Great minds think alike

In today's City AM, I argue that it is right for train fares to rise by 3.4%. Part of my argument is that it is wrong to subsidise rail users who are, on average, better off than other commuters. But I make a further argument. In fact, cutting rail fares may not even help most commuters.

"If fares were to fall on the Brighton Main Line then I may consider commuting from Hove, but landlords would anticipate this and raise rents. Homeowners and landlords in commuter towns may welcome the windfall, but it is hardly reasonable to expect taxpayers to pay for it."

On Twitter, Tom Papworth (author of The Green Noose) points out that I am far from the only person to make this argument. Winston Churchill in 1909 wrote:

"Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public con-science, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!"

Great minds eh...

We must do as Polly Toynbee says, we should be more like Sweden

A depressing truth about our world - people don't value things which are free:

Missed hospital appointments cost the NHS almost £1 billion a year and deprive patients of vital care, the health service’s top nurse has said.

As the service heads into what is likely to be the busiest week of the winter, Jane Cummings, the chief nursing officer for England, called for the public to be more responsible about wasting time and resources.

A million more cataract operations or 250,000 hip replacements could be funded if the NHS did not have to pay for appointments that people failed to attend, she said.

Official figures show that 7.9 million appointments were missed in 2016-17, meaning that patients do not turn up to one in 15 of the 119 million scheduled. At an average cost of £120 per slot, this indicates that doctors’ time worth about £950 million was wasted last year.

This is, of course, a pure economic waste. We are being made poorer by this amount simply because people are not turning up to those "free" appointments. This is, equally of course, something that we'd like to change.

We could, yet again of course, just insist that all should buck up and do their duty. Or we could follow Polly Toynbee's constant and consistent mantra, that we should be more like Sweden. That is, have a little judicious application of economic incentives.

The overall costs of an appointment there are about as they are here, perhaps 1,800 to 2,000 SEK, or in that £160 to £180 range. Given government accounting that is pretty similar to our own costs. But the Swedish insist that the patient - or would be patient perhaps - must personally cough up in the £10 to £20 range for the service. 

No, this isn't some charge to pay for the system at all, it's purely an incentive for someone to turn up when they say they wish to turn up, it's a management of the capacity of the system charge, not a revenue raiser. In much the same manner as we pay a prescription charge in fact. Larded around with all of the exceptions as well, people who need many prescriptions/visits pay a reduced or capped amount.

The thing being that people value more what they've got to pay for. Even at a 90 to 95% discount, people still value such things more if they've got to cough up for them.

Or as we could also put it, as those socially democratic Swedes do it, at least one solution to the problems of the NHS is to stop it being free at the point of use.   

The NHS is an historical relic, not a Wonder of the World

Given the anniversary we're going to get an awful lot more of this sort of rhetoric:

The NHS will celebrate its 70th birthday in 2018, after a difficult decade since the global financial crisis culminating in one of the most testing years in our history. The terrorist attacks in London and Manchester, along with the Grenfell Tower tragedy, saw all emergency services, including NHS staff, respond with skill and bravery.

Our health service, while still ranked among the best in the world, has never been busier. The NHS sees almost 1.5 million patients every day in England alone. So as well as celebrating its many achievements, in our landmark year we must also reaffirm our commitment to a taxpayer-funded service, based on clinical need and not the ability to pay.

In 1948, at the NHS’s founding, there were no routine antibiotics, anti-cancer drugs or blood pressure treatments, and infectious diseases were common. This has all changed, thanks in part to British science, which has brought the world vaccination, penicillin, IVF, stem cell transplants, artificial hips and MRI scanners, and knowledge of the structure of DNA.

But our greatest innovation by far, with the most far-reaching impact on the health of our nation, has been the NHS. It embodies the British social conscience. Since resources are very stretched, some may question the funding model, and suggest the NHS is not fit for the future. Nothing could be further from the truth. Scientific advances mean it is needed more now than ever before.

Certainly British science has informed what the NHS does. British science has also informed what all other health care systems do, so Bully for British Science! Yet the science of everywhere else has also informed what the NHS does - science is, after all, a public good.

However, what is really being celebrated here is the unique manner in which the NHS is organised, something thought so basic that it has replaced the CoE as the national religion.

The truth being - a useful, not complete, truth - that health care systems around the world are fossilised into whatever the favoured structure was in each country at the time that a health care service became a useful thing to have.

It is harsh but roughly true that pre-WWII the major function of hospitals and all was to provide bed rest. After WWII we began to have that scientific revolution which meant that active treatment of ever more conditions was likely to be successful. Exactly and precisely those vaccines which killed off many of the infectious diseases, the antibiotics, near any treatment for cancer other than hacking away and so on.

