions to phase out pollution- and carbon-emitting fuels in favour of electric power derived from renewables as far as possible. Natural gas is the temporary bridge during the switchover. Although a fossil fuel, it is far less polluting than coal, and less so than oil. This enables the UK government to commit to targets for reduced emissions more ambitious than would otherwise have been possible.

Energy will be cleaner and more abundant in future, and it will be cheaper. Newer and more efficient photovoltaic panels produce more energy for a given area than their predecessors did, and they are falling in price at a steep rate. The world has almost certainly already passed “peak oil,” but not because we reached the limit of future supplies of it. The limit was reached in the form of declining demand. It was headed that way before the pandemic caused dramatic reductions in travel and the demand for fuel. 

There will be abundant energy in future, but very little of it will be derived from coal or oil. In several months now in the UK, the percentage of electric power produced from coal is zero. Three principal sources, solar, wind and nuclear will produce the vast bulk of UK energy needs. The outlook is indeed optimistic. It is that there will be enough clean, cheap energy to meet our needs.

This is going to be the most lovely test of Modern Monetary Theory

Among economists, rather than between enthusiasts for the idea, there’s a certain weariness about Modern Monetary Theory. That’s the idea that government can just go print money and spend it to create the social democratic nirvana as Stephanie Kelton seems to put it. The weariness being that this isn’t all that new, it’s little more than a repackaging of the monetisation of fiscal policy - very little different from Henry VIII’s debasement of the silver coinage. Or the more modern examples of Zimbabwe and Venezuela.

To be fair to the MMT groupies they do say that there’s a practical limit to the ability to do this, which is when inflation rears its ugly head. At which point the money printing has to stop and should even be reversed either through higher taxation or the more traditional higher interest rates. Or, as others might put it, what about reversing the money creation through the reversal of quantitative easing.

For us the big criticism is that we’re really not sure that the political will to kill off the inflation is going to be there. We think that the same political incentives that led to the Zimbabwe and Venezuela (and Hungary, Wiemar and all the other examples of monetisation going wrong) outcomes are going to apply because, well, political incentives are political incentives:

Joe Biden could soon be facing a headache few presidents have encountered in recent decades. At least that’s what financial markets are beginning to believe.

His plans for a $1.9 trillion fiscal bazooka sent a key gauge of US inflation expectations to its highest level since 2014 on Monday with bets on soaring Treasury yields on the rise. Biden's bumper stimulus package is starting to unnerve economists, even from his own side.

Lawrence Summers, a former Treasury Secretary under Bill Clinton, warned last week that Biden’s plan could ignite “inflationary pressures of a kind we have not seen in a generation”.

We often don’t agree with Larry Summers but we always do take note of him.

Recent events have led to massive money creation to fund government spending. This is pretty much MMT. If - we’d say as and when but let’s allow if - the inflation turns up then do governments reverse the money creation in order to cease the inflation? If not then MMT isn’t in fact a new thing, at least it’s not a useful new thing. It reverts back to being just that monetisation of fiscal policy with all the perils of it.

That is, the next few years are going to be that real world test of MMT. A test we think it will fail but even so there’s nothing like actually testing a theory properly, is there? After all, we are all supposed to follow the science these days, aren’t we?

The average Indian farmer is poor because the average Indian farm is small

We’d agree that there’s an element of this in it:

“The agricultural profile of any nation is a very boring subject & studying it requires some effort. As a result, most people who have a view on “what’s happening in India" do not realize that the average Indian farmer is poor because the market for his goods is inefficient.”

We’re not about to try insisting that the Indian post-farm market for agricultural goods is efficient. We would also insist that that’s not why Indian farmers are poor. The actual reason is because Indian farms are small:

Since the first agriculture census over 45 years ago, the number of farms in India has more than doubled from 71 million in 1970-71 to 145 million in 2015-16, while the average farm size more than halved from 2.28 hectares (ha) to 1.08ha.

