It seems Theresa May has found her strategy for rescuing the British economy from the political damage the Tories are planning to inflict:
The prime minister will publish the strategy at a cabinet meeting in the north-west of England, setting out five sectors that could receive special government support: life sciences, low-carbon-emission vehicles, industrial digitalisation, creative industries and nuclear.
She will say the government would be prepared to deregulate, help with trade deals or create new institutions to boost skills or research if any sector can show this would address specific problems.
Great idea! As one of the people working on developing “skills and research”, I’d like to suggest that it might be a good idea to arrange an agreement to share students, workers, and researchers with our neighbours, who are similarly technologically-developed and share common scientific and educational traditions. We could call it the Anglo-European Union, or something like that.
But no, that would help “old institutions” like my own. The Westminster Pharaoh is only interested in boosting skills or research if it can create “new institutions” as a monument to her greatness.
Ars Technica reports on testimony by Mediacom, a large US cable company, explaining why they should not be required to stop capping data usage:
People thus shouldn’t complain when Internet providers impose data caps and charge more when customers go over them, he wrote. “Even though virtually every other industry prices its products and services in the same way, some people think that ISPs should be the exception and run their businesses like an all-you-can-eat buffet.”
“Virtually every other industry”… Yes, it’s pretty hard to think of any industry that offers all-you-can-eat buffets. Who could possibly afford to offer all-you-can-eat? It’s a fantasy.
I remember reading, back in the late 1990s, an article in Spiegel, about the dubious decision of the Euro finance ministers to create a 500 euro banknote. Since the only people who use cash in significant quantities in this millennium tend to be shy people eager not to be singled out for their achievements by prosecutors, the question was raised, why would you want to create a unit of currency that enables law-abiding citizens (and others) to pack five times as much currency into a suitcase as the former favourite $100 bills?* The answer given by Edgar Meister, one of the directors of the Bundesbank, was that Germans had gotten used to having a 1000 Mark banknote, and that if the largest Euro banknote were worth less, people would think this new currency was a weakling.
Eine Währung, die es sich leisten kann, mit so hohen Noten herauszukommen muß wertbeständig sein.
A currency that can afford to produce such large banknotes must be solid.
As everyone knows, that’s why Germany produced this 50 million Mark note in 1923: (more…)
I very much enjoyed reading Richard Thaler’s book Misbehaving, on behavioural economics and his own role in its development. It occurred to me that the basic lessons of that soi disante science may be summarised by a variant on a famous Rolling Stones song:
You can’t always know what you want…
But if you don’t try, most of the time
You just might find you want what you know.
From John Holbo I got this link to weird libertarian rantings by a financial journalist I never heard of. I was particularly struck by this Randian comment
Maybe we should shut Wall Street down for 24 hours, see how everybody who blames Wall Street for everything likes that.
Well, what would happen? I think I know a fair amount about the role of financial markets in the economy, and while I don’t consider them useless, I really can’t see what the problem would be if they were shut down for 24 hours. Not only that, I’m not even sure what their staunchest defenders might claim the problem would be.
In fact, didn’t we try this experiment already? The NYSE, and pretty much all the New York financial industry got shut down for several days or a week after the 9/11 attacks. Did anyone mind? I’ve heard a lot of commentary about the impact of 9/11, and I’ve never once heard anyone even suggest that there had been negative consequences to closing the financial markets for a week.
I find The Times fascinating, as a peek into the id of the British establishment. Thus, it usually seems sort of objective and reasonable — and I find its science coverage excellent, for a daily newspaper — until some event hits the nerve of class interests and establishment ideology, such as on the day after Jeremy Corbyn’s election as Labour Party leader. Then the news and editorials fall into line with a kind of mirthless sarcasm that astonishes in its combination of vituperation and simplemindedness. I find myself then reading it, like the scripture of some weird sect — I’m not naming names here — wondering, does anyone really find this either amusing or insightful. With the extra frisson of remembering that those who find it both amusing and insightful are running the country.
Today there was an editorial bashing the NHS. After one of those it-was-probably-clever-the-first-time-someone-said-it quips about how at current growth rates, the NHS will exceed 100 percent of the British economy by 2100, the writer (Ross Clark) refers to one of today’s news items:
A new threat to NHS financial stability has emerged: thanks to the increasing complexity of drugs it will cost a lot more in future to produce generic versions.
At present, drugs typically fall in price by 95 per cent once their patents expire. But new drugs that rely on biological agents are expected to fall in price by only 25 per cent, drastically cutting the £13.5 billion the NHS saves every year by using generic drugs.
The NHS should have cottoned on much faster to the fact that generic drugs cannot be relied on indefinitely. It should be using its power in the marketplace much more to push prices down.
I bet there are heaps of overpaid NHS managers slapping their foreheads, thinking “power of the marketplace, why didn’t I think of that?!” The whole point is that these new drugs are expensive to produce, so no pharmaceutical company is going to rush in to sell it for 5% of the original cost, regardless of whether it is protected by patent rights. We’re seeing a change in the relative cost of development and production. (It’s the reverse of the change in the music industry from the early days of CDs when the physical production of the CD cost several dollars to now when the marginal cost of an album is infinitesimal.)
