Pious hopes can be terribly misleading

The Public Accounts Committee bemoans how HMRC is failing in squeezing the last few pennies out of the populace:

The government has been criticised for failing to collect £42bn in unpaid tax from businesses and individuals amid concern over the strain on the public finances as the UK’s economy stands on the brink of recession.

The cross-party Commons public accounts committee (PAC) said that an “eye-watering” amount of tax was owed to HMRC, while also criticising tax collectors for lacking ambition to tackle fraud and error.

Several things need to be said about this. The most obvious being that this includes all bad debts. Which itself includes those who have gone bust - people and organisations of whatever type. That money is simply unrecoverable and so shouldn’t be included in any measure of what might be recoverable. We’d all be much better served by a measurement which excludes funds in bankruptcy.

A second point is that we don’t in fact want a system which gains every penny. Just as we don’t want a legal system which punishes every infraction. The aim is “tolerable administration” not the ability to only do precisely what government allows nor a forced insistence to do everything it dictates. Dictate being the correct root for a system which was exact and enforced to be so.

The third is this from the report itself:

For every £1 that HMRC spends on compliance activities, it recovers £18 in additional tax revenue.

Possibly, possibly, although we’d be willing to argue about that. However, while it’s fashionable these days to insist that neoclassical economics is all wet it is still true that we must take account of the Marginalist Revolution. That statement is of the average return to HMRC spending upon compliance. Which includes all that easy low hanging fruit which the system already recovers. This does not mean that the next £ spent will recover £18. For marginal matters - there are diminishing returns to any activity after all.

Finally, even that number claimed is not really the tax going uncollected. For in every assumption about how much a tax will raise there is that sub-assumption that some won’t pay it. For every scheme for dog licences there is a prior agreement and the knowledge that some tearaways just won’t bother. Insistences about income tax accept that some windows will still get cleaned for cash. Yes, having a simple and cheap system for corporate registration means that some will abuse this system - but what’s the overall benefit of having a simple and cheap system of corporate registration?

There are benefits to be had from a slightly leaky tax system as with so much else. What really matters here is the definition of “slightly” which is something the PAC doesn’t address at all - it should.

How the NHS limits access to healthcare

People are apparently concerned that the Prime Minister, Rishi Sunak, might have gone to a private GP. According to a nursing trade union leader, he needs “to come clean as a public servant”. Meanwhile Scotland’s First Minister, Nicola Sturgeon, says she has “never” used private healthcare and “wouldn’t encourage people to go private.”

Of course, parts of the NHS have always been delivered by the private sector, including NHS-branded GP practices and NHS-contracted pharmacies. Nonetheless, in the political sphere there is a view that going to an NHS-branded service (including those provided privately) is “fairer” than paying out of pocket or using health insurance. This, however, is a misnomer on two grounds.

Firstly, a significant group of users of private healthcare are self-employed people doing what might be called working class jobs. Plumbers, builders and white van drivers can’t afford to spend 18 months on an NHS waiting list when they are suffering in pain. While public sector office workers might be able to work from home or take lots of sick leave, if self-employed people stay in bed, they won’t be able to pay bills. The unfairness is surely that the NHS expects them to stumble on in pain, not that they have chosen to take out credit to get treated quickly. No one should feel morally compelled to wait for months for treatment when they have the resources and will to go private.

Secondly, the reason the private sector is able to deliver services quickly is because the incentives are different. NHS GPs, for example, are paid in large part by a lump sum per patient regardless of how many patients they see. Likewise, NHS accident and emergency services get the same amount regardless of the number of patients they see. So the incentives are structured so that providing a faster, more accessible service is actually the road to financial ruin. Even when NHS providers receive payment per treatment, such as for hip replacement surgery, the incentives are then destroyed because NHS commissioners (who control budgets) insist that hospitals who treat too many patients slow down. A huge NHS bureaucracy has now been employed in “referral management”, who slow down and try to reduce the number of patients who are allowed to go for hospital surgery.

In the private sector, where patients are paying out of pocket for the treatment they receive, doctors and healthcare providers are given the incentive to treat patients more quickly, drive efficiency, and offer services at the weekend and in the evenings. Because patients are paying, they can have the treatment, without a third party trying to ration them.

