So requiring degrees for nurses didn't work out then?

Back when the requirement for nurses to take a degree course came in (all the way back in 2009) we muttered more than a little about how this wasn’t in fact a good idea. And so it has turned out:

School leavers will be able to start working as doctors without going to university, under new NHS plans to fix the growing staff crisis.

The apprenticeship scheme could allow one in 10 doctors to start work without a traditional medical degree, straight after their A-levels. A third of nurses are also expected to be trained under the "radical new approach".

It might be an approach but it’s neither radical nor new. It is, in fact, profoundly conservative. It’s an acknowledgement that one of those bright ideas of the Blair years wasn’t bright and is therefore to be reversed.

Don’t forget, nursing training used to be a couple of days of learning how to wash your hands properly then several years apprenticeship on the wards. Which is apparently what we’re to go back to.

The only pity is that the planners decided to take us on this decade and a half diversion. All hail planning, eh?

Oh, and expect the Royal College of Nursing to be spitting feathers - they were so proud of becoming an all graduate profession.

Abolish inheritance tax because wealth inequality doesn't, in fact, matter

A good suggestion from Eir Nolsøe, let’s just abolish inheritance tax. It’s - by far - the most hated tax in the country, doesn’t bring in much revenue compared to the spending micturation of the political classes so why bother? Why not just tax people on the profit of the whatever it is if they sell it after inheritance? Why make death one of those things that crystallises profit into a taxable event?

But there’s one more line of argument here. Wealth inequality doesn’t actually matter very much. Both Norway and Sweden have greater wealth inequality than the UK. Both Sweden and Norway have lower income inequality than the UK. Of course, consumption inequality - the thing that really counts - is lower everywhere than either of those two numbers. But it is in fact true that wealth inequality does not feed through into a greater inequality in how people live their lives - that income which can be expended.

So the reducing inequality argument doesn’t even work - so why persist with a hated, damaging, light revenue raising tax?

We assume that it’s because lots of our fellow Britons are consumed by the green eyed God of jealousy. But that’s not a rational basis for a system of taxation now, is it? Or perhaps it is but that’s a Britain that we’d prefer didn’t happen.

Incentives matter, d'ye see?

We would put much less weight on this statistic than many others. In fact, we’d put near no weight on it at all:

Back in the 1990s just over a third of those living in poverty (or to put it another way, towards the very bottom of the income distribution) were living in a household in which someone was in work. That fraction has now reached something like 60 per cent. The majority of the poor are in work or live in a household where someone is working.

The reason we think it’s unimportant - in the sense of being some horror that requires a solution - is that we changed the benefit system over that period of time. For certain benefits - working tax credits for example - it’s necessary to work 16 hours a week. Which isn’t enough to climb out of poverty. But someone working 16 hours a week to gain access to that benefit is someone described as “being in work”. We’re absolutely certain that if we went back to the benefits structure of those 1990s then we’d see the level of poverty in families with someone in work return to those 1990s levels.

Incentives do matter, d’ye see?

The other reason we’d not change anything to deal with this perceived problem is that at least something has already been done. Universal Credit shakes up those incentives and we really should wait and see how people react to those changes.

That change in the number of “working families” who are in poverty is driven at least in part by the changes made to the welfare system. Not, as all too many are assuming, by the structure of the underlying economy. Even if we did insist that this was some problem that must be dealt with the changes should therefore be in the welfare system, not the economy.

Hayek's 124th

On this day, in 1899, the Nobel economist and social theorist Friedrich Hayek was born. He was, in the words of Robert Skidelsky, “the dominant intellectual influence of the last quarter of the twentieth century”.

Hayek was the driving force that kept alive the spirit of personal and economic freedom that had been crushed by the Second World War and the Keynesian economic experiment that followed it. Those who think they can rationally design a better society, he argued, suffer from the ‘fatal conceit’ that we know far more about how society works than we really do.

Governments simply could not collect and process all the information needed to run a functioning economy, because that information is dispersed, diffuse, incomplete and personal. The socialist dream would always be frustrated by reality; and as socialists struggled to control things, we would be drawn down a road to serfdom.

