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For the past two weeks, a stock narrative has been that UK Chancellor of the Exchequer Kwasi Kwarteng’s “mini-budget” was reckless and rattled the markets, and he should have been more cautious, set out the debt and borrowing side first, not talked about reversing Rishi Sunak’s tax hikes to corporate tax, NICs, etc, and got fully on board with the idea that what the UK needs are the highest taxes since Clement Attlee. This, apparently, is what the clever people in the Square Mile wanted, happily cheered on by much of the media, and the damper ends of the Tory Party.
But given a few days to think about this, what strikes me as what a lot of hysteria there has been, and how heavy taxes remain. This story in the Telegraph today shows how “fiscal drag” caused by static tax thresholds means millions of UK taxpayers will, in real terms, be worse off because their tax bills are going up, not down.
So the idea that we are going to move to some sort of Reaganite low-tax country was always a bit overdone. It suggests that fashionable opinion has so totally imbibed forms of socialism that anything a bit different sends people crazy. (The performance of the International Monetary Fund, an organisation that should be shut down, is a case in point.) It suggest that those Tory MPs threatening to unpick even the smaller tax hikes need to ask themselves why they are Tory MPs at all.
“The point is that Britain was in an economic mess before Ms. Truss took office, and there is no alternative universe in which policies that have failed for 12 years suddenly would start working on the cusp of a global downturn. The choice is the gamble of a major policy overhaul, or the certainty of steeper decline. So yes, U.S. Republicans, do take note of Ms. Truss’s travails in Britain. The Tories squandered their reputation for competent, free-market economic management. They now find that it’s hard to win back at precisely the moment they and the country need it most.”
The Wall Street Journal (I seem to be quoting it a lot these days), giving its transatlantic take on the past 12 years of Conservative fecklessness and some occasional sensible moves. Its verdict on the Bank of England is particularly damning:
The Osborne Treasury and the Bank of England under Governors Mervyn King and Mark Carney set the tone by “looking through” above-target inflation for four years from 2010-13, and again in 2017-19. The central bank ignored its price-stability mandate in order to hold interest rates at historic lows while suppressing government borrowing costs with quantitative easing.
This stoked asset-price inflation, especially in housing, while suppressing productive investment and real wages. Inflation-adjusted pay fell 6.7% from 2009-14.
Mr. Carney’s successor Andrew Bailey poured on generous monetary stimulus during the pandemic, and he has been slow to withdraw it as the inflationary crisis deepens. One day before Mr. Kwarteng’s tax announcement, Mr. Bailey gave markets a bad surprise with a dovish 50-basis-point increase in interest rates rather than a 75-point raise that would follow the Federal Reserve’s lead and match the severity of U.K. inflation.
No wonder markets were primed to question Britain’s policy credibility when Mr. Kwarteng unveiled the new tax plan.
On the bright side, at least we hopefully won’t hear much more about Modern Monetary Theory.
Addendum: I have ordered Edward Chancellor’s book, The Price of Time, and will review it when I get my copy. It is getting good reviews. We shall see!
Sterling is recovering a bit against the dollar. I wonder if some hedge fund types that have shorted the pound have been squeezed out.
Update: In response to bad polls and the fact that many Tory MPs are more or less social democrats with a blue label, the Chancellor has reversed his removal of the 45% top tax rate. So, combined with national insurance and other taxes, top earners face a marginal rate around 60 per cent, which is high even by European standards. Needless to say, this is unlikely to help the party retain power unless there is a dramatic improvement in the economy. And even if there is, the “it’s time for a change” will be hard to resist. Labour can get rid of its nuttier members and get into power.
“The unemployment rate was 3.5% in July, the same as in February 2020, but the U.S. has three million fewer workers. Where did everyone go? This in an economy with 11.2 million job openings. It’s mostly men 25 to 54 who haven’t come back to work. Now a McKinsey study suggests that 40% of workers are thinking of quitting their jobs. Does anyone want to work anymore?”
– Andy Kessler, Wall Street Journal ($).
Mr. Biden forgives half-a-trillion dollars in student debt without the assent of Congress. White House aides collude with tech platforms to silence dissenting voices on Covid. His regulators stretch the law beyond previous understanding to impose more control over the private economy. And that’s before they get the votes to break the Senate filibuster, add new U.S. states, override 50 state voting laws, and pack the Supreme Court. Mr. Biden has become his foe’s polarizing mirror image. It is exactly what he promised as a candidate he wouldn’t do.
