On this day was written a book

Adam Smith (1723-1790) is best known for his pioneering work of economics, The Wealth Of Nations (1776). But the book that actually propelled him to fame was The Theory Of Moral Sentiments, published on this day in 1759.

It was a sensation—and made Smith into a hot intellectual property. Thtat’s because moralists had been struggling for centuries to work out the principles that made some actions morally good and others morally bad. To Clerics, the answer was obvious: the word of God. And believers relied on the Clerics’ moral authority to guide them. Skeptics, on the other hand speculated about whether we had a sixth sense, a ‘moral sense’ that would guide us towards good. And so it went on.

Smith’s breakthrough was to place our moral judgements as a matter of our deep psychology as social creatures. Human beings, he argued, have a natural ‘sympathy’ (today we would say ‘empathy’) for each other, particularly those nearest to them. That empathy enables them to understand how to adjust and moderate their behaviour in order to win the favour of others and preserve social harmony. It is the basis of moral judgements about behaviour, and the source of human virtue.

Writing exactly a century before Charles Darwin’s The Origin Of Species (1859), Smith was not sure why such beneficial social behaviour should prevail. He put it down to Providence: today we would put it down to evolution.

The Theory Of Moral Sentiments was an intellectual sensation, a best seller. Churchmen, of course, did not like it very much. But it impressed Charles Townsend, a leading intellectual and senior member of the British government—roughly the equivalent of the Chancellor of the Exchequer today. He sought an introduction to Smith through their mutual friend, the philosopher David Hume (1711-1776). Townsend immediately hired Smith, on a salary of £300 a year for life, to be tutor to his stepson, the young Duke of Buccleuch. It was a small fortune—and it gave Smith the independence and experience to start writing the work for which he is best remembered today: The Wealth Of Nations.

Well, yes, that's how prices work

A complaint from within the NHS about the prices of PPE:

“I’ve been offered surgical masks at three or four times the price; I’ve been offered FFP3 masks at 10 times the price… It is blatant profiteering, in my opinion,” he said.

...

“This particular one was a company we’d used before and, although we have seen a hike in some prices, to see coveralls going from £2 as they were in January to £16.50 was outrageous."

Something is in short supply compared to current demand. The price goes up. Sure, this is profiteering. But also:

Mr Hulme continued: “I get probably get between five and 10 emails a day from various companies saying they can offer me PPE, some of them I don’t trust because they’re not companies that we’ve used before or they’re not on the supply list of the NHS.

The lust for those profits leads more people to try to supply that item in that short supply compared to current demand. Further:

Chris Hopson, chief executive of NHS Providers, said earlier this week that trusts are being forced into “hand-to-mouth” workarounds, including washing single-use gowns and restricting stocks to key areas.

The desire not to pay those higher prices leads to those workarounds which reduce demand.

Back to basics here, demand has risen compared to supply. We’d like a system which was able to try to balance these two. Increase supply, reduce demand. This is what, as the above shows, the price system does.

Rising prices achieves exactly our goal - and people are complaining?

The tricky business of valuing lives

Many people wonder whether the aim of flattening the Covid curve is worth the cost of the lockdown.

But they daren’t say that because all they get is abuse from people so say that lives are more important than money and you can’t put a price on human lives.

In fact, we do that all the time. An expensive new by-pass may reduce accidents in a busy town. But how much should we spend on it in the hope of saving one life? Remember, every pound spent on that project could be spent on other things we value, such as teachers and nurses.

Or again, a speed limit of zero would save 1800 deaths each year. But we also value mobility and the other benefits of transportation. We have to balance these values when we set the limits.

Even our National Health Service balances the cost of a treatment against the extra years of quality life that it might buy for a patient.

The lockdown will reduce infections and deaths. But it also generates escalating bankruptcies, uncertainty, worry and misery. Perhaps the doctors, when they recommend extending things for another 12 or 18 months, are only seeing half the story. It’s time we had a wider debate on our wider values, and how they might be balanced.

A useful answer to a shortage is to make it easier to supply

If there’s a shortage of something then a useful response is to make it cheaper to supply the item. That should increase the number supplied. Cost here, the thing we would reduce, comes in many forms of course. We’re not just talking simple £ and p, but things like regulations, form filling, time to gain a qualification and so on.

