Blogs

Graduated benefits

What the popularity of university subjects amongst graduates (a) in the UK, (b) in Westminster and Whitehall, and (c) in other European nations tells us about the UK and its Establishment.

(a) are keen on sciences (esp. biology), arts and humanities, and not keen on practical/commercial subjects.

(b) disproportionately studied politics, economics, philosophy, history and law at Oxbridge/Russell Group universities, to an extent that makes them completely atypical for the population they represent, and far too lacking in diversity of interest and experience.

Stepping back

Lots of comments about how exchange rates and equity-price movements show that the UK is (a) doomed or (b) well-placed post-Brexit. Movements and values over a few days tell us nothing except the climate of hope or fear in those few days. How do things stand on a broader perspective? Let's compare:

A. Currencies: USD vs GBP vs EUR

B. Markets: FTSE100 vs FTSE250 vs Dow vs DAX

Letter to my employees about the Brexit referendum

All,

The CBI think that bosses should inform employees about Brexit.

This patronising suggestion is typical of the Confederation of Big Business, and of a Remain campaign that will use every trick in the book to try to influence people through authority and intimidation, rather than through reason. You may suspect, when the bosses of our big corporations gang up with our political leaders to try to sell something, it may be more in the interests of the corporatist establishment than in the interests of the people they are selling it to.

Promote industry. Bag a banker.

Boris Johnson is quoted in MoneyWeek as having said to Management Today:

"To the banker bashers I say, what's your economic model? We can't ignore and hate the bankers. What would that achieve? Show me how reducing financial services boosts manufacturing."

OK.

For years, the UK ran a massive balance of trade deficit, i.e. as a nation we bought and consumed more than we produced and sold. It is no more sustainable for a nation's income to exceed its outgoing than for an individual.

Wet or dry

I'm feeling a little damp. Or at least, feeling like I look a little damp to others. I've found myself on what many would perceive as the more moderate, centrist side of the argument several times recently.

What makes this all the moister is that I can't even state most of this boldly. I lack the certainty of the "driest" libertarians (but then again, I'm not a libertarian). I can imagine that I could be persuaded otherwise on most of this (except the means-testing).

And yet, I don't think I'm really wet. In fact, I feel like I am on the drier side of these arguments. I'm just not sure I can explain why (to myself, as much as to anyone else). This post is a bit of thinking out loud to see if I can put my finger on it.

Plus ça change

Maybe they really were the good times. The last few years didn't feel like it, but at least the Government was subtle enough in its winner-picking that I would have to explain how its targeted measures were really supporting losers.

Now, our supposedly conservative and liberal government plans to pick its winners overtly and proudly.

Mr Cameron says that we need to target government support at “those industries where Britain enjoys competitive advantage”.

If they already enjoy competitive advantage, why should we tax industries with fewer advantages in order to support industries that don't need it?

The distinction between free markets and managed markets is, according to Dave, “a sterile debate between laissez-faire and hands-on government”.

What a pity Maggie wasted so much of her time on such a sterile issue.

The question” he says “isn't 'Should government be involved?' - because it is involved. It taxes, it regulates, it invests. The real question is, 'What is the right kind of involvement?'”

i.e. “If I choose not to pick winners, I am effectively penalising them, so even non-intervention is intervention in my sophisticated, Oxbridge-addled, looking-glass world.”

Rich people's benefits

Can we nail a fallacy that is becoming received wisdom, regarding the uncompensated withdrawal of child benefit payments to higher earners, as proposed under the UK government's Comprehensive Spending Review?

The rhetoric claims that it is unfair to tax the poor in order to pay benefits to the rich. This ignores the reality that our web of taxes and benefits cannot be treated individually in their effect on people's incomes. What matters in practice is the net position of each individual or household, after all benefits have been received and taxes have been paid.

Someone paying £20,000/year of tax and receiving £2,000/year of benefits is not a beneficiary of the state or of lower-earning taxpayers. They are a massive net contributor, whose effective tax rate is marginally reduced by the effect of the benefits. This is the sort of situation that all those whose child benefits have been withdrawn find themselves in. They are being pinged for increasing amounts of tax. Child benefit was one way that the impact of those increased taxes on families with children (who generally struggle more to make ends meet than families without children) was somewhat mitigated.

There are major problems with the marginal effective tax rates (i.e. how much of each extra pound is surrendered in tax or withdrawn benefits) on low earners, which are often higher than the marginal rates on mid-earners, and are a massive disincentive to find more work. Ian Duncan-Smith's proposals will hopefully ameliorate this poverty trap.