That we've got this wondrous science being applied to our health is just fabulous. But as we should be able to note this happens in all of the rich countries, it's something that is independent of the precise manner in which it is organised. Germany, France, Switzerland perhaps, rely upon state supported insurance, the US (and badly) on a more bureaucratic and also market approach (the combination of the two never likely to work well), our own NHS on a near Stalinist state provision model. These are just the ideas which were around in the varied places in the 40s and 50s when that science meant that a comprehensive health care system was viable and desirable.    

That Singapore, coming very much later to the game, has a very different structure (essentially, state run and paid for catastrophic care, forced savings accounts for routine) is really a reflection not of the underlying society but that we all knew more about the incentives that drive health care structures when it was designed. 

Leave entirely aside, for a moment, what we think the structure of a health care system should be. As all around us leap with joy over this anniversary we need to recall that the current NHS structure is only, really only, a reflection of how 1940s Britain thought things should be arranged. 1940s other places had a different ruling ethos which is why they have different health care structures. And there's absolutely nothing at all in the evidence since then to tell us that 1940s Britain had it right.

Far from being the Wonder of the World the NHS is an historical accident. Other places do it differently- it might be worth our considering whether that decision taken 70 years ago came to the right conclusion.

So why in the heck are we doing this in the first place?

The short answer here is that the planners screwed up. The longer answer is that the planners screwed up by trying to plan rather than use markets - appropriately guided by a crowbar stuck into them.

Policies aimed at limiting climate change by boosting the burning of biomass contain critical flaws that could actually damage attempts to avert dangerous levels of global warming in the future. That is the stark view of one of Britain’s chief climate experts, Professor John Beddington, who has warned that relying on the cutting down and burning of trees as a replacement for the use of fossil fuels could rebound dangerously.

As varied reports have told us burning such wood biomass after it has been transported thousands of miles increases, not reduces, emissions. So, how did the political process get it all so wrong? 

Leave aside the whole question of whether anything should be done and concentrate only on what should, if anything. As Nick, now Lord for having said it, Stern pointed out the solution is a carbon tax. Not, repeat not, attempts to plan any response in detail.

The reason being that markets and the economy are complex things. It is impossible to calculate the effects through multiple iterations and third and fourth level effects. Thus, if intervention there is going to be that intervention has to be a simple one, a change to the price system. So that we can then use the price system and those markets as our great calculating engine.

Doing this, a tax upon the carbon emissions from what is burnt, from transportation and so on, would have immediately told us that, given this lever in the price system, wood biomass on this large and trans-continental scale does not work, does not solve the perceived problem.

What did they do instead? They tried to be clever, tried and failed to navigate and calculate through the effects. Thus we end up with something entirely counterproductive, something both more expensive and also with higher carbon emissions. Not the point at all.

And all the result of the fools thinking that we can plan something as complex as an economy. It really isn't just a failure of this particular plan, it's a failure of the very concept of detailed planning in the first place. 

As we've been saying, competition really does lower prices

This is one of those little stories which should really be read the other way around:

Families in the countryside are having to pay almost £3,000 a year more for essentials such as groceries and petrol than those in towns and cities, a study has revealed.

It's one of those cod surveys designed to get the name of the sponsoring firm into the papers but still, consider the point being made. Retail things cost more out in the countryside than they do in the cities.

We know very well that rents are higher in the cities, also that turnover of any one shop is likely to be lower out in the boonies. But as we say, this story should really be read the other way around, not that the country is more expensive, but that the cities are cheaper.

The cause being of course that the cities have many more retail outlets. All competing with each other for our custom. The end result being that prices fall as price is one of those ways - most certainly not the only one - in which people compete for that custom.

That is, we've here proof perfect that competition reduces prices to consumers. By squashing the amount producers can lift from our wallets.

True, this isn't a particularly grand finding, it's one page two or three of every economics textbook already. But it is still worth pointing out. Most especially to those who insist that national monopolies are the way things ought to be done. Say, on the trains, the health care sector, some even arguing for it for housing. Even if we're paying through taxes not directly, competition still reduces the amount that can be lifted from our wallets by the producers.

If Nick Boles is right here then there's nothing to worry about, is there?

Nick Boles tells us something which means that there is no problem with the idea of a universal basic income. Of course, that's not quite how he puts it but we're happy that we're able to point out the true implication of his assertion:

“The main objection to the idea of a universal basic income is not practical but moral,” he writes.

“Its enthusiasts suggest that when intelligent machines make most of us redundant, we will all dispense with the idea of earning a living and find true fulfilment in writing poetry, playing music and nurturing plants. That is dangerous nonsense.

“Mankind is hard-wired to work. We gain satisfaction from it. It gives us a sense of identity, purpose and belonging … we should not be trying to create a world in which most people do not feel the need to work.”

