We grasp the concept of state planning

Leaving folk to just get on with things might have the occasional gap in it, we agree. It’s possible to think of having some organisation that sits down, considers the future, then sorts out those problems that pure markets might not, for some reason, really take care of.

We do grasp the concept:

After decades of neglect, Britain scrambles to keep the lights on this winter….Yet the bleak reality is this new generation of nuclear power plants will arrive far too late …. a string of existing plants are approaching retirement, putting UK nuclear power generation on course to fall to the lowest levels seen since the 1960s over the next few years. …..One worst case scenario by Whitehall predicts six million homes will be left without power this winter….Under current plans, the fleet will be reduced to less than 4 gigawatts of capacity in two years’ time…..Following talks with the ONR, EDF recently ruled out keeping Hinkley Point B open, saying it would have taken too long to put the safety case together and that time had “run out”.,,,,,and on and on.

This is not a problem that has crept up upon anyone. Reactors last for decades, take decades to build.

It’s possible that the incentives of democratic politics simply do not support long term decision making of the kind needed here. It’s also possible that the British state is simply incompetent. But what is obvious is that if we are to consider the desirability of state planning then we’ve got to consider the outcomes of what plannings the state does or does not currently do.

They’re no good at it, are they?

So, whatever the theoretic joys of having that government planning the tough stuff for us it’s not a system that actually works in practice. Ho Hum, lovely theories destroyed by ugly facts again.

A Weekend of Good News

For a liberal economist and Westminster-watcher — not to mention someone startled by rising household bills — the weekend’s business pages made depressing reading. For a start, the Norwegian state energy company Equinor, objecting to the government’s windfall tax on energy firms, says it’s re-thinking its planned new drilling in the Rosebank field near the Shetland Islands. Shell too — remember, they’ve just written off $1bn in Russian investments and now we’re going to hit them with a new tax — also seems likely to press on with the $2bn Cambo project in the North Sea. So that’s not so great for the UK, particularly Scotland.

Meanwhile we are still maintaining Richter-scale guidelines for fracking that are twice as high as those applicable to onshore oil extraction, and roughly equivalent to someone sitting down in a chair in the next room, so that potential bill-cutter is going nowhere.

And the other prospect, new nuclear capacity, seems far off. Hinkley Point C in Somerset, the first of the new generation plants, will not come online until 2027 — if we’re lucky. Thanks to the Blair government’s decision to phase out all the UK’s nuclear stations (made to appease the party’s anti-nuclear lobby rather than for economic or energy reasons), plus the Cameron government’s enthusiasm for wind farms and biomass (in the attempt to out-green the Greens), our existing nuclear plants are approaching retirement. So the ‘green levy’ on household bills now amounts to £153 per household, and with oil and biomass being disrupted by Putin’s war, we still face the prospect of six million homes facing blackouts this winter.

Another member of that dismal decade, the 1970s, is that rail and London Underground strikes are going ahead. Average pay with bonuses at Network Rail is £41,000 and that of train drivers if £48,000, far higher than the average of their customers, but still they are prepared to use their monopoly power to demand more and to resist modernisation and automation that would introduce better and more reliable services. Well, what do you expect when you nationalise an industry? A public monopoly encourages employees to focus on the deep pockets of the government rather than the needs and convenience of their customers. It’s perfectly natural and understandable. So why does the government think it can run trains better and more cheaply than competitive operators? And why did it not open up the system to more competition, with open access for example, rather than take the easy bureaucratic route of nationalising it?

The other thing we saw in the 1970s, of course, was inflation, which further encourages outlandish pay demands. Featherbedded by their monopoly power, unions demand settlements that reflect not just what their members have lost in the last year, but what they expect to lose in the next. It led to the miners demanding a 24% pay raise, something the rest of us might wistfully dream of.

On inflation, though, the Bank of England has completely bottled it. The Fed last week raised interest rates by 0.75 percentage points — though they are still historically at ‘crisis’ levels. Despite predictions of inflation hitting 11% by Autumn, the Bank’s Monetary Policy Committee, dominated by Whitehall insiders, raised rates by only 0.25%, to 1.25%. In other words, interest rates are deeply negative, and look as if they are staying so. In the 1970s, I paid 17% on my student overdraft, but I didn’t mind, as inflation was 21%. In other words, the bank was paying me to take their money. And the same thing is happening now. The Whitehall suits, who have never run a business in their lives, do not seem to understand that inflation is far more damaging than any damper on growth caused by higher rates. Rising prices affect everything, and make it hard to see when real prices (like the cost of overdrafts) are high or low — so it leads to absolutely crazy investment decisions, with money being spent in unsustainable ways.