At which point we can proffer some advice to Polly Toynbee:

Before anyone gets carried away by Boris Johnson’s eulogy for his life-saving angels, the facts of nursing life are brutal and it’s worth recounting them in detail. In recent years, leavers have outnumbered joiners by up to 3,000 and the more nurses quit, the harder it becomes for those who stay in understaffed wards. Remember this epidemic began with the highest ever number of nurse vacancies: 44,000 in February. But, says Anne Marie Rafferty, the president of the Royal College of Nursing and professor of nursing policy at King’s College London, that’s not a true reflection: “Those vacancies run on affordability. That’s only the number of nurses they can pay for, not the number needed.” Even the 10,000 retired nurses who have returned to help out in the crisis, mostly not on the frontline, don’t cover those lost since 2010, she says.

Nurse training was an early casualty of George Osborne’s axe-swinging 2010 budget. Despite recent efforts, numbers are still down on 2010, though the decade saw a huge increase in patients, who are far sicker in a population with 25% more over-65s. After the 2016 cavalier removal of nursing bursaries, applicants fell by 24%

We have fewer nurses than we might like to have. Why? Well, no, it’s not just that the Tories hate Angels:

All new nurses in England from 2013 will have to be educated to degree level from 2013, the Department of Health has announced.

The before the Tories government - yes, for the young, such a thing has happened in our green and pleasant land, non-Tories have been in government - decided to make becoming a nurse a hugely more expensive enterprise. As happens with these things humans, when faced with something more expensive, do less of it.

Worth noting that exactly this move of nursing to all graduate entry was something roundly - even enthusiastically - praised by Ms. Toynbee when it happened. Indeed, our own memories insist that she agitated for it before it did.

It’s entirely possible to insist that there is more than one factor at work here. But it’s impossible to be even vaguely truthful and try to insist that making nursing a more expensive - in that training time - occupation to enter has nothing to do with the perceived shortage of nurses.

By the way, one of us has direct experience of family members training under the old and new systems. No, the new is not better. We’re not even getting an increase in quality out of the greater expense and lower supply.

There's a question not being asked here

We’re subjecting ourselves to a certain amount of headscratching here:

On one level, the argument about what Sir Simon McDonald said to the foreign affairs select committee this week can be dismissed as a storm in a Whitehall teacup. Hours after the head of the foreign office had called Britain’s refusal to join the European Union’s procurement efforts during the Covid-19 pandemic a “political decision”, McDonald retracted his words. Whitehall-watchers are fascinated. The wider world has bigger things to worry about.

But on another level, this week’s row is political dynamite – and for two main reasons.

First, and more immediately, the McDonald affair is another challenge, this time from the Whitehall high command itself, to the government’s increasingly desperate attempts to show that ministers have successfully gripped the effort to secure life-saving medical equipment and protective kit for the fight against the virus. At its most serious, it comes down to an admission that ministers who previously said that the UK did not take part in the ventilator procurement programme because of “communication” errors were actually in a position, early on in the pandemic, to save more lives by joining the scheme, and yet deliberately chose not to.

As we’ve pointed out before around here we are pragmatists. We should do more of what works and less of what doesn’t. So, the important question here is has that EU scheme saved any lives?

As far as anyone knows that joint and several buying scheme has delivered not one single piece of equipment or protection to anyone at all. Not joining an ineffective scheme seems like a sensible thing for a government to do to us.

But that is to be pragmatic, isn’t it? Instead of being political where the desirability of a course of action is determined by matters other than those of effectiveness. Here, those who think there should be more European cooperation insist that such cooperation is a good in itself, whatever the outcome. Therefore, whatever the outcome or effectiveness of the cooperation or not those who don’t do more of it are to be castigated. Even, scarce resources at a time of emergency must be devoted to doing so.

Which is why we continue to insist that politics isn’t a good way of doing things. Because the politics is never about either the doing of things or the things that need to be done.

Khayyam and Revolutions

There’s one stanza in “The Rubaiyat of Omar Khayyam” by Edward Fitzgerald that resonates politically. It is this one:

“Ah Love! could thou and I with Fate conspire

To grasp this sorry Scheme of Things entire,

Would not we shatter it to bits -- and then

Re-mould it nearer to the Heart's Desire!”

Similar thoughts have occupied the minds of many revolutionaries from Robespierre onwards, and maybe even before. The drive for a better society starts with the destruction of the current one. Some people look at society with all its perceived imperfections and injustices, and want to do away with it, and replace it with a better society, one they can conceive of, that will lack those drawbacks and blemishes, and in which people will be able to lead fuller and more rewarding lives.