This is proof - if the assertion is true of course - that there is no such worry about a universal basic income.

For the concern is that if we do all have the basics catered for then none of us will do anything. Or at least nothing economically productive that is. This is to assume that we only work in order to gain access to those basics, of course.

If this were true then those basic income experiments that have taken place would see substantial falls in the hours of market labour being offered by those who receive it. This isn't how those experiments have worked out. Certainly not substantial falls.

Thus the assertion seems to have some truth to it, we don't work simply to earn ourselves the basics. But look at what the implication of this is. Perhaps it is that we are hard-wired to work. Perhaps it's just that our desires are for more than the basics. But what it does mean is that if the basics are covered then we'll still work. 

There is therefore no moral problem of the type being described.

We can and should take this further, too. For this covers the worries about automation itself. So, the machines do ever more - what will people do with their lives, what will they work at? The answer being "something else." For, as we've asserted, humans work anyway. So, if some set of human desires are being covered by the machines, just as with the basic income, humans will still work to cover some other set of human desires. This only ceases when all human desires are satiated - and wouldn't that be a terrible world?  

Nick Boles' assertion is that humans are hard wired to work. If that is so then we, they, don't need to be driven to work by deprivation. We'll, they'll, work anyway. Thus there is no moral or even economic problem with either automation or the universal basic income.

Assuming the assertion is true, obviously.

The IPPR's report is based upon a very basic error

The IPPR tells us that we're all off to hell in a handbasket therefore capitalism must be fundamentally reformed. We too think that are useful things which can be done to improve matters but we do tend to base our ideas in a knowledge of the present. Unlike some:

The rise of the machine economy risks social disruption by widening the gap between rich and poor in Britain, as automation threatens jobs generating £290bn in wages.

Their underlying analysis is here. And they claim that the profit share, or capital share if you prefer, is getting larger. Given the unequal distribution of capital ownership this increases inequality. QED.

Except, if you look at figures 1 and 2 you will see that they are using two entirely different measures of the labour share. One is all going to labour, total compensation, the second is wages and salaries. Such confusion does not bode well. For if we insist, as we do, upon paid holidays, automatic pensions and the rest then the compensation share will stay static while the wages share falls. Such non-wage costs are of course incident upon the wage packet.

It gets worse we're afraid. They measure the peak of the labour share as being the mid-70s. Entirely true. But this is not a useful point to be making, for at that time the profit share wasn't even large enough to cover depreciation. The country was eating its own capital as the capital sector as a whole was making losses. We simply shouldn't use that time as a comparator - except of what not to do.

And worse again. They actually give us no evidence that the profit or capital share is increasing. They simply tell us that the labour share is decreasing and the assumption made is that the capital share is the mirror image. It isn't. Obviously, if we look only at the wage share, it isn't, we must add back in the other costs of employment (yes, including increased NI contributions, taxes upon employment) to gain the true labour share. But even that's not enough.

There are four sectors to the national income, capital, labour, mixed income, subsidies to production and taxes upon consumption. Mixed income has risen as there are more self employed about. This reduces the labour share while not changing the profit share one iota. Taxes and subsidies - well, think on VAT, a tax on consumption, this has risen substantially over the decades. So too has the amount of subsidy to production - think of all those feed in tariffs, this is where they appear in the national income.

 We would not swear to this in detail, our research into this matter was done a few years back. But the general view is indeed that after the recovery from that unsustainable position of the 1970s, the capital or profit share is around its long term average for this country. The labour share has fallen, entirely true. But what has risen is self employment and taxes and subsidies on consumption and production.

The capital share just isn't the mirror of the labour share, the capital share hasn't been rising as the labour share declines, therefore the entirety of the analysis being presented is simply flat out wrong.  

This ain't a great starting point for an attempt to plan the economy really. We having found that starting with reality is something of a boon.

A particularly pathetic argument in favour of the Swansea Lagoon

We have presented to us a particularly stupid argument in favour of the building of the Swansea Lagoon:

A thousand high-value manufacturing jobs are set to be lost in the Midlands because of the government’s continuing failure to decide whether to support tidal lagoon marine power.

Two of GE’s British plants, at Rugby and at Stafford, had been designated to construct the underwater turbines and to provide the complex electrical power systems needed for the pioneering Swansea Bay tidal lagoon and similar marine energy projects around the coast of Britain.

If the government doesn't decide - and quickly - to suck dry the wallets of electricity consumers then these jobs will be lost. All of which is to get the economics of jobs entirely wrong. They are a cost, not a benefit, of doing something.

If we don't build the lagoon then these skilled workers will go and do something else. We will therefore benefit from their output doing that other thing instead of the money sink off the Welsh coast. 