Then of course there are the interventions in the rented housing market. Yes, there are real problems there, caused by past policy mistakes. But further restraints will make property owners think twice about renting out their places. So rented accommodation will become even scarcer and more expensive. That is bad news for poorer people and younger people whose budgets are already stretched. And they have already been robbed of any prospect of owning a home because the population is growing at about 300,000 a year, but thanks to some of the most restrictive planning regulations in the world, we are not building anything like that number of homes. Rich homeowners get richer, poor renters get poorer.

The really depressing thing is that we have been through all this before, in living memory. There is no reason to make the same mistakes again. But when you have a government that caves in to media headlines and interest-group campaigns, rather than one driven by clear principles and economic common sense, that’s what you get. Sad, really.

As we keep trying to point out, AI is supposed to be biased

We can’t help but think that there’s a category error in here:

There are many issues relating to AI about which we should worry. None of them has to do with sentience. There is, for instance, the issue of bias. Because algorithms and other forms of software are trained using data from human societies, they often replicate the biases and attitudes of those societies. Facial recognition software exhibits racial biases and people have been arrested on mistaken data. AI used in healthcare or recruitment can replicate real-life social biases.

Timnit Gebru, former head of Google’s ethical AI team, and several of her colleagues wrote a paper in 2020 that showed that large language models, such as LaMDA, which are trained on virtually as much online text as they can hoover up, can be particularly susceptible to a deeply distorted view of the world because so much of the input material is racist, sexist and conspiratorial.

We want our AIs to be useful in the real world. For their pattern recognition to tell us something useful about real world patterns.

If human beings are biased - and given the definitions being used of “racist”, “sexist” and so on we all are - then so too must the AIs be biased if they’re to describe that real world.

Of course, it would be possible to train AIs on resolutely non-racist and non-sexist material. Say, nothing but the tweets of Owen Jones and Laurie Penny. It’s just that any output from such models is unlikely to have much relevance to that universe outside the windows. Which rather obviates the purpose of making the models and AIs. A bit like the effort of making convex shovels, really not the point of the effort at all.

At heart we think this is the same as the GOSPLAN delusion. Lovely models of how the economy should work can be constructed. But if base human nature is ignored then such models will depend upon such as New Soviet Man to turn up to make it work - he didn’t, it didn’t. The same will be true of any model of human behaviour or society that assumes - or insists - that we’re all free of those current sins of racism or sexism and whatever other are the modern claims. They might well end up being very pretty models but they’re not going to be of any practical use. So, why bother?

If we want to model humans then we’ve got to model them as they are, not as some might wish them to be. This is as true of AIs as it is of economic models.

But it doesn't matter which it is

These two are posed as being opposites, exclusionary cases, yet they’re not:

No wonder Uber, Deliveroo and Lyft have lost more than half their value this year, far worse than the Nasdaq average.

For much of their life, the question of whether these businesses are tech companies or merely older business models in fancier packaging has been left unanswered. While they have claimed they are making industries more efficient and improving consumer experiences, critics have complained they simply exploit regulatory loopholes to undercut incumbents.

Exploiting regulatory loopholes to make industries more efficient and improve consumer experiences is not some negative activity that we wish to prevent. For it’s still doing that job of increasing efficiency and the consumer experience.

That regulations prevent this from happening is a fault in the regulatory system, not the attempts to make consumers better off.

Yes, of course that entirely ignores whether these are viable businesses for the long term. But we’ve a system to decide upon that too - that very market they’re competing in. If they go bust, ah, well, nice try, no cigar.

The entire process is beneficial - after all, it’s not entirely unknown for incumbents to shape the regulatory system to ensure that they cannot be undercut now, is it? In which case radical market entry aimed at just those restrictions is markedly beneficial, isn’t it?

Now is the obvious time to cut electric vehicle subsidies, clearly

Not that we find all that many government things about subsidies and the environment usefully correct but this is one of them:

The boss of Halfords has hit out at Grant Shapps' "crazy" decision to scrap electric car subsidies amid soaring fuel prices.

Chief executive Graham Stapleton demanded a rethink of the policy after the price of petrol and diesel hit another record high this week.

The Government on Tuesday unexpectedly scrapped the £1,500 subsidy for purchases of new electric cars.