Imagine, as many of those farms will be, that it’s a monocrop of rice. The retail - note, retail - price of which is about 50 pence per kg. The yield is some 3 to 6 tonnes per hectare. The gross income to be gained from rice farming on one hectare is thus £1,500 to £3,000 a year.

It doesn’t matter how efficient that market for the output is. Even if all the value, something that absolutely never does nor can happen, accrues to the farmer the top end of possible income is that £1,500 to £3,000 a year. That’s before all the expenses of seed, fertiliser, electricity and so on. And that will be the amount to support the entire farming family of course.

Even if we mutter something about two growing seasons - a possibility in parts of India - we’re still not going to be reaching non-poverty levels of net income.

The past was grotesquely poor because most lived as peasants on scraps of land. The peasant lifestyle on a scrap of land is a poor one because the value of output from peasant farming on scraps of land is low.

There is no way out of or around this. Peasant farming means a peasant lifestyle, peasant poverty, on a peasant income.

Given that no one is making more land the only way to increase Indian farming incomes is to do exactly what every rich nation has done. Have fewer farmers each farming larger areas of land. Or, to put it another way, to abolish the peasant lifestyle, that peasant poverty, it is necessary to have no more peasants.

No, not the Soviet way with the Holodomor and the like. Instead have an industrial revolution and near all make their livings with indoor work, no heavy lifting.

As we keep saying solutions can only be found when causes are understood. It’s simply not possible to make a non-poverty income out of farming scraps of land - that’s why the average Indian farmer is poor.

Damn Difficult, Booking Hotels

Victoria Street, 

London SW1 

“Humphrey...” 

“Yes, Minister?” 

“The BBC have been pestering me to explain why it has taken us so long to organise hotel accommodation for UK arrivals.” 

“Did you accept?” 

“Certainly not.  I told them we were working 24/7 on the plan.” 

“Quite right, Minister.  It has been an exceptionally difficult problem.” 

“You have my full support, of course Humphrey, but I don’t quite understand why it takes so long to book a few hotel rooms.  I must have asked you to do that four weeks ago.” 

“Just occasionally, Minister, there is the momentary lacuna in your comprehension of the workings of the civil service. For a start, we have to determine in whose domain this matter lies.  We are the steward of the national’s health but dealing with arrivals is a matter for the Home Office and possibly the Foreign, Commonwealth and Development Office also.  We must do nothing that might offend our friends overseas.” 

“Of course not.” 

“The trouble has been that my opposite number has been under pressure to publish a policy paper on preventing illegal immigration and deporting undesirables before the end of the month.  This is really urgent.  Of course, it won’t actually be a plan, just a set of possibilities for consultation to see if anyone has any other ideas.  Then they will be able to rush the Sovereign Borders Bill through Parliament sometime next year.” 

“Jolly good show but, now we’ve left the EU, we’ll have to rescue them just the same and we cannot send them back?” 

“True, Minister but at least we will be able to quarantine them in three-star hotels for two weeks. At least we will when we can agree whose responsibility that is.” 

“How about the FCO?” 

“No, they never want to be responsible for anything. But the good news is that the Home Office have just agreed to leave it to us.” 

“Thank God for that.  Can you now get onto the hotels themselves?” 

“Possibly, Minister, but the Attorney General’s Office has thrown a wrench into our delicately tuned workings.  They are concerned that forcibly locking people up for 11 days will bring a flood of Habeas Corpus writs.” 

“But aren’t these foreigners we are talking about. Well we are not sure yet whether we are quarantining just foreigners or everyone but, be that as it may, the only things all foreigners know about Britain is the Magna Carta and Habeas Corpus.” 

 “I don’t think King John was bothered about quarantine except for his brother, Richard.” 

“Well actually, Habeas Corpus only became a statute in 1679 and they had a real problem getting it through Parliament. At the final vote, the "ayes" had only two more votes than the "nays" but there were five more votes in total than the number of lords eligible to vote.  This came about because one teller counted a particularly fat lord as ten, by way of a joke, and the other teller was too dozy to notice.[1]  The Attorney General’s Office, I gather, is anxious that its validity is not challenged.” 