If the purpose of the NHS is to act as a rationing system, then the current set of incentives have a reasonably positive effect, placing some limits on rising costs. If, however, we assume that patients should get the treatment they need promptly, the incentives are seriously flawed.

Clear and obvious truths about the NHS

This starts well:

At last a glimmer of light on the NHS horizon. Labour’s shadow health secretary, Wes Streeting, clearly smarting from his brush with cancer two years ago, has realised that the problem with the NHS is not just cash but structure. Above all, it lies in the costs and delays of an archaic network of occupational demarcations seizing up surgeries and hospitals alike.

The sheer lumbering vastness of the NHS has sent it slithering down the league table of world health services.

One way of thinking about this is that we’ve simply not got the management techniques to run an organisation of 1.2 million people. This is beyond humanity’s ken, d’ye see? The other illustration being that we don’t know how to run, directly and in detail, 11 or 12% of an entire economy. GOSPLAN didn’t work and the same management style also doesn’t work on significant fractions of an economy.

So, yes. Even if we then go on to say that health care in the UK does need more money - not something we’re willing to agree to other than for the sake of this specific following argument - it is still true that we need to sort out that structure within which we’re to do that spending.

The only management technique we’ve got at such scales is the use of markets. No, this doesn’t mean the US health care system, that of France or Germany uses markets. Multiple suppliers, their activities coordinated by the use of prices. It’s entirely possible to retain, if this is desired, that principle of single payer - as some European health care systems do.

We’re also not insisting upon capitalism, only upon the use of markets. It’s not ownership that is the point here, it’s the system of deciding who does what to whom, when. That system that markets can and do coordinate and planning - clearly and obviously - does not.

Having laid out the problem then of course everything goes wrong:

Labour, says Streeting, would turn GP surgeries into health centres. Doctors would no longer rule the roost: GP “partners” now earn an average of £109,000 a year. Doctors would revert to being salaried NHS employees, working alongside nurses, therapists and technicians, and handling the vast majority of health cases that don’t require a hospital visit.

No, that is to increase the centralisation, to subject yet more of the system to that detailed and ineffective control. Employees are, obviously, more directed in their activities than independent contractors after all.

If we are to say that changing the NHS would make it better - which we insist is a glaringly obvious, umm, observation - then it would be a good idea to look around at other systems and pick up bits of those other systems which we think work better. Say, the Singapore system, which seems to produce better results at half the cost. Or, the Swedish, or Danish (both much more local) or the French (more competition among providers) or the German (more competition among financiers) or, or, or…..rather than coming up with home grown changes which will only make the diagnosed problem worse. Like sucking even more of the system into that centralised control as suggested here.

One final truth about the current system. It is often claimed that the NHS system - that lack of markets, that central direction - is more efficient than other management methods. It is also often claimed, usually by the same people, that the NHS is underfunded because it doesn’t receive the same resources as those other, more inefficient systems. Both cannot be true. If the NHS is more efficient in structure then it should cost fewer resources for the same output - because that’s what more efficient means. Therefore anyone arguing that the NHS should receive the same resources as other systems is, by definition, arguing that the NHS is not more efficient.

Therefore we should make it more efficient, shouldn’t we? Markets it is then.

An early entry for Chutzpah Of The Year Award

It’s entirely true that Sri Lanka’s economy is borked:

Some of the world’s most powerful hedge funds and other investors are holding up vital help for crisis-hit Sri Lanka by their hardline stance in debt-relief negotiations after the Asian country’s $51bn (£42bn) default last year, according to 182 economists and development experts from around the world.

In a statement released to the Guardian on Sunday, the group said extensive debt cancellation was needed to give the economy a chance of recovery and that Sri Lanka would be a test case of the willingness of the international community to tackle a looming global debt crisis.

Debts that cannot be paid will, of course, not be paid.

And yet:

182 economists and development experts have called for debt cancellation for Sri Lanka to help it out of its current economic crisis. In a statement released today, the signatories – including Jayati Ghosh, Thomas Piketty, Dani Rodrik, Ravi Kanbur, Yannis Varoufakis and Ha-Joon Chang – call for debt cancellation by all external creditors and measures to stem the illicit outflow of capital from the country.