But in no reasonable sense is someone on £15,000 paying taxes so that someone on £45,000 can receive benefits. The marginal rates should not be confused with the net effective tax rates (i.e. the ratio of the net cost or benefit of welfare payments and tax impositions to earned income), which generally increase as one goes up the income scale. Someone on £15,000 is very likely receiving more in benefits from the state than they pay in taxes, giving them a negative effective tax rate. Someone on £45,000 is almost certainly paying much more in taxes than they receive in benefit, even before the proposed change to the child benefit rules.

The untapered withdrawal of child benefit from anyone in the higher-rate tax brackets creates a rare case where the marginal rate of effective tax is over 100% and disposable income after accounting for taxes and benefits actually falls as earnings increase. People will of course respond to this perverse incentive by trying to work round it in the usual ways.

If someone uses this rhetoric about poor people's taxes paying for rich people's benefits, you know they are bullshitting you: knaves or fools as usual. If they want to defend the policy with any degree of intellectual integrity, they should make the case why parents earning over £45,000 should be paying an even higher effective tax-rate than they were before the change was proposed, given the 40% and new 50% rates of income tax, National Insurance, and limited number of reliefs from these burdens. They would be wrong to make this case, but at least they could do it with integrity.

Borrowing and spending our way out of debt

One feature that distinguishes the current financial crisis from earlier ones is how widely the problem is spread. We have had bigger public debt than today, but never with so much private sector debt. We have had leverage-fuelled bubbles in one or other sector, but never managed to blow such massive, simultaneous, debt-fuelled bubbles in the public, financial, other business, and household sectors:

Chart of the sectoral composition of debt in major economies

         From McKinsey Debt and Deleveraging report.1

Nice to see, then, that each sector is doing its best to pull back from the brink:

Cant and DECC

I was contacted recently by someone who was studying the renewable heat sector. They asked:

 

We read your blog on Picking Losers and I guess the question is, given that  DUKES Table 7.6 gives the existing renewable heat total for 2009 as 966 ktoe, is it that some of the categories that DUKES has as renewable heat, are rejected by DECC as not renewable heat in the 2020 sense?

For example, DUKES lists the technology break down as below. 

Solar thermal 69.5

Municipal Waste combustion 31.3

Biomass - landfill gas 13.6

Biomass - sewage sludge 67.9

Biomass - wood domestic 375.2

Biomass - wood industrial 164.6

Biomass - animal biomass 40.3

Biomass - plant 203

Geothermal 0.8

As you note in your blog this total is something like 450 ktoe more than the NREAP states for 2010.  Is it possible that they decided that there was double counting with electricity or that some of these are not really renewable?

 

I thought my reply might be of interest to others besides the original questioner, so I have decided to post it here:

A business unlike any other

According to Angela Knight, Chief Executive of the British Bankers' Association:

"A bank is like any other business - if its fixed operating costs go up then so does the price of its product."

Angela has provided a nice illustration of how (a) banks are not like any other business, and (b) she has the same grasp of business and economics as most other politicians.

DECCadent action

Imagine you are a politician, elevated after the recent election from shadow to head of a department. You have quite a bit of experience shadowing your department, but to be fair, you haven't had access to all the information and resources that ministers have. You find, on taking charge of your department, that the timetable for some issues is outside your control (e.g. where actions are required by European law). You will have to set out at least a holding position earlier than you would like. It's a pity to be rushed, but you were going to have to rely on your civil servants for much of the detailed drafting anyway, and they have years of experience and a draft close to completion, almost ready for you to sign off. Maybe you are worried a little that the draft may not fully reflect the changes of philosophy and policy that you hope to introduce, but with the addition of some judicious conditionals (i.e. weasel words), you can at least put out something internally consistent and coherent, which avoids commitment to any specific courses of action that you don't want to commit to. At the very least, you and your civil servants should be able to avoid the most egregious mistakes with a little, basic maths and the benefit of your combined years of experience, right? It may not be exactly what you want, but at least it will add up.

Apparently not, if you are Chris Huhne or a civil servant at the Department for Energy and Climate Change (DECC). They have just released the National Renewable Energy Action Plan, which they had to release by June 30 under the EU's Renewables Directive. And it doesn't tally, on even the most basic sanity checks, with the data for the current renewables position.

Enlightenment time?

The economic debate is coalescing increasingly into two camps: those who think that the Government can prevent a further economic correction through deep spending cuts, and those who think that the Government can prevent a further correction through continued deficit spending. On This Week, Will Hutton just described the two camps respectively as Catholics and Protestants. As the British government is implementing a (roughly) Catholic programme, it is likely that the failure of this programme to prevent a correction will be interpreted by much of the media, academia and the population as evidence that the Protestants were right. Conversely, Catholics will point to the failure of Obama's essentially Protestant programme as evidence that they were right. Both sides will pay attention only to the evidence that suits their views. Neither side will consider that they may both be wrong.