Wall Street Journal ($), from which I have quoted quite a lot lately.
“Setting aside the stunning sexist double standard being applied to the current prime minister of Finland Sanna Marin, forgive me if I don’t think it’s news, or relevant, or important, or even noteworthy that she’s got moves. Look, I don’t believe politicians are any more noble or courageous or quasi divine than the rest of us. What’s more, if I were running a Western European democracy I’d imagine my stress level would be considerably higher than it is now. She’s got the right to burn off some steam, live life, and relax every once in a while. And unlike Dick Cheney’s hobby, no one went to the hospital.”
– G. Patrick Lynch, at the Econlog blog.
Elon Musk, the cheeky chap, has also weighed in on the issue.
“It was bound to happen. After skating through the summer without rolling blackouts, Californians on Wednesday were told to raise their thermostats to 78 degrees and avoid charging electric vehicles during peak hours as a heat wave grips the state. Good thing new gas-powered cars won’t be banned until 2035.”
– Wall Street Journal ($).
In my view, the idea of making people rely on electric vehicles (EVs) and then curbing how much power they have, is a design feature, not a bug. Those of a Big Government cast of mind (most politicians) might rather like the idea of fitting “kill switches” into EVs so that a bureaucrat can disable them. By making cars costly and annoying, it also forces people to use public transport.
At its root, hatred of the car is hatred of individualism and freedom. It is hatred of autonomy, even the joys of owning and driving a vehicle. All that “car culture” stuff is just so vulgar. Lord (David) Frost, the former UK Cabinet Minister and all-round-good egg, wrote a recent article about how, as a teenager, he bought a Rush album containing the song Red Barchetta, which posits a dystopian future when motor cars are banned.
He wrote:
Cars should also be about beauty. They represent the society that made them. Communist East Germany produced the Trabant. Communist China produces Politburo-style boxes. Western civilisation produced the VW Beetle and the Mini, the Ferrari Testarossa and the E-type Jag – symbols of achievement, of individualism, of power.
And cars are about excitement. The Fiat 500 nipping around the streets of Florence. The elation of burning down the Autoroute du Midi with the Alps in the distance. The sense of anticipation of heading along the urban freeway, the towers of New York or Chicago before you, as the signs flash by and the off-ramps flicker past.
We’ll miss it when it is gone. And that time is closer than you think.
CEOs at prominent firms such as Apple, Tesla and Goldman Sachs have required employees to return to the office, curbing the working from home trend that got going at the start of the pandemic.
One point that jumps out at me is how this shows that skilled employees have a lot of market muscle today – firms need to persuade them to do certain things and don’t have all the power.
Consider: Labour is not homogenous and takes time to replace. We have seen a dramatic example of this in the airline sector, where thousands of staff, such as those working in security and baggage handling, were let go, creating a bottleneck problem when restrictions ended. Airlines are now scrambling to get people re-hired, but that is not easy as employees and contractors must go through security vetting. Hence the thousands of cancelled and rescheduled flights that have been a feature of the holiday travelling season.
What all this shows is how flawed Karl Marx was in his claim that capitalists have the superior bargaining power over “workers” and that business owners hope to create a “reserve army” of the unemployed who will put downward pressure on wages, hence creating the “surplus” that becomes profit.
Among the many things wrong with Marx’s idea is that claim that the majority of the risks and uncertainties are on the employees’ side. Hiring and retaining labour, including skilled labour, is not straightforward. There are search costs to consider in hiring, and employers know that it is often better to retain a worker, even if they could get someone a bit cheaper, than have the cost and time of hiring another. Also, a worker is paid a wage/salary, at least initially, whether a firm has made a profit or not, and that is a risk the employer has to bear (otherwise why else do firms have revolving credit facilities to manage cashflow?) Further, all workers are to some extent also “capitalists” – they have built skills and character (punctuality, agreeableness, ability to follow rules, get on with others and serve clients, etc) that take time and effort to acquire. A plumber, software programmer or security manager have capital sitting in their heads, and when a firm hires such a person, it is renting that capital.
There are of course of lots of reasons why Marx’s description of labour/capital relations is wrong and simplistic (example: his insertion of the idea of “socially necessary labour” begs the question of how one knows what that is, and it turns out that SNL is revealed by the interplay of prices in a market, rendering his idea circular). But the current working from home/office argument seems to bring home a particular point, which is that those supposedly evil capitalists don’t have all the power, and in many cases, have far less than even they might have hoped for.