Hayek criticized this approach, and regarded human societies as too complex to be just thought up from the imagination. His account of the Three Sources of Human Values took the ones that people think up as trivial, compared to the ones that have emerged as societies have developed in practice. Although the values of the hunting tribe had millions of more years to embed themselves into our psyche, Hayek thought the values transmitted culturally since humans first domesticated grains and farm animals were more important. 

They have enabled a society that sustains a complex web of relationships, one that allows us to interact to mutual advantage with people we shall never meet. When intellectuals suppose they can conjure up in their minds a better society than those that have had the inputs of billions of people over long periods of time, Hayek called it “The Fatal Conceit.”

Of course society can be improved. This is what we do. We look at its shortcomings and propose innovations to overcome them. We test them in practice, and retain the ones that work. But we don’t smash up existing societies and put dreamed-up ones in their place. We improve them instead. Popper called this “Piecemeal social engineering,” noting its record of success over time. Things are better in the modern age because we have done this, eliminating in the process many of the unnecessary causes of human suffering. Free market capitalism has done more to lift the human condition from squalor and deprivation than all of the vaunted claims of socialism.

It stands in striking contrast to the attempts to achieve instant utopia. Lenin and Trotsky thought they could do this, as indeed did Stalin, Hitler, Mao Zedong, Pol Pot and lesser pocket dictators who’ve sought to usher in Heaven on Earth in short order. They all led to bloodshed, tyranny, oppression, intimidation and mass murder, along with the shortages and the corruption that degraded both the physical and the moral quality of life. All of them set out to smash the societies that had evolved, and to replace them by ones that seemed alluring and full of promise in theory, but which proved disastrous when tested in the real world.

For those who would improve the condition of humankind, the lesson is that instead of smashing it to bits, we should build on what has been achieved, and has endured, and try to make it better than it was. It won’t be perfect, but it will be better, which is more than has been achieved by the fanciful rivals that sought utopia.

So, when does Wagner's Law kick in then?

Wagner’s Law is the idea that as a place becomes richer the inhabitants desire - and get - more government:

Wagner's law, known as the law of increasing state spending, is a principle named after the German economist Adolph Wagner (1835–1917).[1] He first observed it for his own country and then for other countries. The theory holds that for any country, that public expenditure rises constantly as income growth expands. The law predicts that the development of an industrial economy will be accompanied by an increased share of public expenditure in gross national product.

That is, that government is a luxury good. No, not a luxury, but something that we spend more of our incomes upon as our incomes rise. If you choose a wide enough band of incomes everything is an inferior, normal and superior - that latter being synonymous with luxury - good at some point in that distribution. We ourselves would hesitate to say that government itself is the thing desired but some things that governments oft provide certainly are luxury goods, public health to health care itself, social insurance, education systems and so on. Many of our own arguments revolve around whether it should be government trying to provide - badly and expensively as it does - those things we agree a richer populace wants more of.

But let us accept the argument, the Law, as it is. Richer places desire and get more government. Thus the inevitable rise of taxation and political direction of resources as the economy grows.

OK, now the economy is shrinking - has shrunk. Which means we need to slash government, doesn’t it? If GDP falls by 25% - not far off what is likely to happen in this short term - then that means we need, to accord with the law, to cut government by more than 25%. Not just to cut the cloth to suit our means, but because as poorer people we desire less of that luxury good, government.

Of course, we believe that swingeing axes and slashing swords should be applied to government and political budgets under near all circumstances but this law does move the idea from an expression of our preferences to a scientific truth. If it is true that government should naturally be a larger part of a richer economy then it must be equally true that it should be a smaller portion of a poorer one.

A silver lining on homelessness from this crisis

The pandemic and the lockdown have given us the chance to think about some of the long-term problems we might solve. We should decide not to go back to having homeless people sleep in shop doorways. We have the chance to try a new approach to solving the problem.

It’s important to understand what the problem is. National Audit Office figures show that a high proportion of rough sleepers who had needs assessed were prone to alcohol addition, drug addiction, or mental illness. These three factors were among the reasons underlying their situation.

In the past efforts have been made in many countries to help street sleepers solve some of these problems so they can be allocated secure accommodation. But Finland now does it the other way round. It’s called “Housing First” because they house rough sleepers first, and then address their problems.

The reasoning is that if people are in secure accommodation with trained helpers and therapists on hand, it is easier to solve problems like alcohol and drug addiction and mental illness than it is trying to deal with people sleeping on the streets.