Why are there so few atheists and agnostics in this debate? Maybe there is no God, maybe economic imbalances can reach a point where corrections are both necessary and inevitable, and maybe governments promising to prevent them only make matters worse in the long run, whichever creed they follow.

Our intellectual establishment (dominated by the Oxbridge prelacy) is ranged as powerfully against such heresy as the religious establishment was once ranged against those who placed reason above faith. Without the fear of eternal damnation, the promise of perpetual bliss, and the immutability of an order prescribed by a higher power, how were the clerical and aristocratic hierarchies to maintain their authority? And without the promise that they can make things better than they would be without intervention, how is our intellectual establishment to persuade us to keep listening, voting and paying for their arrogant yet ignorant prognostications?

Things didn't turn out too bad when we allowed reason to supersede faith. Authority did not collapse, but became based more on merit and less on position. There turned out to be other foundations of morality than simply having (often delphic or contradictory) rules handed down from above. Technology and our standard of living improved more quickly. People might find similar benefits resulted from apostatisation of the government-deity.

The end of meddling?

Eric Pickles has announced that he will abandon plans to charge people for their use of waste collection services (the "bin tax"). He will use the "carrot" of rewarding people with vouchers for the volume of recyclable material they produce, rather than the "stick" of charging them for the amount of waste they produce.

Mr Pickles justified this announcement as part of an effort to end "meddling" laws. (The other example of "meddling" that he planned to scrap was allowing people to choose whether to apply for redevelopment of their land.)

The move was also justified because charging people for their use of waste-disposal services would result in more fly-tipping and "bin wars".

And it was argued that the move would save money, because of avoided landfill tax (directly) and thereby European fines (indirectly).

Meanwhile, David Cameron was today warning people how much worse the government finances are than he had expected (for which, read: as bad as he knew they were but didn't dare to tell people during the election).

And let's not forget the great theme of this government: decentralisation.

Let us count the number of ways this is wrong:

The value of freedom

Attended an enjoyable IPN book launch this evening, for Matt Ridley's The Rational Optimist. It sounds well-worth reading, to keep our current troubles in perspective. Met a couple of interesting guys whose sites I wanted to point you at:

  • Eleneus Akanga is an impressive young man (click here for his blog). A journalist from Rwanda, he wrote some articles critical of President Paul Kagame, and has consequently had to seek asylum in the UK. It seems that H.E. Kagame is rather less keen on free speech than he is on economic development. For a Tutsi (like Eleneus) to criticise the Tutsi Kagame government show great courage and independence of mind. Makes me quite proud to have written back in 2007 (on Iain Dale's blog):

And do you not think you're being just a bit optimistic about the Rwandan government? I don't trust governments in Europe or Africa who have 15- or 20-year targets, but for opposing reasons - in Europe I don't believe them because I know they won't be there when the time comes, in Africa I worry that they may well be. I'd be much happier with an ambition to put in place the necessities for a stable society and successful economy, than an ambition to be a middle-income country by 2020. Sounds too much like central-planning to me. And if so, that suggests that they don't understand the real route to prosperity, and are simply repeating the same mistakes that people have been making in Africa since independence. After all, if Kagame is there to see his ambition fulfilled in 2020, he will have been in power effectively for 26 years. Can you imagine anyone getting that sort of continuous democratic mandate (without rigging elections)?

Makes me rather less proud of our politicians, and particularly the Conservative Party, who seem mostly to have fallen prey to the usual post-colonial delusion: it doesn't matter if he's a dictator so long as he's "our dictator" doing things our way. Will they ever learn? No doubt Kagame's economic record is impressive, if somewhat dirigiste, but that isn't enough. Remembering Franklin's dictum about sacrificing liberty for security, we wouldn't accept the sacrifice of free speech in exchange for economic development in the West, so I don't see why we think it's OK for Africa.

Eleneus is struggling to find work in the UK. If you know of anything more suited to his skills than the social care work he is currently doing, let him know via his blog.

  • On a lighter note, I also met Alan Gibbs, founder of Gibbs Technologies, who are developing a range of amphibious vehicles. How much fun does this look?

Gibbs Technology Aqu4da ambphibious car

Freedom for the elite

The following is one key point of the Queen's Speech proposals, from the front of today's Telegraph:

Academy schools introduced in England and Wales under plans to free outstanding primaries and secondaries from local authority control.

So the plan appears to be to take those schools for whom the current arrangements are working well and change those arrangements, while those schools for whom the current arrangements are failing are to remain under the current arrangements.