No amount of “cottoning on” by the NHS is going to change this fundamental reality.
When someone speaks incomprehensibly, an English speaker will be inclined to reference Shakespeare’s Julius Caesar, saying “it was Greek to me”. But what does a Greek finance minister say when no one understands him at Eurogroup negotiations? From an interview with Yanis Varoufakis in the New Statesman:
There was point blank refusal to engage in economic arguments. Point blank. You put forward an argument that you’ve really worked on, to make sure it’s logically coherent, and you’re just faced with blank stares. It is as if you haven’t spoken. What you say is independent of what they say. You might as well have sung the Swedish national anthem – you’d have got the same reply.
A BBC headline announces that
Migration rules ‘may cause NHS chaos’
The problem is, a rule introduced in 2011 requires that foreign workers must return home after 6 years if they are not earning over £35,000. This is presented a disaster that can only be averted by the government granting an exemption to the rules.
The union says that by 2017 more than 3,300 NHS nurses could be affected. And by the end of the decade the numbers could be double that – a potential waste of nearly £40m when all the costs of recruitment are taken into account, the RCN says.
RCN general secretary Peter Carter said: “The immigration rules will cause chaos for the NHS and other care services.
“At a time when demand is increasing, the UK is perversely making it harder to employ staff from overseas.”
He told BBC Radio 4’s Today programme the move was “totally illogical” as there is currently a “major shortage of nurses”, leading to many NHS trusts spending “tens of millions” to recruit from overseas.
Dr Carter also stressed that most nurses earn “nowhere near” £35,000, with most on salaries of between £21,000 and £28,000 a year.
I don’t mean to defend the Tory policies, which combine the Conservative view that the non-rich are inherently undesirable with the usual British political one-upmanship on bashing foreigners, but this doesn’t look to me like an inherently unsolvable problem. There is a method known for increasing the supply of labour: raise wages. If there is a “major shortage” of nurses when you pay between £21,000 and £28,000 a year, I’m willing to guess that there would be less of a shortage if they were paid between £25,000 and £32,000 a year. It probably wouldn’t solve the problem completely, in the short term, but it would bring in marginal resources — some part-time workers would work more hours, some would delay retirement, and so on — and it would pull more young people into the profession. And if they raised salaries to £35,000, that would solve their international recruitment problem. (more…)
Stanford biodemographer Shripad Tuljapurkar has written a very thoughtful post about the “annuity puzzle”: Why do people generally not choose to purchase annuities that would seem to protect them from a major risk: Being feeble and impoverished 30 or 40 years after retirement? His explanation, which is surely right as far as it goes, is that the shunning of annuities is a rational response to the compensating default risk from the insurance company. You have to live quite a long time to make your nut on an annuity. The “risk” — the probability of living that long — is low, and (he argues, persuasively) one could reasonably conclude that it is outweighed by the likelihood of a financial crash in the interim.
From a behavioural economics perspective, this matches closely one of the standard explanations for discounting: Future returns are drastically uncertain, so we develop the habit of preferring immediate gratification. So this falls in the category of attempts to explain seemingly irrational economic behaviour by showing that it is in fact rational when you take into account limited information or costs of acquiring or analysing information. Of course, any economic theory inevitably struggles to deal with questions of insurance and annuities, where the risk involves the life of the economic agent. The celebrated analysis of this problem by Jack Benny is still relevant.
But while this is a cogent argument for why people shouldn’t buy annuities, I’m skeptical of it as an explanation for why they don’t buy annuities. First, the annuity puzzle is a phenomenon of average people, not savvy investors. I doubt that most people think much about the risk of established financial companies defaulting. One prominent study (based on surveys conducted in 2004) found that 59% of Americans would trade half of their Social Security annuity for an actuarially fair lump sum payment. I’m pretty sure that they are not thinking that they can find a safer investment, with less risk of default, than Social Security. (more…)
According to the Guardian,
British taxpayers should expect to feel worse off under whichever party wins the general election next week, according to the Institute for Fiscal Studies.
What a weird circumlocution! We’re not saying that people will be worse off, only that they will feel that way. We’re not even really saying that that they will feel worse off, only that they should expect to feel worse off. And what will be the basis for that feeling? They will be paying higher taxes which, as taxpayers, is all those people care about. It may be that British residents will be feeling better if Labour is elected — their children will have more and better school places, they won’t have to queue at the hospital A&E, they’ll have access to better social services in times of need — but British taxpayers will be down in the dumps. Maybe there’s some way we could get them to meet up, even for the residents to share some of their good fortune with taxpayers.
The funny thing is, the report does not use the expression “worse off” (except in reference to a particular proposed tax change with a cliff-edge effect, leaving some people in a particular income band worse off than if they had lower incomes). It doesn’t include broad statements about people’s general subjective well being, or even their financial well-being. It simply suggests that all the parties are going to raise taxes somewhat, make minor changes to benefits, and overall make the system slightly more complicated and less coherent.