“Come on Humphrey.  You are pulling my leg.” 

“No joking matter, Minister. If you disregard that, consider the position of HM Treasury, namely that those being quarantined should pay for their own hotel accommodation.  You may think that is fair enough but it will be at least £1,000 a head for single people and what about couples and families? We have already had representation from citizens’ rights groups saying that we do not charge the guests of Her Majesty's Prisons, so why should we charge those we lock up in hotels?” 

“Humphrey, this is ridiculous. What about those who’ve had their two jabs? No point in quarantining them.” 

“Excluding them would be discriminatory, Minister. We are consulting widely. To quote from our draft press release: ‘Detailed work is already underway with the Home Office, Department for Transport, Foreign, Commonwealth and Development Office and Department for Digital, Culture, Media and Sport, and other government departments.’” 

“Oh good. It’s getting above my pay grade. I’ll ring the Prime Minister.” 

“No need for that. The Cabinet Secretary phoned just before I entered your sanctum. I understand that the PM is creating a new Cabinet sub-committee, including a number of senior Cabinet ministers, to undertake these bookings.” 

“That’s just like the old joke: how many British Cabinet ministers does it take to book some hotel rooms?” 

“That is a pleasantry, Minister, with which I am not acquainted.” 

“The answer, Humphrey, is nobody knows because it has never been done.” 

“Very droll indeed. The good news is that the PM wants you to lead the sub-committee.  After the initial flurry he does not expect it to meet more than once a week and you’ve already spoken with the Australians and New Zealanders,”  

“Yes, I expect I can manage that.  It’s an honour really.  Primus inter pares, what?” 

“The Cabinet Secretary also asked me to relay that the PM has the utmost admiration for your abilities but has asked General Sir Gordon Messenger actually to make the bookings. He’s an old Commando, with a geography degree, so he’ll know what to do.” 

“So what am I supposed to do?” 

“You will be too busy chairing the sub-committee, Minister.” 

“Let me get this straight. All arrivals from the red list countries will get the black dot when they go through immigration and, when they’ve got through customs, go straight to the buses for their hotels.” 

“What happens if they dive down into the underground instead of catching the bus?” 

“That wouldn’t be cricket, Minister.” 

“Do I need to remind you, Humphrey, that Johnny Foreigner does not play cricket and, since we sold off all the school playing fields, nor do many Brits? Which are the red list countries anyway?” 

“Our press release of 18th November, which may have momentarily eluded you, stated ‘If you have been in or through any of the [33] countries listed below in the last 10 days, you will be refused entry to the UK.’ I admit it is a slightly odd list in that it does not include some countries with the highest Covid levels such as the USA, India, and Mexico. It should be updated monthly but our friends in the Foreign, Commonwealth and Development Office do not want to rock the boat.” 

“Humphrey, surely we cannot be excluding our own returning nationals, tempting as that must be?” 

“Indeed not, Minister, just foreigners but, as the Home Office, will testify, we are not too good at rejecting the uninvited.” 

“You know, we really should have done all this a year ago.” 

“You may recall that we were so overwhelmed with our own viruses that we really did not think a few imports would matter much, even though the whole thing started of course, with imports. And actually some of your skiing friends in particular.” 

“Humphrey, that is not very kind.  I was simply standing up for diversity, as one must these days. I said we must not discriminate against foreign viruses, simply on the grounds that they are foreign.” 

“Do I take it that we may now discriminate against variants on the grounds that they are variants?” 

“Be that as it may, Humphrey, it seems we’ll all be done and dusted and ready to roll by 15th February.  I have to say that I’m very impressed.”   

“Thank you, Minister.” 

[1] J. E. Powell, Great Parliamentary Occasions, 1966: The Queen Anne Press. p. 65.

Reasons for optimism - communications

Advances in communications technology will be no less transformative in the next few years than they have been in recent years. The future looks to be one of increased access, lower costs and more innovative hardware.