Dr. Gosh has been one of the leading purveyors of the economic policies which have led to Sri Lanka’s economy being borked.

As has been noted before insistences on green policies can have that effect. That immediate switch to organic farming was a crucial part of the disaster. No, really. Dr. Gosh being one of those who have so loudly insisted that Sri Lanka, as with everywhere else, must stop this neoliberal habit of importing things to increase efficiency. Like, say, fertiliser.

Some of those external creditors will be the usual pension funds and so on that are supposed to provide for us in our old age. Because that’s just how international capitalism works, capital is invested globally. So, the demand is that some portion of our pensions should be confiscated to pay for the policy mistakes promulgated by Dr. Gosh. This demand that we pay for it coming from Dr. Gosh.

A traditional definition of chutzpah is to claim orphan status in mitigation against charges of parricide. We think this rises to that standard. It’s early in the cycle but we do think this is s strong contender for the coveted Chutzpah of the Year Award.

Losses should not be socialised in this manner - your pension first Dr. Gosh, your pension first.

The nanny state we’re in

So now we know: the anti-smoking lobby wants a complete ban on cigarette sales. Wes Streeting, the Shadow Health Secretary, has voiced what the lobby wants, and says he is considering a complete ban on the sale of cigarettes. Meanwhile, Action on Smoking and Health (ASH) is demanding a “new Tobacco Control Plan” so that Britain can become “smokefree by 2030”.

Prohibition of alcohol was a disaster in America, and the War on Drugs around the world lined the pockets of criminals. Legislators are starting to understand that the criminalisation of cannabis has been bad for society. Some enlightened countries are legalising cannabis. For example, the cultivation and recreational use of cannabis is legal in Canada, while America is gradually legalising cannabis use state-by-state.

What connects the puritans who get upset at the notion of people enjoying themselves (whether with wine, cannabis and cigarettes) is that they don’t really believe in free choice. ASH, the lobby group, thinks that people smoke because they are oppressed by “inequalities”. In their world, “The more those around you smoke, the more likely you are to start smoking and the more difficult it is to quit, perpetuating these cycles, and transmitting inequalities across generations.”

In this view of the world, humans are weaklings to whom business and society inflicts its will through advertising, peer-pressure, exploitative offers and even the existence of products sold in plain packaging (except for graphic health warnings) hidden behind cupboards. The role for government, then, is first to “nudge” people to stop doing enjoyable things (because that sounds better than ban). But really the aim is to get to the point where outright bans are possible because, after all, if people were capable of choice they would stop making the “wrong” ones.

In fact, most people engage in “naughty” activities like drinking gin and smoking a cigarette because they enjoy it: they find it relaxing. They know you can have too much of a good thing and, in the case of tobacco, that there are clearly health risks. In a free country, people should have the freedom to take part in activities that affect themselves without having hectoring moralisers try to use the power of the state to prevent them.

Far from creating “new Tobacco Control Plan”, politicians should realise that they have already gone too far by preventing smoking rooms in pubs, and abandon the ludicrous, moralising “smokefree by 2030” agenda, which is an attack on people’s free choice and would just expand criminal activity.

Does anyone still teach - or perhaps learn - logic, reasoning?

A substantial part of the Enlightenment was that we should use logic and reason to divine public policy rather than the supposed claims of the divinity of your choice. It’s not obvious that this idea has stuck:

Despite having hired an ethnically diverse workforce that often reflected the population they served, Sainsbury’s store managers were, in most cases, all white men. “And it wasn’t just me that was concerned about it. Naturally, the executive management were concerned as well,” Tyler says.

It sparked a series of initiatives, including management development schemes, unconscious bias training and recruitment programmes, which also focused on senior leadership, resulting in Sainsbury’s appointing the first black woman – Jean Tomlin – to its board in 2013.

By the time he stepped down in 2019, Tyler felt they had made a difference. “It’s much easier for, say, a young woman from an ethnic minority arriving in one of our stores to see that it’s possible for her to get to the top today than it was then. And that’s really important, as far as I’m concerned.”