Clearly, some of the things that they might do, as is true of any worker and their labour, are worth doing. The definition of that being that they create more value than the cost of having them done. The Swansea Lagoon does not do so. That's why the power from it will be the most expensive in the country. The various cost benefit analyses of the various forms of this idea all show that it has a negative present value. That means that the cost of doing it is greater than the benefits to be received from having done it. Or, as we can also say, doing it makes us poorer. 

We simply shouldn't be building it therefore. But this then goes on to the labour employed to build it. As even Marx said, the value of labour which produces no value is nothing, negative even. These aren't, therefore, high value jobs, they are negative value jobs. For their output will make us poorer. 

All of which does become clear when we get things the right way around - jobs are a cost of doing something, not a benefit. If we don't want to do the thing in the first place then that's proof that the cost of the jobs to do it isn't worth bearing.

There's a simple enough solution here - government stops doing something

Look not at the precise details here - far too boring to check as they are - but at the general assumption being made. The complaint is that government has screwed up, the solution proffered is not that government should stop screwing up but that it must do so more.

We are really very certain that this is an error:

Michael Gove has said “much, much more” must be done to tackle food waste as it emerged producers are “incentivised” to send their surplus to green energy plants rather than to charities that feed the vulnerable.

Hundreds of thousands of tonnes of food every year is either ploughed back into the ground or sent to animal feed or anaerobic digestion plants because it is cheaper than storing it or transporting it to where it is needed.

We agree that food should go into people. The specific complaint is about the tax breaks (and we've not investigated the truth or not of this contention):

He said: “Food that is in perfect condition is being turned into energy instead of feeding people because the Government gives green energy firms a guaranteed minimum price per unit for what they generate.

“That means they can afford to transport food and in some cases even buy surplus food from farmers, which gives the food producer an incentive to go down that route.

“In contrast, there is no financial incentive or support for a farmer or food producer to store food in an edible state, because that will cost them money, just as it costs money to transport the food to charities.”

The answer, we're told, is that more taxpayers' money should be given to those food charities. Or the farmers, or a new tax break introduced, but government must do something anyway.

The answer is, instead, that government should stop doing something. Stop offering those guaranteed prices to energy from biodigesters. Once we have that level playing field then we'll find the efficient method of dealing with that food. Perhaps it is worth more being ploughed back into the land, perhaps feeding the hungry, possibly even creating the light by which other food can be eaten. Until and unless we have the price system telling us we'll just not know, will we? 

That is, as so often, the correct response to a problem is not that government must do something, but that it must stop doing the damn fool thing it already is.

For Boxing Day a punch or two at Willy Hutton

Will Hutton decides to tell us all how much Bitcoin and the blockchain is going to change our world:

Blockchain is a foundational digital technology that rivals the internet in its potential for transformation. To explain: essentially, “blocks” are segregated, vast bundles of data in permanent communication with each other so that each block knows what the content is in the rest of the chain. However, only the owner of a particular block has the digital key to access it.

So what? First, the blocks are created by “miners”, individual algorithm writers and companies throughout the world (with a dense concentration in China), who want to add a data block to the chain.

Will Hutton is, you will recall, one of those who insists that the world should be planned as Will Hutton thinks it ought to be. Something which would be greatly aided if Will Hutton had the first clue about the world and the technologies which make it up.

Blocks aren't created by miners and individual algorithm writers, there is the one algo defined by the system and miners are confirming a block, not creating it. The blocks are not in communication with each other, they do not know what is in the rest of the chain - absolutely not in the case of earlier blocks knowing what is in later. It's simply a permanent record of all transactions ever undertaken with an independent checking mechanism.

It's entirely true that this could become very useful. But it's really not what Hutton seems to think it is. Nor is it going to transform healthcare:  

Our health data can be given to the whole chain for it to assess, rather than an individual doctor, and the chain can then assess and price an insurable risk.

The blockchain doesn't process data in the manner Hutton thinks. The only calculation is to ensure that the data is robust and agreed over the chain. No processing of the contained data takes place at all.

Nor will it transform banking:

One of the first casualties could be banking. Already, you can present your card to make a contactless payment in a store, pub or taxi. Cash has become digitised, although the payee wants to know that a bank has validated the creditworthiness of the payer before accepting the transaction.

That is a payment system, not banking. As Brad Delong points out the definition of banking is borrowing short and lending long - if you don't do this whatever it is you're doing isn't banking, if you do it is. Bitcoin and the blockchain don't do maturity transformation - in fact, on a strict interpretation of the system they rule it out.

This being one of the problems about having a world that is planned to work the way the likes of Willy Hutton think it should be planned. Those desiring to do the planning according to their prejudices don't seem to have much knowledge of the system beyond their own prejudices.