Societies do not need to be planned in order to be rational and functional. Their rules and customs contain a ‘wisdom’ that has stood the test of time. A wisdom that we cannot even understand, never mind control. The price system, for example, allocates resources to their most urgent uses, with a speed and efficiency that defies any government planners. Such ‘spontaneous orders’ (including not just markets but language, justice and much else) were, said Hayek, products of social evolution, not rational design. Trying to replace them with some planned ‘rational’ alternative always ends in disappointment and chaos.

Hayek influenced a generation of economists, including many others who would also win the Nobel Prize, such as Milton Friedman, George Stigler, Maurice Allais, James Buchanan, Vernon Smith, Gary Becker, Ronald Coase and Elinor Ostrom. His ideas also enthused intellectuals who in turn disseminated his ideas even more widely. Among them were Henry Hazlitt, journalist and co-founder of the Foundation for Economic Education; Ralph (later Lord) Harris and Arthur Seldon who ran the Institute of Economic Affairs; F A (“Baldy”) Harper who founded the Institute for Humane Studies, Eamonn Butler and Madsen Pirie of the Adam Smith Institute.

These thinkers and activists gave Hayek’s ideas a real political effect. Margaret Thatcher and Ronald Reagan owed much to his thinking, as did Mart Laar and Vaclav Klaus, who became political leaders in Eastern Europe after the fall of the Soviet system. “No person,” concluded Milton Friedman, “had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek.”

Hayek remains an inspiration to lovers of individual freedom all over the world. Think tanks promote his view; student groups name themselves after him; college programmes take his name; economists and journalists cite him; his views are analysed in books, papers and blogs. Millions of ordinary people around the world owe to Hayek their enjoyment of the fruits of personal and academic freedom, even though they may not realise it; but then as Hayek pointed out, knowledge is not always obvious.

Eamonn Butler is author of Friedrich Hayek: The Ideas and Influence of the Libertarian Economist (Harriman Economics Essentials).

https://www.amazon.co.uk/Friedrich-Hayek-influence-libertarian-Essentials/dp/0857191756

Just sometimes a modicum of thought is required

Once again we’re told that Vienna is that housing nirvana:

Yet, it need not be this way. In Vienna, the majority of the city’s population live in high-quality subsidised housing.

Quite why the majority of the population should be subsidised is not explained. But still:

The city spends more than €570m (£502m) a year on its housing, including building new homes, paid for largely with a 1% levy on the salaries of every Viennese resident. Elements of the model have been adopted by many other European cities, from Barcelona to Helsinki.

What good housing requires, as Vienna shows, is political vision and will.

We’d be a little hesitant about lauding the triumph of political will in that place and country ourselves. But take that seriously. Vienna has just under 2 million inhabitants. They pay half a billion a year - so, who thinks that £250 a head per year in subsidy will solve Britain’s housing problems? A week’s rent each?

Quite, no one, not even the author of this piece in The Observer. So, there’s obviously something else going on as well, isn’t there? Some difficulty, difference, impediment, in the British system that doesn’t exist in the Viennese.

We’d suggest finding out what that is then changing the British system so that it doesn’t have it. Like blowing up the Town and Country Planning Act 1947 and successors. Proper blow up, kablooie.

After all, Vienna doesn’t have that, does it?

Free market capitalism just isn't for the birds

We have a complaint here about broiler hens. On a moral basis it might even be somewhere between fair and true. As economics it’s desperately unobservant.

“Frankenchickens”, as campaigners have dubbed them, reach maturity 12 weeks quicker and can be up to twice the size of a typical farmed bird 50 years ago. They can go from egg to slaughter in just 35 days.

The selective breeding has helped ensure Britain has plentiful cheap chicken to furnish dinner tables across the country.

Yet campaigners, who include TV presenter and environmentalist Chris Packham, argue the breeding practice is unnatural and leads to severe health issues for the animals. What's more, they claim all this has been done purely for profit.

“A lot of these industries are not driven by simply feeding people and making a bit of a profit on top,” poet Benjamin Zephaniah, who is supporting the legal challenge, told the Independent outside the High Court this week. “It’s making maximum profit. And I can’t really think of another word but greed.”

It is a characterisation that chicken farmers would scoff at.

Far from greedy profiteering, many farmers say they are struggling to make ends meet. In fact, the industry is now warning of potential chicken shortages as soaring costs push many to give up altogether.

Shelley might have had a point about legislation - so much of it does come to pass on a surge in rhetoric - but not about economics.