As with Gary Becker on taste discrimination. Not hiring talent - or not allowing talent to flourish - on spurious grounds like ethnicity, religion, gender, sexuality and so on is costly to an employer. Therefore the competition in the marketplace for access to talent will break down discrimination in hiring on the basis of ethnicity, religion, gender, sexuality and all the rest. In fact, so strong is this impulsion that if maintenance of such discrimination is desired - say, because the ruling class is obscenely racist - then it will be necessary to use the law to insist upon it. Thus Jim Crow, for that insistence on not being allowed to hire talent, wherever it is, is the only thing which will stop business from profiting from hiring talent.

We’re entirely fine with that work within the supermarket chain therefore. Obviously we are, it accords with our beliefs and you can’t gain greater proof than that, can you?

But then:

It is one of the reasons that Tyler, who now chairs the government-backed Parker review into ethnic diversity, has broadly welcomed new regulations that will, for the first time, force the UK’s roughly 1,100 publicly listed companies to show that they are meeting gender and ethnic diversity targets – or explain why they are falling behind.

This is where the logic and reason part come in. If we assume that the performance of Sainsbury’s is increased by that access to talent then we’ve no need for the insistence of the law that all do it.

As an aside, Sainsbury’s shareholders should be a little miffed that their former chairman is now whittling away at their competitive advantage by insisting everyone else adopt their winning policy.

But logic, reason: if hiring diversely increases profits then we’ve no need of a law to hire diversely because capitalism and markets - good old greed if you prefer - will lead to diverse hiring. The only possible justification for the law about hiring diversely is that it is not more profitable therefore there is no other impulse which will lead to it.

Do note something here. There could well be other reasons why we might want the law. That logical, reasoning, process does allow us to nibble away at an argument piece by piece. So this is about exactly that piece being presented.

If diversity increases profits then we need no law about it, if we do need a law about it then it cannot be true that the profit justification is valid. QED.

Our suspicion is that those proposing this argument know all of this. But it still acts as some vaguely convincing handwavey stuff that justifies what they already wish to do. Which is fine, obviously, folk get to do as they wish - but it’s not exactly a strong defence of those Enlightenment virtues of logic and reasoning, is it?

Extraordinarily bad logic in the steel industry

Or, perhaps, just extraordinarily bad logic being used to justify yet another hand out to the steel industry.

In general this is not a bad outline of what is going on. Blast furnaces are large, highly polluting - in the CO2 sense - methods of making virgin steel. Arc furnaces are a lower capital cost method of reutilising steel scrap. We like recycling but it’s not possible to recycle forever, impurities - called “tramp elements” - do accumulate.

So, we’ll always need some amount of virgin steel to be added into the system. If blast furnaces are out, what are we to do? There are answers, DRI and so on are alternatives to blast furnaces. As those old furnaces go to die - they do, takes decades, but they do - then replace them with the new technology.

All of that is fine, justified and sensible. Then comes the switch:

If the UK is to retain a steel industry while at the same time treading the path to industrial net zero, the blast furnaces as they are have to be retired.

Tata’s and Jingye’s demands for support from the government is linked to high energy prices and the carbon emissions penalty regimes that make UK steel production uncompetitive and prevent investment in new technologies.

Ah, no. DRI doesn’t have those emissions - doesn’t use coke for example - and so installing DRI means not paying the emissions penalty. This is rather the point of the emissions penalty, so that people will move over to the non-emittive technology. Whether we talk Stern - tax emissions now - or Nordhaus - make sure everyone knows we’ll tax future emissions - doesn’t matter. The entire point of the carbon tax, which is what this is, is that when the furnaces get replaced they’ll be with the new tech precisely and exactly so that it won’t pay the emissions penalty.

But what is the claim being made by the steel industry here? That they require subsidy to build anew with the cheaper tech. Which is absurd. We’re deliberately fining them for the use of the old tech, in order to make it more expensive relative to the new. To provide that impetus for the adoption of the new. Yet now they’re demanding a subsidy to reduce their own costs?

Closing the blast furnaces, fine, we want this to happen. That’s the very point of the emissions penalty. Subsidy to do so? No, not when we’re actively fining people into doing so.

The strategic roadmap is just fine. The demand for subsidy along the way - nope, they can go boil their heads.

