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I came across this interview with US academic Cass Sunstein, whose views on behaviouralism – including the area known as “behavioural economics”, have been immensely influential on governments in the past 25 years or so.
The idea of “nudging” people via policies to doing certain things (auto-enrolment in savings for retirement, messaging about the dangers of certain lifestyles, etc) has become a default piece of wisdom. It accords with the tendency of a managerialist political class that sees the wider population as only partially rationally self-interested. Sunstein, as shown in this video (conducted by the Hoover Institution in the US) notes how he disagreed with the Chicago-based economics folk such as Nobel Prize winner George Stigler and others about the idea of rational expectations. The behavioural school thinks that human motivation is not like that; in the financial services space, for instance, there is a school of thought known as behavioural finance that looks at crowd behaviour in times of stock market booms, busts, etc. And there are temptations to try and “fix” these behaviours.
I see a few dangers, and maybe Sunstein does too now (it is worth seeing the whole video). For example, it is easy to see how a government, even if democratic and accountable, can grow into a monster if driven by even well-meaning people that think that people aren’t necessarily fully rational, and need to be nudged, or guided, into doing the “right thing”.
This helps explain, in some ways, why the “administrative state” is what it is. It would not have got so big had it been a clearly evil project. Most people who drive all these changes and programmes think they are doing the right thing. Some might be bad but most aren’t. And yet here we are, with a bloated set of governments in the West, with skyrocketing debt and all the rest of it.
I think a major flaw in behavioural economics is the hubris of the “nudge” advocates about how they think they can handle all this. And as we have seen, politicians who lean towards tax-and-spend policies love some of these ideas because they can sit alongside what they want to do anyway. I am not even sure it makes sense to describe these as “liberal” because some of this “nudge” stuff does not seem to accord with ideas about treating people as individuals who need to be held accountable for their actions.
It is arguable that the “nudge” crowd hew to a form of soft determinism, or maybe “soft paternalism” – the notion that we are not really volitional creatures with agency, but buffeted by internal and external forces, and often emotional first, rational second. But even if that latter point is true, a rational person with choice-making capacity can realise that he or she is prone to making unwise/foolish choices, and like Odysseus who lashed himself to a mast to avoid being tempted by the Sirens, adopt rules and protocols to not screw up. (I know an alcoholic who avoids parties and certain events to avoid getting into trouble, to give one example. Another might be a stockbroker who turns off the noise of the daily news and makes better investment decisions over the long run.)
Self-knowledge is the beginning of wisdom, and all that.
These are not smart taxes in a service economy that desperately needs to increase productivity. We need a tax policy that encourages people to work longer hours, in the highest-paying, private sector jobs they can find. We need a tax policy that encourages money to move from unproductive assets to more productive investments, which hopefully make a profit and pay dividends. We need a tax policy that enables small and medium-sized businesses to continue to operate, employ people and pay taxes. We need a tax policy that encourages the global wealthy to live in the UK and spend their money here.
Worst still, besides risking the bulk of UK taxes by discouraging businesses and driving the rich out of the country, these tax increases still aren’t enough to pay for the Government’s additional spending. Which brings us back to the opening paragraph of this essay: A doom loop occurs when government policy reduces economic activity by over-taxing it, over-regulating it, or allowing unconnected third parties to stifle it with litigation. Lower economic activity lowers tax revenue, which in turn causes a debt spiral if the government can’t or won’t cut spending, which leads to increased debt and higher debt costs. In the 2024/25 financial year, the UK public sector net debt was £2.8 trillion, equivalent to 95.1% of GDP. Public sector net borrowing was £151.9 billion in 2024/25, £20.7 billion higher than the previous year and equal to 5.3% of GDP, up from 4.8% in the financial year 2023/24.
– Catherine McBride
Following from my post of yesterday about the attacks on inheritance, and attitudes around equality more generally, I took another look at the Lewis Goodall attack on inheritance. Goodall, a journalist, argues that he is in favour of capitalism – he wants to cut income taxes – and therefore he is not just some malcontent Leftie who wants to hit people on the head with tax.
There is also a sort of intergenerational justice argument going on here. Quantitative easing and other forces have inflated asset values; Boomers have, to some extent, enjoyed final-salary pensions and been able to retire in their early 60s, if not before. Most Gen X (that includes me), Millennials and the Zs will have to work for longer. (Given hopefully rising healthspans, that might not be a bad thing, however.) True, those who were young adults in the 50s, such as my Dad, had to do military service, and there were other nasties to deal with that we younger adults did not have to handle. But still, there’s a sense of grievance that those who had “never had it so good” got to have the best of times, and their offspring have got the dirtier end of the stick. That’s certainly part of what is driving some of this anti-wealth/inheritance narrative.
Switching gears here, there are structures that people have, over the centuries, sought to form to stop inheritors becoming obnoxious and lazy, and also to hold families together so that they don’t fall out, as in the HBO series, Succession.)
For years, in my day job, I have wrestled with the trend of a multi-trillion dollar/equivalent transfer of wealth from the Baby Boomer generation. In the wealth management sector, particularly in the US, there’s a whole field of advisory work that goes on to help guide ultra-wealthy families about how not to spoil their children. The debate is often framed in the question of “how much is too much?” in transferring wealth.