Tenants are housed in purpose-built or adapted blocks, with their own private space, and crucially, with support services on hand. The programme costs money, but the technique is reckoned to lower the costs otherwise incurred for emergency services and the criminal justice system.

The success of the Finnish programme, running for 13 years, has been remarkable, and has inspired pilot schemes elsewhere, including several in the United Kingdom. Charities assisting these efforts report positive results, with steep drops in the number reporting “bad or very bad” physical health of users, and an even bigger fall in the numbers for mental health conditions.

The pandemic has provided an opportunity to extend this by the use of empty hotel rooms. Some funding allocated to deal with the coronavirus has been used to secure hotel safe spaces for rough sleepers to self-isolate in. There are on-site cleaning facilities, and charities have stepped in to assess needs and provide support. Thousands of rough sleepers have been taken off the streets and housed in hotels block-booked for three months to accommodate them. Modelling by University College London shows this is significantly more cost effective than treating individuals in hospital.

St Mungo's charity describes it as an unprecedented opportunity to stop people returning to the streets. Howard Sinclair, their CEO, says the virus has provided an unexpected opportunity to take people off the streets and provide support for mental health problems or addictions.

The lesson to be drawn from this is clear. It is that providing accommodation and support for rough sleepers is an effective way to address their problems and to help ease them into safer and more comfortable lives. We should make it a priority after the pandemic to pursue this vigorously and to provide accommodation and support for those whose only other option would be to sleep in shop doorways on the street. It works, and we should do more of it.

Incentives matter, really, they do

We’re told that a disaster like Deepwater Horizon could happen all over again. Because the regulations on what people are allowed to do have been relaxed and that just does make gushers on the sea bed more likely:

But experts say an incident of similar scale could happen again and has been made more likely by the Trump administration’s decision to loosen Obama-era safety rules. Those standards had grown from an independent commission’s damning findings of corporate and regulatory failures leading up to the spill.

This is to succumb to the bureaucratic, perhaps statist, delusion. If everything is written down on little bits of paper, if government determines, in detail, what people may do, then nothing bad can happen.

This is not how we humans interact with reality. Incentives really do matter:

BP said on Tuesday it would take a new charge over the 2010 Deepwater Horizon spill after again raising estimates for outstanding claims, lifting total costs to around $65 billion.

That’s around 65 billion reasons why a repeat of Deepwater Horizon is less likely than it once was.

Do note that we’re not saying that there is no value to regulation. At the very least a listing of best practice contains value and we’re even willing to agree that insisting people don’t do stupid things is of benefit. But it is still true that hom. sap. responds to the total set of incentives faced not just the chatterings of the clipboard wielders.

The loosening - or tightening - of drilling regulation is as nothing compared to that fear of losing, again, 65 large. Something we need to recall when designing those regulatory systems of course. It’s that total set of incentives that matter.

Answer the call!

Legend has it that Drake’s drum, the one he left to the nation, can be heard to beat at times when the country is in crisis or at war. It calls for people across the nation to rise up to defend it.

We’re beating that drum now. The nation is in crisis as never before. The economic heart of the nation has slowed, and it needs major and urgent action to revive it. We are beating the drum now to rouse as many of us as possible into action. We look not to those on high to save us, but ideas and initiatives from the little platoons Edmund Burke correctly said made up a nation — the people who, added together, are all that makes us great. 

That drum call goes out to you: a vast army of people with ideas and with energy. We want to hear all of them. Companies stand on the edge of ruin and our prosperity with them. The best way to ensure that our firms survive the lockdown and thrive after is to ensure that they're as free as possible to transact and trade — provide goods, services and increase our wealth once more. 

So we want to hear from you of every tax cut that can lift a burden, and every regulatory change that can lighten the load on businesses that want to grow again. Let us hear of every bureaucratic impediment that stands in the way of renewed growth and expansion, and let us hear of the ways in which it might be suspended or permanently extinguished.

• What regulations should we suspend during and after the lockdown?

• What taxes should we suspend and cut?

• What measures could help restart the economy?

• How should we unwind state interventions?

• Is there anything the Government or public discourse has missed?

Let us have those ideas and initiatives from many and diverse groups, and let them collectively constitute a volume that can be a handbook for rebuilding the economy, and a blueprint for the new Britain that must emerge.

Please answer our call via the link below, send it on to anyone and everyone you know, everyone who everyone you know knows, their dog too if it has a brilliant new tax idea to shout about!