Zephaniah and Packham have a point about the producer greed for profit, sure they do. Humans are naturally greedy, humans do like a profit and will do things in order to gain one. But then comes that free market part of the system, the competition. Producers find that profit eaten by the competition - it then ends up with the consumer gaining near all the benefit.

As, you know, shown by that recent Nobel Laureate, Bill Nordhaus. The entrepreneurs (and yes, let us indeed recall that this is where Anthony Fisher’s money came from) manage to, on average, retain some 3% of the value created - the rest being passed on to consumers as a result of that competition.

Human greed as tempered by free market capitalism leads to a chicken in every pot. Maybe that is even beastly to the birds who are the product. But in the interaction among humans beings it’s quite clearly the consumers who benefit from the whole arrangement.

They've not shown that dope smoking makes you mad, no they haven't

Much shouting is about to happen as a report claims that smoking cannabis causes schizophrenia. Which isn’t what has been shown or proven at all - that is what has been assumed.

The Telegraph:

Almost a third of schizophrenia cases in young men triggered by cannabis use

One stage back is the NIH:

Young men with cannabis (marijuana) use disorder have an increased risk of developing schizophrenia,

That’s already a step back in the claim. And the actual paper itself:

At a population level, assuming causality, one-fifth of cases of schizophrenia among young males might be prevented by averting CUD.

We’ve long known that there’s a correlation with heavy dope smoking and getting schizophrenia. The bit we don’t know is whether those feeling the madness descend self-treat with lots of dope or whether the dope causes the descent of the madness.

There will be a lot of people shouting about this report, shouting that it proves the movement is from dope to mad. Which isn’t what was shown at all, that is what was assumed.

Science is, of course, a public good, it’s even good for the public. But it is necessary to just check what is actually being said by the science. This paper measures the size of the correlation between cannabis and schizophrenia. It doesn’t even attempt to decide upon the causality. Despite what varied prodnoses are going to shout at us.

People who quote statistics should understand them - discuss

We are told this:

Over a decade ago, the answer to increasing earnings might have been to work more hours or train for a better-paid job, but these days work no longer pays. Workers in the UK are £11,000 a year worse off after 15 years of wage stagnation.

It’s not just that it’s a non sequiter - whether work pays or not is a function of the returns to not working, not to some mythic standard - nor that it’s logically invalid. After all, wage stagnation would not mean a fall in wages, it would mean not a rise in them. What does matter is that it’s simply not true. Even though The Guardian says so:

Workers in the UK are £11,000 worse off a year after 15 years of “almost completely unprecedented” wage stagnation that signals a failure of recent economic policy, according to the Resolution Foundation.

No, that’s not what they did say. Rather, they said that if wages had carried on going up as they had done in the boom then wages would be higher now by £11,000. Nobody - well, OK, this writer at The G, The G itself are but they’re wrong - not even the Resolution Foundation, are stating that British workers are worse off. They’re just not as well off as if some trend had continued. After all, if real wages had continued to grow at the 3.7% rate of March 2015 (YonY) then we’d all be squiddledepop richer. And?

We can even back test the original claim. In 2008 average (from median to mean) wages were in the £20,000 to £25k range. If that had fallen by £11k then real living standards would have declined by 50%. Which, despite whines and whinges, really has not happened.

Just a little hint, those who do not understand an economic claim or statistic - even those who have trouble with numbers - should not try to misuse an economic number or statistic to bolster an argument.

Of course, it’s also logically possible that this is intentional, an attempt at misinformation. But that would be naughty and no one would do that, would they?

This isn't proof of a housing crisis

That we do have a housing problem is obvious. The reason we’ve got one is because the law - the Town and Country Planning Act 1947 and successors - makes it illegal to build houses Britons would like to live in where Britons would like to live. The solution is to blow up that Act, proper blow up, kablooie.

Return to the free market of the 1930s which is the last time that private housebuilding did meet demand.

We all know that.

However, we do also need to point out bad logic and bad evidence:

House-building alone won’t solve the crisis, but it will hugely contribute to some of the most urgent needs in this country – namely the 1.3 million people on English council house waiting lists in need of social rented homes, many of whom are privately renting and sliding into poverty.