We have seen the rise, in their thousands, of what are called family offices. These are structures – operating around the world – that act as a sort of trusted point of control for a family’s private wealth. FOs operate in North America, continental Europe, the UK, Singapore, United Arab Emirates, Australia, and other developed countries. (I predict a big expansion in India, as many businesses there are family-owned.)
Sometimes FOs emerge from the executive suite of a family-run firm; they run the liquid wealth of a family, and that becomes a sole focus once a firm is sold or floated on a market. FOs are designed to hold families together – they even have their own “constitutions” and governing procedures – and create a sort of structure through which families handle payments to different members, run investments, deal with philanthropy, personal and cybersecurity, bill payments, and more. Once obscure, the family office industry is a large, multi-trillion sector. The original FO was, arguably, founded by J D Rockefeller, the oil tycoon. Today, the likes of Michael Dell and Bill Gates have them, as do the founders of Google, the governing family of Walmart, Home Depot, shipping dynasties in Denmark, Mittlestand firms in Germany, and many more. (Germany has many family offices, most of which are obscure.) Families that are far less wealthy than the foregoing can create family offices, although they aren’t economically efficient to run if assets under management go under $100 million.
Another structure for we lesser mortals is the trust. These are creatures of the English Common Law, and are extensive in the UK, Australia, New Zealand, Singapore, and biggest of all, the US.
Trusts remain an incredibly useful tool for ensuring orderly transfer/control of assets by families. If people such as Lewis Goodall are worried that inheritors become spoiled brats and lose a work ethic (if that is his genuine concern, it is a fair one to have), then trusts can, or could, be structured so that a beneficiary only receives payouts from it if certain terms and conditions are met.
Governments sometimes try and clip the wings of trusts. In 2006, UK Chancellor of the Exchequer Gordon Brown moved against the trusts sector, on the specific issue of inheritance. The use of trusts in the UK has, on balance, shrunk, but they retain their uses.
If people fear that inheritance saps the ambition and energy of inheritors, then trusts and other structures can be set up by parents and others to avoid that from happening. In a way, this sort of discussion is not so different from those that come with Universal Basic Income – what happens if we turn the entire working-age public into a bunch of loafers?
To some extent, considering the impact of inheritance on inheritors – or UBI recipients – are empirical questions, based on an understanding of incentives, behavioural issues, values and so on. The morality of it is a different one. UBI is funded via tax – a coercive move of money from the individual to the State. Inheritors of legitimately acquired wealth are receiving something that was legitimately held and transferred by consent of the transferrer.
“Markets are not efficient because we assume they are; they become efficient through a discovery process in which profit and loss guide innovation, reduce inefficiency and generate wealth. This process is what makes markets a better alternative to the state. Implicitly, these critics assume the state can correct market imperfections – ignoring that it suffers from its own limits of knowledge and benevolence. If they judged the state by the same standard they apply to markets, the picture would change: both have flaws, but only one has a built-in mechanism for improvement.”
– Mani Basharzad, writing at CapX on the often dire predictions economists have made, such as their mockery of Argentina’s reforms, or the old claims from the early 1980s that the Thatcher policy mix could not work.
The author of this article has good things to say about the limitations of the neoclassical school in economics, and the failure to understand that competition is a discovery process. Entrepreneurs make money precisely by acting on the basis of incomplete data and in the hope they get things more right than wrong. And when they succeed, or indeed fail, it generates new knowledge. One of the problems for a centrally planned economy is that in epistemological terms, it is barren. A point for those who see AI as creating some sort of fix for socialism to bear in mind.
News comes to me that an advert, a video in the style of a musical, for something called Coinbase, which I understand is some form of crypto set up, which is why the advert has been banned, and about which I know nothing more, (and this is not advice or recommendation on financial matters) is not permitted in the UK by the regulator, OFCOM. Not that I doubt that OFCOM are interpreting the regulations correctly. That the advert might be termed mildly satirical would be a fair description, and take a look at the shop names. It’s almost an updated Oliver Twist. Has it been made by people familiar with modern Britain? I would say so.
As Burns said in his ode ‘To a louse’:’O wad some Power the giftie gie us / To see oursels as ithers see us!’.
Thanks to comedian Andrew Lawrence for the tip.
The result of [Argentina’s] shock therapy has been a stunning recovery. Milei has brought monthly inflation down from 13 percent to 2 percent. The economy is now growing at an annual rate of 7 percent. Investors no longer shun Argentine bonds and stocks—indeed, they were among the best investments you could have made over the past two years. After a brief upward jump, the poverty rate has fallen from 42 percent, when Milei was elected, to 31 percent. There is much work still to be done, but a new program from the IMF will provide $12 billion of new lending upfront and potentially another $2 billion, which should enable Milei to remove the remaining capital and exchange controls without reigniting inflation.
Most governments that cut their fiscal deficit by five percentage points of GDP pay a heavy political price for the resulting pain. Margaret Thatcher took nearly all her years in office to get the British public sector borrowing requirement down from 4.5 percent of GDP when she was elected in 1979 to −1.1 percent 10 years later.