It is not the price of an electric car that is the problem. It is the price of one relative to an internal combustion engine car that is. That’s what the subsidy is for - the price plus fuel of the ICE was still less than the EV plus ‘leccie. We desired - for whatever reason - to change those relative prices.

The change in fuel prices has changed those relative prices for us. We no longer require the subsidy to the EV to reduce the price relative to the ICE. Therefore we should stop paying the subsidy.

This seems very simple and entirely sensible to us. Market prices have altered to make the subsidy no longer necessary. Great, let’s not have the subsidy. And?

Book Review - Sailing Free: The Saga of Kári the Icelander

“We are not discussing whether we can afford to pay or not, or if we are stronger or weaker if we come more closely under the Church’s rule. This is about much more; about Iceland, about why our ancestors came here, about our Law and our freedom. We are asked by Gunnar to hand ourselves over to the Church and to its appointed overlords. But remember this: if you give power to a man, you can take it away again if he abuses it. If you give power to the Church - or to a king - you cannot.”

Gabriel Stein and John Nugée’s “Sailing Free: The Saga of Kári the Icelander” is a moving depiction of the fight for liberty in a historical setting, giving the cause an element of universal applicability. Medieval Iceland experienced more than 300 years without formal governments- a libertarian story certainly worth studying!

From making mistakes when carving chess pieces, to plummeting into icy water in an attempt to kill a walrus as a young boy, Kári is immediately depicted as having a naive and gullible nature. This makes him rather likeable as his character develops throughout the book, and the retrospective narrative voice gives the story a bildungsroman feel. Following his journey, we are immersed into the world of shipowners and merchants, against the backdrop of the free society that was medieval Iceland.

As his business leads him to travel, Kári learns to trade among Vikings, and finds himself at the forefront of the fight for freedom against a despotic King. Kári’s fight for liberty and choice in the face of those who wish to subvert Iceland’s tradition of liberty positions him as the freedom fighting protagonist we root for.

In the words of Kári, “In Iceland, we have our Law and our freedoms. Sometimes we quarrel - but when we do, we let the Thing decide. Here, no one tells us to go and fight and die in a cause that is not our own, simply because as king he can force us to do so".

The tension between the Free State and the Church in the struggle for the survival of Iceland’s liberty-centred legal customs mean that we follow Kári’s journey through his defence of “freedom and independence”. This struggle for liberty is perpetually important: Kári’s journey is a microcosm for the liberty movement which is pertinent to this day, and to everyday to come.

The plot is fast paced, and the language is clean and relatively simple (akin to a Hemingway novel, with little prose and poetic language). Stein and Nugée are brilliant in utilising this writing style in order to make the book easy to read, conveying their ideas effectively. In my view, this makes the book suitable for almost all ages, meaning that it can be a particularly effective way of communicating these ideas to the younger generation.

Sailing Free underlines the point that the fight for liberty is a universal cause that is relevant throughout history, and that it was just as salient in medieval Iceland as it is now in the 21st century. I would recommend every liberty lover to read it!

Prices are information, yea, even about childcare

We may not like the information contained in prices, we may wish to do something about it, but the one thing we really musn’t do is ignore that information:

For the first time in decades, the number of women not returning to work after having a baby is on the rise.

To find the reason why, we don’t have to look much further than the spiralling cost of a full-time nursery place for a child under two, which has risen from an average of £236 a week in 2018, to £274 in 2022. That means, for many women with two or more young children, the cost of childcare far outstrips their salary. The numbers simply don’t add up.

No, sadly that is the numbers actually adding up. As a society considering the allocation of labour we desire that everyones’ be applied to the highest value use. This is what makes the society as rich as can be, that each economic asset be best used. If childcare for two kids costs more than many earn by putting two kids in childcare then that’s information. That the highest value use of that person’s time is to do the childcare, not the work to pay someone else to do it.

As we say, we may not like this information but there it is, that’s what those prices are telling us. Subsidy doesn’t change that information either.

But a survey of 27,000 parents revealed that childcare costs have forced 43% of mothers to consider leaving their jobs and 40% to work fewer hours.

If childcare getting done is worth more than the work not being done then that’s also the right answer.

The government will balk at the idea of investing millions in the childcare sector, but it is an investment, not a cost: it is estimated that if women’s participation in work was as high in the UK as a whole as it already is in the south-west of England, it could add £48bn a year to the UK’s economy.

And that is failing to understand how GDP doesn’t count household labour. We would indeed increase GDP but only because GDP is the count of monetised transactions. It’s an accounting trick that is.