The UK government’s commitment to the rollout nationally of fibre optic cable might well be overtaken by events. Fibre optic cable is expensive to lay to remote rural areas. Rival ways of providing wifi include projects such as Elon Musk’s Starlink, with thousands of low-orbit satellites making wifi ultimately available anywhere in the world, and promise to bring telecommunications and internet access to remote areas far more rapidly and cheaply than any land-based systems look likely to offer.

The future is set to give the whole world the ability to communicate with any part of it, and to enable a global conversation. Artificial Intelligence will bring automated translation, so that people with different languages will be able to speak to each other across the world. The newest translation programmes replace the tinny and flat mechanical voices of the past with the sound of the speaker’s own voice talking in another language.

As the ability to miniaturize develops, smaller instruments are appearing, and enable conversations to take place without visible instruments. Already there is the somewhat unnerving sight of people apparently talking aloud to themselves in the street while conversing with distant parties. The future might look even stranger, since the mobile phone in the pocket could well be replaced by something less substantial, even perhaps for some people a small chip inserted under the skin. And dialing will be replaced by verbal commands and questions. People will converse with computers in ways more fluent and natural than today’s virtual assistants.

Power usage by devices will be less and will cost less, and charging will probably be mostly by induction, perhaps even by just walking past fixed power points. Virtual screens and holograms will soon enable those who wish to dispense with fixed screens mounted on desks or on mobile phones to see images projected into the air in front of them.

The ability of people across the world to be able to talk to each other will present economic opportunities that far outweigh and compensate for any job losses within the telecommunications industry itself. Advances in communications will be a game-changer, changing the way people live their lives and interact with others.

To observers outside the industry and the research centres working on new developments, the progress forecast might look like the stuff of science fiction, but when Steve Jobs unveiled the first iPhone in 2007, science fiction suddenly became a part of everyday life. It will happen again repeatedly, and will bring humankind undreamed of opportunities to achieve things previously beyond their reach.

If only people understood about broadband as a utility

Yes, OK, we’re picking an easy target here in India Knight, she’s not employed for her detailed knowledge of the real world. But still, this is a useful example of something that near the entire conversation about broadband to every home is missing:

The internet isn’t some quirky little place for weirdos. It’s infrastructure, in the same way as electricity and sewerage, an essential service that must be made available to everyone.

Well, we’re not sure we agree but let us assume that we do.

The government’s assessment is that standard speeds are available to 98.5 per cent of UK homes, which is dandy unless you’re part of the remaining 1.5 per cent.

OK. So, what would happen if we were to treat broadband - of that acceptable speed - in the same way we do utilities like electricity and sewage.

Over a million properties across rural areas of the UK cannot connect to the main sewerage infrastructure.

We’d be saying that your lovely little rural bolthole is too far from the infrastructure for it to be economic to connect you. You’ll have to use some other solution, like a septic tank.

Apply for a quotation for a new connection from the distribution network operator (DNO) responsible for electricity in your geographical area as soon as you have plans of your proposals, including a site and location plan. The application process usually involves filling out an online form.

Connection is not cheap, and it’s best to budget for it as early as possible.

We’ll also charge you the full cost of connecting your rural bolthole to the network. Costs do indeed go up, substantially, the further you are from the extant infrastructure.

That is, we currently do treat broadband as we do utilities like electricity and sewage. So, what was that complaint again?

Protectionism: Product standards

Most countries want to keep out products that are potentially unsafe (such as. electrical goods, medicines, recycling waste or GM crops) or unethically sourced (such as products made by slave labour).

That seems a perfectly legitimate policy — though if we find that a country imposes stricter product standards on importers than it imposes on its own producers, that is a sure sign of safety masquerading as protectionism. 

So how do we know what safety and ethics objections are legitimate and not merely an excuse for protectionism? Are the concerns about America’s use of hormones in cattle, chlorination of chicken, or exports of genetically modified cereals legitimate health fears or just an excuse to block US agricultural products? And is America justified in refusing meat products from countries with much lower animal welfare standards, or manufactures from those with poor human rights records?