Social housing is, by very definition, at less than market price. That there’s a queue for something at less than market price is not a proof of need. It’s a proof of that very human desire to get something on the cheap. If you start selling doughnuts at less than market price you’ll get a queue. Start selling pound coins for 50 p you’ll get a queue. The queue, the waiting list, is proof of below market price, nothing more.

The actual number of people without housing is that 8,000 or so annually (some 4,000 perhaps on any given night) across the country who are rough sleeping.

We cannot use the council or social housing waiting list as proof of the need for housing. We can - and should - use it as proof of that desire to gain something below market price.

Seriously, sell something cheap and what do you expect? That folk won’t line up for it?

Basic income and AI-induced unemployment

Authored by:

Connor Axiotes (Adam Smith Institute)

Nikhil Woodruff (UBI Centre & Policy Engine)

Scott Santens (Humanity Forward)

‘Automation has been transforming the labour market for decades and the development of generative AI is about to kick that into overdrive. We don't even need artificial general intelligence in order for a universal basic income to make sense. Market economies are fuelled by customers with discretionary income to spend, and the more people are unable to afford anything but their basic needs, the harder it is for employers to find customers to sustain their businesses. The need for UBI also goes beyond modernising welfare systems. It could be seen as a rightful dividend to those whose data provided the capital to train large generative transformers like GPT-4, which was all of us’ - Scott Santens, author, Basic Income researcher, and Senior Advisor to Andrew Yang’s Humanity Forward.

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Sam Altman, the CEO of perhaps the most consequential artificial intelligence (AI) lab of the few years, OpenAI, imagines: “Artificial intelligence will create so much wealth that every adult in the United States could be paid $13,500 per year from its windfall as soon as 10 years from now.” He is referring to a Universal Basic Income (UBI) financed from the windfall profits of future AI systems. Altman believes that as  AI continues to advance it will become more economically productive than human labour, causing the latter to “fall towards zero.”

Why is AI different?

In order for the price of some labour to fall to zero, AI systems will have to reach a point of generality - meaning the AI can do any task that a human can do but to a superhuman level. Some call this artificial general intelligence (AGI). It is at this point we believe there is a non-negligible chance these systems could replace many domains of both physical (which to some extent has already started happening) and cognitive human labour. It is the chance of the latter occurring which is particularly concerning.

We also do not yet know what emergent properties might pop up which were not intended in the initial design of the AI system, which may present itself post-deployment of an AI system. In addition, some believe an AGI would also display agency. Agency in an AI system would mean an ability to plan and execute its own objectives and goals. Both emerging properties and agency have the potential to make this technology unusually likely to replace cognitive as well as physical labour, as human labour’s comparative advantage of brain power becomes less apparent.

Research by OpenAI in March 2023 found that ‘around 80% of the U.S. workforce could have at least 10% of their work tasks affected by the introduction of LLMs, while approximately 19% of workers may see at least 50% of their tasks impacted.’ Gulp. Their paper examines the potential labour market impact of large language models (LLMs), like OpenAI's GPT, focusing on the tasks they can perform and their implications for employment and wages. 

The authors emphasise that while LLMs have demonstrated remarkable capabilities, their real-world applications and overall impact on the labour market are still not fully understood. They work out that LLMs have the potential to directly impact approximately 32% of the US labour market, primarily in occupations that involve information processing and communication tasks.

But what if we are wrong... again? Technology doesn’t seem to cause lasting unemployment effects?

It seems as though transformative technologies have always complemented labour even if shorter-term employment shocks were experienced. Even when technology had made people unemployed in a specific sector, that pesky invisible hand of the market seemed to ensure industry elsewhere popped up and human labour was never very far from a job. So why would any other transformative technology be any different? Are we just another group of Luddite’s heading for the same egg-on-our-face fate?

We think this time it might be different

Due to the aforementioned properties and agency of AGI, we believe this time it will be different. Mainly because it will touch physical and cognitive labour with such efficiency, and leave humans with little comparative advantage with which to earn a proper market wage. 

And so, we proceed in this piece under the assumption that an AGI with superhuman abilities in all human tasks - and the agency to plan and execute its own strategies - will, we believe, have significant sticky unemployment effects on lower skilled occupations as a conservative minimum estimate. We assume the economy is static and no other jobs can replace - with a liveable income - the jobs formerly lost by the now relatively (compared to the AGIs) economically unproductive labour.