It’s entirely possible to acknowledge all of this and still come up with different solutions. But we do insist that we’ve all got to start from the information that is being presented to us. If it doesn’t make economic sense for the low paid to be sending their children into childcare so they can earn low pay well, that doesn’t make sense then, does it?

It’s Adam Smith’s birthday!

Well, sort of. We know when his birth was registered at the local church in 1723, and it’s likely that he was born a couple of days earlier. Then you need to add on a few days for the calendar change that happened in 1750, and you get 16 June. Which is why some enterprising group has christened this ‘Liberalism Day’.

But back to Smith. After a mostly uneventful childhood in Kirkcaldy, on Scotland’s east coast (although he was briefly kidnapped by vagrants) Smith entered the University of Glasgow, then went to Balliol College, Oxford — where he found that the professors had “given up even the pretence of teaching” because they got paid whether they taught or not (a useful lesson on incentives). 

Back in Scotland, he joined the staff at the University of Glasgow, where he wrote a book on ethics, The Theory Of Moral Sentiments (1759). This brought him instant fame. Enlightenment thinkers sought a firmer foundation for ethics than the dogma of clerics and commands of kings. Some sought ‘rational’ alternatives. Smith, however, identified morality as a feature of human social psychology. We have a natural sympathy for others and like to please them. As the book begins:

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

This natural sympathy binds and benefits the whole human species.

The book’s success prompted the Duke of Buccleuch’s stepfather to hire Smith, on a pension for life, to tutor the young Duke. Taking him on the Grand Tour of Europe, Smith picked up endless facts about different systems of commerce and regulation. He started writing The Wealth of Nations, weaving current and original ideas into a new, systematic, modern approach to economics.

The Wealth of Nations debunked mercantilism, the prevailing system by which countries tried to boost their cash resources by selling as much as possible to others, but buying as little as possible from them. So they subsidised exports and resisted imports. 

Smith, however, showed that both sides benefit from trade, not just sellers. The sellers get cash, but the buyers get goods that they value more than the price. What makes a country rich is not its gold reserves, but vibrant trade and commerce. Wealth came from liberating commerce, not restricting it.

The huge productivity gains made possible by the division of labour boost that wealth even more. Specialist producers can be thousands of times more productive than amateurs. They can produce surpluses that they can sell, giving them funds to invest in capital equipment — raising their productivity even more. This they do to benefit themselves, but their actions actually benefit everyone:

Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Another unplanned benefit of commerce is that it automatically steers resources to where they are needed. Where things are scarce, consumers will pay more, so suppliers produce more. When there is a glut, prices fall and producers switch their effort into more profitable lines. So, without any regulation and planning:

[T]he obvious and simple system of natural liberty establishes itself of its own accord. Every man...is left perfectly free to pursue his own interest in his own way.... The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.

This liberal system benefits the poor most. Smith railed against merchants using their political influence to win monopolies, tax preferences, controls and other privileges that distort markets in their favour—what today we call crony capitalism. He concluded that government must be limited to its core functions of providing the defence, justice and infrastructure that is needed for commerce to succeed. Leave people free, end cronyism, and the results will amaze you. 

Smith’s ideas were highly influential. The great free-trade era they ushered in, and the enormous rise in wealth it created — particularly for the poor — did indeed amaze the world.

Happy birthday (if it is your birthday), Adam Smith!

We find this to be colonialist, possibly even racist

A demand that Africa, the last truly poor continent, miss out on the known and useful route to being richer:

Africa must embrace renewable energy, and forgo exploration of its potentially lucrative gas deposits to stave off climate disaster and bring access to clean energy to the hundreds of millions who lack it, leading experts on the continent have said.

It is true that Africa is the last truly poor continent. It is also true that fossil fuels are a great way to start beating poverty. The demands that the poor - or perhaps these poor - must neglect the known and simple way of getting richer in favour of either a more expensive method, or even a method that doesn’t work, of getting richer strikes us as rather odd.

Almost as if there’s still some colonialism going on here - those poor people in foreign places should just jolly well do what we say - or even, given skin colours involved, some racism might be apparent.

We would note that renewables are rather more expensive than fossil fuels in these circumstances. Yes, it’s possible to construct models where over time the renewables come out cheaper but that is only after significant capital investment upfront. And what’s the thing a poor place, by definition, lacks? Cheap and low cost capital with which to make upfront investments, right?