We fear that the Telegraph is grossly mislead here

The Telegraph tells us that:

OECD figures from 2021 show that 16pc of Ireland’s £423bn gross domestic product that year came from taxes on US tech businesses.

Ahahaha. No.

That 16% would be £67.6 billion. For Ireland:

“Revenue collected total gross receipts of almost €96.6 billion, including €17.5 billion in non-Exchequer receipts collected on behalf of other Government Departments, Agencies and EU Member States. Net Exchequer receipts of €67.5 billion were up by 20% or €11.3 billion on 2020.”

It really isn’t true that the Republic runs on nothing but tax revenue from the Big Tech companies. It would be lovely if it did of course, no one in the country would have to pay income tax, VAT, sin taxes on the stout or anything else. Anyone who has ever been to Ireland will know - even if only from the price of a stout - that this isn’t true.

Now it is true that there’s something very odd about Irish economic statistics. It’s one of the few places in the world where using GNP, not GDP, is necessary (here’s, as with sticky-backed plastic, one we made earlier) as our model.

But that 16% of the economy, that’s more like the Big Tech revenue which flows through Ireland. Sounds about right, that’s similar in size to the difference between Irish GDP and GNP and that difference between the two economic measures is largely the Big Tech revenue that flows through Ireland.

Connoisseurs of corporate accounting will understand that revenue is not the same as profits and of course neither are the same as the tax lifted from the flow of funds.

We do not insist that everyone knows these sorts of details about national income accounting. We would hope that those who write the business pages do - for, of course, the business pages are one of those places where everyone gains their imperfect knowledge of these details.

One of the things (and given that he’s safely ensconced at Berkeley, you might imagine there aren’t that many) we agree with the American economist Brad DeLong upon is his insistence that basic economic numerology is something that should be taught to journalists. He’s gone so far as to actually teach such classes, if any editor wishes us to do so here please do get in touch.

We’re not suggesting that all should be propagandised into agreeing with us on the joys of free markets red in tooth and claw - altho’ we do think the world would be a better place if all were. Rather, those who write the daily record should be aware of basic economic numbers. If only to the sort of level of getting the right number of digits and with a hope of getting the first digit itself correct.

UK GDP is around the £2 trillion mark, the government is in the 40 to 45% range of that. There’re approaching 70 million in the UK, around 30 million in the workforce. Corporate profits are possibly 10% of GDP, the capital share possibly 20% and so on. Just a general guide to what is around and about true - the importance of which is that a statement which is untrue, wildly outside possibility, then becomes jarring and so is checked.

As with on the sports pages, employing someone who didn’t know that 15-0 is a most unlikely association football score (tho’ it has happened) while nothing too far out of the ordinary in rugby football would be considered most, most, odd.

We don’t actually mind whether it’s all called economic numerology or economic numeracy - nor whether we’re involved in inculcating it - but we do recommend it to the editors of the nation.

Baumol says the answer is more markets

Larry Elliott treats us to an analysis of where it’s all going wrong:

Three factors were behind the massive jump in productivity in the middle decades of the 20th century: ideas, investment and the struggle against inequality. Economies only really started to motor when new products were available to the masses through policies that encouraged full employment, collective bargaining and rising wages. Currently, there are plenty of ideas but the other two factors are missing. Until that changes, the global economy will be stuck in its low-growth rut.

As you might imagine there are certain aspects of that we don’t agree with. But the big one there, yes, we do. As Paul Krugman has been known to note, productivity isn’t everything but in the long run it’s pretty much everything. By far the largest determinant of living standards. So, assuming that we want our future selves to be richer, our children too, we desire to increase productivity.

The big question is how to do that of course?

One observation we would make is that what new tech there has been introduced in recent years has been in new fields. There’s been very little - comparatively - change in the way we do old things. Which isn’t how a new technology - this internet, web, AI and so on - is supposed to work. Electricity changed everything, as did steam before it. So, why is there this failure of the new to disrupt the old? We’d put forward the idea that there are too many protections for those old ways of doing things. Say, train unions insisting that guardless, or driverless, trains may not be used even as we know - Docklands light rail for example - that they do in fact work. We’re not being allowed to automate because the current economic set up produces too many of Warren Buffett’s moats to protect the old ways.