Addendum: Thomas Sowell’s critique of Marxism remains one of the most succinct and effective that I have read. Also, there is a segment in Robert Nozick’s Anarchy, State and Utopia where he demolishes the “exploitation” theory very effectively. Another good treatment of the issue is by Kevin McFarlane, an engineer and libertarian.
Mr Sunak…..explained how the minutes from Sage meetngs were edited so that dissenting voices were not included in the final draft.
(Report from the Daily Telegraph.)
In other words, the committee – Sage – that was created by the government to oversee COVID-19 policy deliberately suppressed views from one of the most important departments of state – The Treasury – because it did not go with the lockdown narrative.
I am not a particular fan of former Chancellor of the Exchequer, Rishi Sunak, one of the two senior figures running for leadership of the Conservative Party. We have the highest tax burden in 70 years, and he could, had he been so inclined, resigned rather than gone along with that. Nevertheless, his comments on how policy on Covid was driven over the past few years are shocking, if true. Maybe he is trying to justify himself after events – he could, of course, have resigned and explained why he was so appalled at what happened. We must not forget the efforts made by the scientific/policy “establishment” to suppress awkward voices such as the signatories of the Great Barrington Declaration in their calls for focused action against the virus rather than indiscriminate lockdowns.
I am not particularly hopeful that the right lessons will be learned from the COVID-19 debacle, such as how dangerous it is to give power to a group of people with no wider appreciation of the damage actions can cause (assuming that said damage was not indeed part of the actual point). The dynamics of power being what they are, this sort of thing can and will happen again. Groupthink is killing people, in some cases, literally. A solid consensus in the banking/financial services sector before the 2008 financial crash held that central bankers had more or less cracked the problem of setting interest rates, running monetary policy and inflation, and that if banks got involved in odd-sounding derivative products, they’d be fine in lending sub-prime loans; we have had “the science is settled” consensus on global warming, and part of our current energy clusterfuck can be pinned on a determined drive against fossil fuels in much of the West. The response to covid was another dangerous “the science is settled” moment. The way that children are taught – or not taught – in schools is another example of a dangerous consensus.
Challenging these “the science is settled” mindsets is hard, but it has to be done.
“The U.S. could have set an example for the world through innovation. Instead the government chose to spend hundreds of billions of dollars to achieve no noticeable climate benefit.”
– Bjorn Lomborg, Wall Street Journal ($).
(I focus on the UK here in this brief commentary; needless to say, readers in the US and other countries such as Singapore or parts of Europe will have plenty to add. I remember reading about how water rights and arguments over it has been a huge issue in the US Southwest, for example, for decades. Chinatown, the old Jack Nicholson film, is a favourite of mine.)
There are restrictions on water use in the UK at the moment, which has been through one of those long, hot summers that are great for a few weeks as people get out the barbecues and soak up the Vitamin D, but become a pain when folk have to work when the country cannot seem to manage air conditioning. And then the “green and pleasant land” goes the colour of café au lait. There are issues about whether, if such weather remains a regular feature, that certain crops such as wheat have to be irrigated. (Much wheat is grown in East Anglia, where my Dad had a farm and is the driest part of the UK, being on the eastern side of the country.)
From a free marketeer’s point of view, the water business is a bit of a challenge. The system of pipes, reservoirs and meters put in place can, to some extent, have business features and use the price mechanism to allocate resources (water meters, for example), but it is not all that feasible or politically easy to have different water firms competing to supply the stuff over rival pipes, dig out rival reservoirs, or desalination plants, etc. Digging a reservoir typically will require a compulsory purchase power, or what in the US is called Eminent Domain, and that is not something that is easily granted to a wide variety of suppliers of water.
So in the eyes of many, much of today’s water sector is what economists call a ”natural monopoly”. (The competitive bits might include supplies of bottled drinking water, home equipment for filtering water, private water storage, etc.)
Monopolies tend to be abused by those running them unless there is a realistic prospect of competition to keep people honest. The cluster of firms running the water organisations in the UK, such as Thames Water, are in some cases listed firms and pay a dividend, or they are owned by other listed firms (sometimes classed by asset managers as “infrastructure”). The salaries of their senior executives are the subject of much angst in the press, including the supposedly pro-capitalist ends of it, never mind those reflexively hostile to business. Because of the natural monopoly aspects of these firms, they are regulated by a quango called The Water Services Regulation Authority, which sets certain standards including pricing. From time to time there are calls for water utilities to be renationalised, although it is worth noting that in the last big drought in the UK of 1976, utilities were state owned, and that certainly did not prevent all kinds of water bans and restrictions. (Here is a paper written 21 years ago from the Institute of Economic Affairs about water utilities and competition.)
