The importance of sunk costs


George Monbiot manages, surprisingly, to address the correct point here:

That the Conservatives, following the Liberal Democrats and the Greens, can outflank Labour so easily on this issue shows how attached the governing party has become to "sunk costs". By this I mean the lobbying power of companies which have already made their investments and want to squeeze every last drop out of them before they expire.

George Monbiot has, unsurprisingly, however managed to address it in the wrong manner.

Now it is true that it's a fundamental tenet of decision making that you shouldn't consider sunk costs. What you've already spent on something shouldn't cloud your judgement as to whether you should spend more on it, for example. Throwing good money after bad is not to be recommended after all.

However, we do indeed want to think about the type of sunk costs that George is referring to when we adress the thorny subject of climate change. The cost of whatever it is that we do (assuming that we do anything at all) is going to be massively influenced by whether we think about all of the investments we have already made or not. No, not quite "sunk costs" in the sense of those we shouldn't be thinking about but the costs we have sunk in assets that are still viable, still operating.

Whatever it is that we do to create non (or low) carbon emission energy generation, just as an example, should be done in sync with the requirement to replace our current energy generation system as it wears out. We shouldn't simply tear down what works now and replace: we should wait until it needs to be torn down anyway and then replace with whatever new system we decide upon. This is true of all of the various measures suggested. We really don't want to throw away hundreds of billions of pounds worth of currently operating infrastructure and build it all again: we want to wait until we have to replace it in the normal cycle and then do it in the new manner.

And it isn't just "companies" which want to squeeze every last drop out of such things. We all want to get those last drops for it is we who have paid for the originals (people being the only people who can actually pay for anything, companies simply being a convenient legal fiction) and we who will have to pay for the new.

If we throw away hundreds of billions of assets that are still adequate and functioning then we will make ourselves poorer by precisely those hundreds of billions we are throwing away. Which really doesn't sound like a very good idea.

Buy British?


I was on BBC Radio Newcastle earlier this week, discussing Sir Alan Sugar's comment that we should all 'buy British' to help the economy.

Well, that's fine I said, so long as the British product is competitive on price and quality. If it is, then go for it. But we shouldn’t be paying a premium for something simply because it is British – especially not in a recession, when money is tight and we all need to make our budgets go as far as possible.

When people talk about 'buying British' they are mostly talking about food. Okay, maybe paying more for British food will keep a few farmers in business. But what about people who work in importing? And what about the people who work in all those other sectors of the economy where you couldn't spend your money, because you don't have any left? After all, an economic recovery is hardly going to be driven by agriculture.

Another issue that came up is whether we actually make anything in the UK any more anyway. The thing is, it all depends on what you mean by 'make'. If it's designed in the UK, is it British? Or what if the microchip or circuit board is British, but the rest of the product comes from elsewhere? Such national distinctions are increasingly irrelevant in a globalized economy.

And that, of course, is as it should be. To become wealthy, economies specialize. When they specialize, they become more productive – more output comes from the same inputs – and grow. That's how wealth is created. By contrast, assuming that a single national economy should do everything  – usually the implicit assumption behind 'buy British' campaigns – is a recipe for stagnation and decline.

Five Days in Quangostan


Five Days in Quangostan or more like Five Days in Hell! That's one man's interpretation of what daily life in the UK could soon become, especially if it carries on journeying down the road it's currently on.

Greg Kane, an ordinary citizen, is constantly harassed and hounded by the state. It gets worse when he takes a highly confidential letter from the Chief Constable to the Home Secretary. On top of his day-to-day trials and tribulations due to the idiocy of bureaucracy he now faces up to the state’s trump card, the use of legitimate violence. From the first day in the novel, as a reader, you are left banging your head against a wall at just how ridiculous life is becoming but throughout you hope that the eponymous hero can outwit those that stand in his way of leading a 'normal' life.

This was an enjoyable read, irreverent and entertaining, if not a little worrying as a precursor to what the UK could become like as it slips ever more into the abyss. For my own tastes it is perhaps a little conservative but none the less the general theme is one that both libertarians and conservatives can attest to: the state and its agents are incessantly ruining the lives of the majority. I'm sure any person who reads this book can relate to at least one of the multitude of taxing experiences that the main character suffers. Which is testament to how far we have come down the wrong road!

The book is available to buy from Amazon here.

Blog Review 843


Milton Friedman responds to Naomi Klein's assertions (no, not a seance, just modern recording technology).

Why the newspapers and magazines are going to report this recession as the worst ever. For for them, it is.

While, at least so far, it doesn't seem to be the worst.

And at least there are simple ways of solving such minor problems.

That old revealed preferences thing rears its most amusing head again.

Another reminder of how the various governing bodies acquire their cheerleaders.

And finally, who wouldn't want to work for a newspaper like this?

Propaganda and truth telling


Yes, of course we all know the difference between the two. Propaganda is the bit you don't agree with, truth telling the part you do. So an interesting little story of our past truth telling makes an appearance:

My classes started today; I'll be wearing my "I buy goods from poorer countries" wristband that the Adam Smith Institute sent me

This is triggered by this piece from Nicholas Kristof which contains this:

But while it shocks Americans to hear it, the central challenge in the poorest countries is not that sweatshops exploit too many people, but that they don’t exploit enough.Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children....(...)...In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.

Which reminds me of this from our most recent Nobel Laureate* in economics:

These improvements have not taken place because well-meaning people in the West have done anything to help--foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better.