Africa musn’t make money off of nature’s bounteous deposits and must also itself use a more expensive energy system and path to development? How isn’t this colonialism?

Are there really any benefits to the four-day workweek?

In 2019, the then Shadow Chancellor John McDonnell told Labour Conference that if they were to win the general election, they would “reduce the average full-time working week to 32 hours within the next decade”. It was unclear whether McDonnell was advocating for a blanket cap on the number of hours allowed to work, but there is no doubt that this would be disastrous. But are there any benefits to the four-day workweek?

Fast forward to 2022, the world’s largest trial of the four-day workweek has commenced in the UK, with over 3,300 workers participating. Provided they promise to maintain productivity at 100%, employees will work 80% of their usual hours for 100% of their pay. 

Joe O’Connor, Chief Executive of 4 Day Week Global, one of the non-profit groups coordinating the trial, said in a statement:

“As we emerge from the pandemic, more and more companies are recognising that the new frontier for competition is quality of life, and that reduced-hour, output-focused working is the vehicle to give them a competitive edge.”

Proponents of the four-day workweek argue that the morale-boosting benefits of reduced working hours, as well as the supposed boost in productivity, makes the four-day workweek worth the change.

The pandemic saw millions of people switch to remote working, and so the effects of alternative working arrangements may have changed. So this new research into the effects of alternative working arrangements is certainly welcome, as it helps companies make decisions based on more recent evidence.

A week and a half into the trial, and some companies taking part are beginning to regret their decision. Samantha Losey, Managing Director of communications company Unity, got off to a rocky start:

“We did our best to be as prepared as possible, but I think we were always going to hit snagging issues- that first day with half of the team out after the Jubilee weekend, it was challenging to get everything coordinated the way we wanted. We had the wrong team off, stuff went awry- it was deeply chaotic”.

These logistical issues may be solved as the trial continues, but only time will tell if these companies will be able to reap the positive benefits of reduced working hours.

However, looking at previous research, the benefits of the four-day workweek are often oversimplified and over-exaggerated. These kinds of alternative working arrangements have been tried in the past, and the morale-boosting benefits have been impermanent. Individual companies can make decisions on what working arrangements work best for them, but any government-imposed four-day workweek would be unjustified, counterproductive, and of course, illiberal.

The Icelandic government reported a number of  benefits from their trials, which saw the public sector move towards a four-day workweek. Workers reported that their work-life balance improved, they felt a reduction in stress levels, and had more time to spend with family. 

However, the validity of self-reported claims which were made immediately after these trials are questionable. In 1974, Martin J. Gammon credited the continued over-enthusiasm with the four-day workweek to the “Hawthorne Effect”. This is the idea that individuals subjected to the study of a new system will report more beneficial effects, purely because the system is novel. Like most things, with time, novelty wears off. These boosts in morale are just temporary and eventually subside, returning to pre-four-day workweek levels.

Myron Fottler’s 1977 paper questioned the supposed high employee acceptance rates of the four-day workweek. According to his own survey, Fottler showed that of employees who were given the opportunity to vote 6 months after the implementation of a four-day workweek, only 56% voted to continue the program. This is not the overwhelming endorsement cited in other studies, especially as the Hawthorne Effect would have still been working to boost short-term morale.

Finding the sweet spot between increased productivity within a shorter space of time and minimising fatigue is a difficult balance to strike. Reducing the number of days a person works to four often results in requirements to work evening and overnight hours, resulting in longer days. As was the case in Iceland, the introduction of the four-day workweek caused a reduction in the number of coffee breaks, water cooler chat, and the frequent movement of meetings to email correspondence. For those who work in shifts, a compressed workweek may also require quicker shift rotations throughout the day. Some studies have shown that compressing the workweek aggravates the negative effects of a rotating shift schedule. The full effects of a compressed workweek on businesses which use a rotating shift schedule should be looked at more thoroughly in these new trials which are currently taking place.

This brings to light a particularly positive aspect of the UK trials. Across the 70 companies taking part, there is huge variety in the sectors. A fish and chip shop in Norfolk, as well as financial service, hospitality and retail companies are taking part. This should give us some new data on the effects of the four day workweek in different sectors, and thus help inform company decisions moving forward.

Although there are short-term benefits to introducing a four-day workweek, the increase in costs (or reduction in wages) may not be worth the change. Whatever the outcomes of these trials, businesses should be free to create the working arrangements they see best, and workers should not be forced to sacrifice income due to government imposed caps. Work is not homogenous and working hours shouldn’t be either.