The regulatory fightback against Uber/Lyft and so on is another example of this.

We thus need to strip the regulatory state of much of its power in order that the competition from new tech is allowed to eat those old ways.

A more theoretic view comes from Willam Baumol. Many will know of his insistence that services will become more expensive, relative to manufactures, as the economy develops and we as individuals become richer. The mechanism is that average wages - as per Krugman - are determined by average productivity. But productivity is easier to improve in manufactures than services. Therefore, given the labour inputs to each over time, services become relatively more expensive.

This is true, but does need the addition of the other leg of Baumol’s work. What is it that drives productivity improvements? It’s market pressures, competition. Improving productivity in services is not impossible, just more difficult. Therefore we need more market pressures, more competition, in services than we do in manufactures. Which leads us to again insisting that we must strip the regulatory state of its ability to protect the old ways from that beneficial competition.

For example, the NHS is fully - at least - one tenth of our economy. Sweating an increase in productivity out of that will have as much effect on living standards as an increase in manufacturing. Which is also, as it happens, about 10% of our economy.

Assume that the original diagnosis is correct for a moment. We’ve not been getting the productivity improvements we’d like to have had and need to reorganise in order to gain those we could have in the future. The answer is markets, markets red in tooth and claw. For those are what do indeed improve productivity.

Markets with the freedom of entry - you know, free markets?

Worrying about Fukushima radiation is just bananas

It was one of us who first did the calculation comparing the radiation release from those stricken Fukushima reactors to global banana consumption. Further calculations pointed out that worries over bioaccumulation in fish were similarly nonsense. The claim was not - is not - that radiation is nothing to worry about. It’s that when worrying we need to think about how much is there? At which point, given that the universe itself is radioactive, we can place it in that spectrum between no worries and flee for the hills. Given that the fish concentrations were, at their peak, around that of one single dried banana chip we’re at the no worries end here.

This seems not to have convinced absolutely everyone:

Japan must work with the Pacific to find a solution to the Fukushima water release issue – otherwise we face disaster

Henry Puna

Based on our experience with nuclear contamination, continuing with ocean discharge plans is simply inconceivable

Ocean discharge is one of the few sensible things to be done here actually.

The water under discussion has already been filtered. We are not talking of releases of plutonium, uranium, caesium and so on. Rather, it’s the tritium in the molecules of the water itself. The Pacific Ocean already contains substantial amounts of such, as does all water. The release, if it happens, will make no measurable difference whatsoever to those naturally existing levels.

It’s easy to check back on this. All those hopes of fusion power, unlimited energy and so on. The fuel will be seawater suitably processed. Because all seawater does contain both deuterium and tritium which are the fuels for the fusion process. QED, it’s there already, as evidenced by all those articles shouting that if fusion works then we can power the world on mere seawater.

It’s also true that any such release would flood the oceans with less radioactivity than one single coal fired plant already does. We really are at the no worries end.

All of this is obvious to anyone who can keep track of the zeroes in a calculation - or grasps scientific notation - so that leaves us with the question of why are people shouting about it? If we were cynics we might mutter something about politicians, bureaucrats and NGOs setting up a couple of decades worth of very important meetings over sushi and whisky at someone else’s expense. We are not, of course, cynics.

But let us be positive here, helpful. One obvious solution is simply to take the tops off the tanks on sunny days. Evaporation will take care of the problem. Or, think along those lines of fusion power. The entire complaint here is that we’ve water already enriched in tritium. As and when fusion works - that 50 years of course - then we will want to have water enriched in tritium to power it. Just as with that thorium that so many minerals processors have been putting by for the now arrived day then thorium reactors start getting filled up, allow the energy production system to eat the supposed pollution.

The only problem with that final suggestion is that the Fukushima “radioactively polluted” water is so low in tritium enrichment that it doesn’t, in fact, get us anywhere in trying to fuel a fusion reactor. Which is another one of those proofs that we’re at the entirely “no worries” end of our spectrum, isn’t it.

Pull the plug on this discussion, it’s nonsense to worry about these trivial levels of radiation.