And so the question arises, how would a Government go about finding a policy that might mitigate these effects? At the Adam Smith Institute, we have advocated for this policy for years, initially with the aim of simplifying the welfare system and for being a more effective and less regressive form of redistribution: a basic income.

A cumbersome state and an agile problem

The difficulty with ensuring that the state is responsive to the impacts of AI is largely because we do not yet know in what form AI’s disruption will take. If it is to be large-scale unemployment, strengthened unemployment insurance might appear a natural response. Or if employment incomes fall but jobs remain, in-work benefits might bear the strain.

But both of these countermeasures have their weaknesses. Interacting with the bureaucracy around modern welfare systems is time-consuming and undignified - so much so that around a quarter of eligible recipients never make it through. Ironically, this failure to target intended recipients is seen almost exclusively in programs that impose income eligibility conditions in the very name of ‘targeting’: unconditional cash programs like the Child Benefit have almost perfect accuracy in reaching their targets.

Unconditional cash therefore (or specifically: a universal basic income) may represent the only mechanism to ensure income stability for those who need it, whatever form the AI intervention takes. Critics of UBI often point to the high cost of the cash payments, and the substantial broad-based rises in taxes we’d need to fund them, as disqualifying factors. But the notion that the current welfare system avoids this is an illusion. 

Many also recoil at the notion of a 50 percent flat tax, but see no issue with our 55 percent rate on income paid by some Universal Credit recipients. Means-tested benefits are not the magically targeted free-lunch that they might appear to be: they are by definition equivalent unconditional cash payments combined with a very high tax rate paid exclusively by some welfare recipients.

If the government proposed a large UBI funded by raising the National Insurance main tax rate from 12 percent to 55 percent, public support might not be very forthcoming. But that’s almost a mirror image of what Universal Credit is. The only difference is that UBI is administratively far more efficient. 

But if a UBI were to be introduced, this should only be done with the abolition of much of the current welfare and benefit system in the UK and over a period of 5 to 10 years; total benefit spending is forecast to be £255 billion in 2023-24.

Broad tax rises on income could be one way to fund these cash payments, though critics would rightly point to negative labour supply responses. Taxes on natural commons could present an alternative: a 1% land value tax could raise enough to fund a £24 per week dividend.

(Impact of a 1% land value tax funding a £24 per week UBI. Source: PolicyEngine)

Alternatively, a price on carbon could raise enough revenue to fund cash transfers. Distributing the revenue as an equal dividend would lower poverty rates for children, adults and seniors alike.

(Impact of a £100 per tonne carbon tax funding an £11 per week UBI. Source: PolicyEngine)

Both of these have their own political challenges: the asset-rich cash-poor older generation is a significant bloc, and carbon taxes, like other consumption taxes, have a more regressive impact than income taxes when measured as a percentage of income. But in all of these tax bases, cash is more progressive than the tax base is regressive: a tax-funded UBI nearly always reduces poverty.

Conclusion

1. We are pretty confident that future AGI systems will have superhuman labour abilities, generality, and agency. 

2. We are also pretty confident that upon the creation of such an AGI, we will see a significant structural and sticky proportion of human labour unemployed of the likes we have not seen with other transformative technologies.

3. At such a time, the UK might seek to address this novel issue through the introduction of a UBI. We should start preparing for this scenario sooner rather than later, to allow the Department for Work and Pensions to get up to speed with the policy detail.

   * * *

   Previous Basic Income (or NIT) research by the Adam Smith Institute

   • Basic Income Around the World, (2018), https://www.adamsmith.org/news/rising-evidence-basic-income

   • Nine Arguments Against Basic Income Debunked, (2018), https://www.adamsmith.org/blog/nine-arguments-against-a-basic-income-system-debunked

   • Schrodinger’s Basic Income: what does the Finnish UBI experiment really show, (2019), https://www.adamsmith.org/blog/schrdingers-basic-income-what-does-the-finnish-ubi-experiment-really-show

   • Welfare shouldn’t be complicated, (2023), https://www.adamsmith.org/blog/welfare-shouldnt-be-complicated

   • Lifting the next 800 million people out of poverty, (2023), https://www.adamsmith.org/blog/liftingpeopleoutofpoverty