There are no easy answers. Safety concerns can be exaggerated, and standards twisted in order to keep out specific competitors. That is why product standards are one of the biggest sources of WTO trade disputes. 

Given the opportunities for abuse, our general aim should be to stop individual countries imposing their own standards on other people’s products. International agreements might be a better way to achieve the stated aim.

It's possible to wonder about some people

The auctioning off of seabed rights to build wind farms is raising some money:

Two windfarm sites within the Irish Sea have reportedly attracted the most frenzied bidding, with energy firms offering to pay as much as £200m for each – a total revenue of £400m a year. Awards for another three areas have yet to be decided. The licences are for 10 years, meaning the auction will raise at least £4bn over a decade.

Which is nice. As with other resource rents the correct home for this revenue is the state. We do need to have government, we do need to have revenue to pay for it. Given that no one created the seabed by taxing the value of it we dissuade no one from producing seabed. That is, as with all other land value taxation, we have no associated deadweight costs and thus this is the most efficient source of that necessary revenue. Henry George was right.

The vast sums involved have prompted calls for the revenues from Britain’s renewable resources to be kept by the public in a “green sovereign wealth fund” that could be used to invest in tackling the climate crisis.

“Rather than being squirrelled away in Treasury coffers, how much better would it be to use this renewable windfall as initial capital for a sovereign wealth fund that could then be invested for future generations, similar to what we’ve seen the likes of Alaska and Norway do in the past with their oil wealth,” said the Green party co-leader, Jonathan Bartley.

Which is where we do have to start to wonder about some people. £400 million a year is not a vast sum, not in governance. It will keep government running for perhaps 5 hours, maybe the NHS for 26 hours. This isn’t the sort of sum that’s going to make a useful start to a wealth fund.

But worse than that is the inability to see that this is the product of investing for future generations already. The entire argument in favour of wind farms is that we are spending now in order to reduce climate change in the future - an investment in, or at least for, those future generations. The very fact that we have this revenue is proof that we’re already doing the investment.

Clarity of logic is a useful aid in determining public policy.

This could indeed be true, why don't we test it?

A supposition from Jeremy Warner in The Telegraph:

Covid, it would seem, may end up performing much the same role as the Second World War in ushering in a new era of interventionism and deliberately pursued self sufficiency. When the pendulum swings, as it plainly is at the moment, it is hard to resist.

A less efficient economy where duplication and protectionism become the norm may be a price Western electorates are prepared to pay for a greater sense of national resilience.

We think it’s unlikely that this is true. We think what is likely is that politicians will enjoy chuntering along as the Big I Am and deciding what should be duplicated and protected in the name of that resilience - what’s the point of going into politics if it isn’t to exercise power?

What is needed therefore is a test to see whether the initial contention is true. Will people accept a reduction in their immediate standard of living in return for that greater resilience over time? Or, perhaps, given that at some extremes that’s obviously true, how much will they be willing to trade the one for the other? And, clearly, how much is it just the enjoyment of our political servants enjoying their pulling of the levers of power?

Fortunately we have a method of testing this. As we know expressed preferences are not a good guide to human desires, it is revealed ones that are. So, only if everyone is left with that free and open choice can we determine the answer. Only if all are free to purchase the cheapest from wherever, also free to buy domestic in the name of resilience, can we test the contention.

That is, unilateral free trade is not just a good idea in itself - so we say of course - it’s also the way we find out whether everyone else agrees that unilateral free trade is a good idea. If people choose to buy foreign on price grounds then they don’t think that the resilience is worth it.

What doesn’t work, logically, is an insistence that all will sacrifice for that resilience and yet also insist they must be prevented - or dissuaded, or taxed out of it - from expressing their desire on the matter. For to do that is to be insisting that they do not prefer the resilience which is why they must be forced into it.

If people prefer domestic production then leave them free to express that preference. If people don’t then leave them free to express that. The very contention that the local supply chain is preferred is all that is necessary for it to exist.

Government not only need to nothing about it it shouldn’t - the very call that government must is the insistence that the original contention is wrong.