– Niall Ferguson
Now the thing is:
You can gatekeep in Europe
You can gatekeep in the United States
You can gatekeep in every single economy of the West
But you absolutely cannot gatekeep in China, for there are no tools at all, that would allow you to do that
Like what would you even do to restrict the new entrees?
Intellectual property? lmao
Some other lawfare? Again, just like the enforcement of intellectual property rights, that would ultimately rely upon the cooperation of state, and the state in China – unlike in the West – just would not cooperate.
High profit margins in the West are ultimately based upon the artificial restraints upon the new entrees, and upon the state-sponsored gatekeeping. You keep your prices high, because any new entree on the market will be scared away by the force of the state machine. And in China, the state machine just wouldn’t do that. That is why Chinese competition is getting so close to perfect, and that is why prices (and profits margins) in China, can be getting so low.
– Kamil Galeev
Alex Tabarrok over at the Marginal Revolution blog has an interesting item that pushes back against the idea that the items we buy, such as clothes and household appliances such as electric toasters, fridges and vacuum cleaners, don’t last as long and that is something terrible and a fault of modern capitalism, yadda-yadda.
He concludes: “appliance durability hasn’t collapsed—it’s evolved to meet consumer demand. We’re not being ripped off. We are getting better products at better prices. Rising incomes have simply redefined what “better” means.”
One part of it, as Tabarrok said, is that the “Baumol Effect” shows that the cost of repairing stuff rises vs the cost of buying that new toaster, flat-screen TV or whatever. And that seems to make sense. I’ve also noticed with a lot of modern tech, it is less reparable. That is partly, I think, a function of moving to a digital from analogue world. I am just about old enough to remember how to service my first car, including changing the spark plugs on the engine, etc. Nowadays, the chance of maintaining a modern car engine rank alongside how I’d fix the human brain.
The MR post also cites this excellent and detailed Rachel Wharton article in the New York Times’ “Wirecutter” publication, which contests the idea that “planned obsolescence” – some fiendish business tactic – is the cause.
Read the article and you will learn a lot about the market for fridges. You will thank me later.
Alfred Marshall’s grand vision of economics was that you did the maths to check your logic. Then you translated all of that into English and burnt the maths. Steve Keen won’t do it that way for of course Marshall was a neoclassical and that’s just wrong, see?
Keen did once try to insist that I followed along with one of his papers – he was showing that there are no free markets, there are only oligopolies and therefore everything must be controlled by politics – and was most put out when I said well, yes, that’s mathematically true but useless.
For his contention was that as we’ve never got an infinite number of producers (nor consumers) therefore that model of free markets – which relies upon no individual producer or consumer having pricing power, which in itself implies an infinite number – therefore neoclassical economics was all wet. His maths was fine for that’s all true too. Except for the bit where if we analyse markets which we know are oligopolistic and then see how many producers we need for them not to be then the number seems to be about 5 or 6. True, true, 7 supermarkets doesn’t mean a wholly perfectly free market with profits no higher than the cost of capital but it’s pretty damn close. Close enough for either jazz or the economics of public policy.
The maths is for working through the logic not a replacement for it.
– Tim Worstall
Farage wants healthcare more like France, Netherlands or Switzerland, which all have a varying degree of insurance element. NHS was always a terrible way to do healthcare, which is why rest of Europe didn’t copy it
So, is it not ironic Reform party are open to at least exploring that kind of system, whereas the supposedly pro-European anti-Brexiteer elements who most depreciate Farage get the vapours at the notion of a more European healthcare system for the UK? 🤣
As AJP Taylor once wrote, “until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state beyond the post office and the policeman”.
That is emphatically not the case today. Having won the wars, the advocates of freedom comprehensively lost the peace. They lost to such a degree that those of us born and raised afterwards find it hard to comprehend the scale of the change.
It’s easiest to start with the size of the state. To be sure, socialism in Britain has receded from its high point. The nationalisation of coal, iron, steel, electricity, gas, roads, aviation, telecommunications, and railways has been mostly undone, although steel and rail are on the way back in.
But by comparison to our pre-war starting point, we live in a nearly unrecognisable country. In 1913, taxes and spending took up around 8 per cent of GDP. Today, they account for 35 per cent and 45 per cent respectively. To put it another way, almost half of all economic activity in Britain involves funds allocated at the behest of the government, and over half of British adults rely on the state for major parts of their income.
And if anything, this understates the degree of government control. Outcomes which are nominally left to the market are rigged by a state which sees prices as less as a way for markets to clear, and more as a tool for social engineering.
– Sam Ashworth-Hayes (£)
So, why did we stop this taxation of “excessive” pensions pots? Because it lost revenue. It took tax rates well over the Laffer Curve peak if you prefer.
So, what’s Ms. Rayner, Labour’s Deputy Prime Minister, suggesting today? That we reimpose a policy that we already know fails.
Idiot’s a bit mild really, isn’t it? Also, it’s rather a pity that Googlebombs don’t work these days.
– Tim Worstall
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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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