That's basically the story of the globalisation of the past few decades. You can call it soulless, you can call it amoral pursuit of profit, you can call it greed if you like. The nett result has been the biggest reduction in poverty in the entire history of the human race. Hundreds of millions now have that something significantly better. You can even, if you really wish, call that buying goods from poor countries propaganda: as long as you'll admit that it actually works in doing what we all want to happen. Aiding hundreds of milions of our fellow humans up out of abject poverty.


* Yes, we know, Swedish Bank, honour of, and we don't care.

Personal budgets in the NHS


On Friday the Department of Health announced the extension of 'personal budgets' to healthcare (following their successful introduction in social care) for people with long-term conditions such as Multiple Sclerosis. What this means is that patients will receive direct payments that they are then able to spend on the health services of their choice. 

This is good news. Individuals know their own needs and preferences far better than the state or its agents ever can. Putting them in charge of directing their own care improves outcomes and increases cost-effectiveness.

But why can't the government make the very small leap of logic from saying that people with long-term care conditions should have personal budgets, to saying that we should all be given the freedom to manage our own healthcare. If it's good for people in social care, and good for people with long-term conditions, then why not for the rest of us? The same logic applies regardless of who you are talking about.

It's easy to see how it might work. Assuming we stick with an egalitarian, tax-financed system, we could all be given health savings accounts, which the government would credit annually with our basic personal budgets. Then we would simply pay directly for the care we needed, as we needed it.

The best thing about this is that we would quickly get a healthcare sector shaped by the individual choices of hundreds of thousands of people and driven by consumer control, rather than one designed by central planners and commanded from the top-down. In other words, we'd have a market instead of a Soviet-style 'service'.

Working, what’s the point?


“Working, what’s the point?" This is the title to a piece on the BBC that highlights the dim prospects of work for two un-employed twenty-somethings, in a former mining town in Northern England. But it’s also a question that they themselves raise in discussion.

So let me answer the question for them: The point is so that I can pay for others to survive whilst they look for work as opposed to insuring against my loss of income should I lose my job. I work so that I can pay for the healthcare of others should they become ill rather than paying to secure my good health in the future. I work so that other peoples’ children can gain an education, yet I know that should my own children ever want an education I will struggle to pay. I work so that the wages and pensions of those that redistribute my earnings into services I don’t require are generous. Far more generous than I could ever imagine. I work so that I can pay more to the government when I use services, when I drink, when I eat, when I read, when I heat my home, when I light my room. I work so that you don’t have to. And for that I’m left wondering, “what’s the point?"

A small percentage of my money does end up in the right place. It pays for a police force to keep the streets safe for others and me. It pays for an air force, navy and army to keep the nation safe and it pays for a justice system that prosecutes transgressors. (Or it should in theory).

Perhaps the day is fast approaching when I and others like me shrug one morning, roll over, hit snooze and also say quietly, “Working, what’s the point?"

Blog Review 842


While everyone is haring off trying to repeat or even outdo the New Deal, there's still a lot of controversy about whether it actually worked and if it did, which parts did?

What, in the words of a modern liberal, distinguishes a modern liberal from a classical. Arguing back is so easy that it is left as an exercise for the reader.

For example, we hear a little about government failure, but what do you do when a government is actually crazy?

Or even crazed?

Or, can't we make the modern liberal system simple enough that the incoming Treasury Secretary can understand it?

A very good point about stability.

And finally, on occupied space.

Lazy civil servants


Donald Trump, in the original Apprentice, made famous the words, “You’re Fired!" Perhaps Sir Alan Sugar and he could team up and take those two words into the depths of the civil service, dispensing them to the staff that Lord Jones seems to have found lurking there. Speaking to the Commons Public Administration Select Committee, he said: “Frankly the job could be done with half as many, it could be more productive, more efficient, it could deliver a lot more value for money for the taxpayer. I was amazed, quite frankly, at how many people deserved the sack and yet that was the one threat that they never ever worked under, because it doesn't exist."

Lord Jones seems to be adding to the point the Conservatives made a few days ago when they claimed that there were 4,000 civil service staff ‘doing nothing’. As a culture of malaise now hangs over the civil service then it’s time to cut our losses and find another way of implementing the odious government initiatives. We already have a vast array of management consultants working on government policy, some £3bn as of 2007 (perhaps we could take them on full time). Though I’m not sure we’d still be getting value for money there.

In ideal world the civil service would be operated along the same lines as any other business. At present it is weatherproofed against hard times, as firms are trimming the fat, the civil service continues on regardless. A point supported by the head of the civil service union, Mr Baume, who said, “the government's love of launching initiatives - and the current economic crisis - meant that there was an argument for more civil servants rather than less." It is easy to predict that the governments debts will grow ever deeper and we shall continue to furnish the pockets of those, who in any other business, would be deemed surplus to requirements.

Oh, and if you are in the public sector and not doing much click here.

Expenses disgrace


Leader of the Commons, Harriet Harman, has tabled proposals that will give MPs an exemption from the Freedom of Information Act. The aim is to circumvent rulings by the High Court and Information Tribunal demanding the receipt-by-receipt breakdowns of how public money is spent.

The motivation behind this is straight forward. MPs are covering their own backs. Harriet Harman is not alone; there is little appetite among MPs to let their constituents know how they spend their taxes.

Liberal Democrat MP, Norman Baker, has decided to speak out against Harman, stating: “After the fiasco of MPs’ expenses there is a great deal of work to be done rebuilding confidence in the Commons. This simply undermines it again." He must have seen the light, for his reputation on this front is far from squeaky clean.

Jon Craig, on the Sky News website, rightly compares this move to the actions of Silvio Berlusconi. MPs would be the only public servants exempt from the Freedom of Information Act. This is Public Choice Theory in practice, and not even the High Court can hold them to account.