So what should classical liberals and libertarians think about this? Are there examples from around the world on how to inject genuine competition into a field deemed always to be a monopoly, or should water supply be a sort of minimal state function like law and order, akin to how one might think about the cardiovascular system of the body? Would an anarcho-capitalist order be able to handle these questions (rival agencies running packages for water/power, etc with different pricing regimes all competing against one another?)
It does seem to me that there should be more opportunity for innovation and change that could put water companies under healthy pressure. For example, building several desalination plants (they don’t have to be even very big – nuclear-powered submarines use them) might be an idea for a commercial provider who could offer to supply cheaper water into the system, but I am guessing the price incentives would need to be big enough to justify the costs, depending on how expensive a plant is or whether they can be build in sufficient amounts to achieve economies of scale.) There is even a specialist market in small desalination/reverse osmosis tech for producing water for folk such as sailors, etc. (See an example here.) And see here for an interesting article from the Massachusetts Institute of Technology.
One could, I suppose, have a system where water suppliers compete to supply water into a series of reservoir hubs for an agreed amount; the water could even be shipped or piped from wetter parts of the UK such as Wales and Scotland, and be a nice source of revenue for those places. Maybe it is time for Scottish nationalists to spend more time figuring out how to get rich by using this resource instead of bellyaching about the evil English. Also, very large users of water – agri-businesses irrigating land, or industrial users – have the bargaining power to negotiate prices and hence could even build mini-reservoirs of their own, assuming governments allowed it.
There may be plenty of other ways to think about the limits, but also the potential, of making the business of water more competitive and businesslike. Because it strikes me that if those arguments aren’t made in a constructive way, the usual calls for State control will be ever louder. The past few years, such as over COVID-19, have taught us, surely, that fear of bad things happening plays all too often in one, clunky direction.
(I haven’t mentioned global warming yet, but while that issue has obviously been raised a lot by those who extrapolate trends from a period of weather, I think the issues here aren’t dependent on whether man-made global warming is true or not, or bad or not. For once, I am parking that subject to the side of the road.)
“Schumer-Manchin won’t reduce inflation, won’t reduce the budget deficit, and it won’t reduce the world’s temperature. What it will do is transfer some $369 billion from taxpayers and drug companies to the pockets of green energy businesses and investors. It will tighten the hold that politicians have on the allocation of capital, as they pick winners and losers with their grants and tax credits. Everyone will get a nice warm feeling as they pretend they are cooling the climate.”
– Wall Street Journal ($), commenting on the latest abomination to pass through the House of Representatives. It points that the supposedly “green” parts of this bill will, according to Danish “skeptical environmentalist” Bjorn Lomborg, reduce the estimated global temperature rise at the end of this century by all of 0.028 degrees Fahrenheit in the optimistic [United Nations scenario] case. And meanwhile China proceeds apace with building coal-fired power stations.
“When did you hear any public figure extol cheap energy as an agent of poverty alleviation? When did you hear any historian describe how coal, and later oil, liberated the mass of humanity from back-breaking drudgery and led to the elimination of slavery? For 10,000 years, the primary source of energy was human muscle-power, and emperors on every continent found ways to harness and exploit their fellows. But why bother with slaves when you can use a barrel of sticky black stuff to do the work of a hundred men – and without needing to be fed or housed? The reason no one says these things (other than Matt Ridley) is to be blunt, that it is unfashionable. The high-status view is that we are brutalising Gaia, that politicians are in hock to Big Oil, and that we all ought to learn to get by with less – a view that is especially easy to take if you spend the lockdown being paid to stay in your garden, and have no desire to go back to commuting.”
– Dan Hannan
I remember reading TS Ashton’s book on the Industrial Revolution many years ago as an undergraduate, and it was emphatic that no serious civilisation lifts out of poverty without an Industrial Revolution. Even Karl Marx, wrong as he was on so much around economics, gave grudging respect to the IR in his Communist Manifesto. (Old Soviet propaganda posters would show pictures of rosy-cheeked workers in front of factories belching out smoke.)
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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