Economics

Rachel Reeves searches for new ideas on economic growth
The chancellor is seeking advice from cabinet members as market turmoil derails the government’s strategy

Shoot the bureaucracy.

The basic British economic problem is microeconomic, not macroeconomic. It’s not about tweaking demand, the balance of money in the economy, all those macro things. They’re not great, sure, but that’s not what is stymying growth.

No, we have a vast bureaucracy and NGOsphere dedicated to not allowing anyone to do anything. Blow up the planning system. Allow fracking. Shoot the people who demand bat tunnels. Leave REACH. And so on. Just kill off the hundreds of thousands who stop people doing things.

Metaphorically if you wish.

Today’s news tells us that school uniforms are to be regulated as to how many pieces of them can be specific. Also, that margins on ticket resales are to be limited.

Past weeks have given us the regulation of football. That all schools must now teach to the same curriculum and all teachers be on the same pay scales. Nationally.

The current Cabinet really isn’t going to grasp that fact that the economic problem is those interventions in the microeconomy. They’re really, really, just not going to grasp it, are they?

Ticket resale prices for live UK events to be capped in crackdown on touts
Viagogo and StubHub platforms to be hit by cap of face value plus 30% or less

The price of something simply is the price of something. Limiting the cash price just moves that price to some other aspect. Contacts, queues, uncertainty, summat else.

Prices are prices.

Even Katy does:

Britain doesn’t need a productivity boost, but a revolution. And the stakes are high – not least because the new Government seems to have whittled down its growth agenda to practically only efficiency gains.

Having hiked taxes on employment in its first Budget, current indicators suggest that there is actually going to be a small decrease in the workforce participation rate over this parliament.

Yes, but productivity is not measured against the population but against hours worked. So, people falling out of the workforce *increases* productivity.

Private schools across the country will increase their fees on Jan 1 by more than the Government predicted as its VAT raid takes effect, The Telegraph can reveal.

Sir Keir Starmer’s controversial move to apply 20 per cent VAT to private school fees was designed to boost the state sector, with the tax increase set to fund measures including more teachers.

In an impact assessment in October, the Treasury claimed fees would only rise by 10 per cent on average as a result, arguing that many of the country’s 2,600 independent schools would not pass on the full cost to parents.

But a Telegraph analysis of fee changes from 964 private schools in England, Scotland and Wales suggests this claim was wrong.

Around half of those schools are increasing fees by 15 per cent or more, while a fifth – including Eton, which educated Prince William – are hiking fees by the full 20 per cent. The average fee increase was found to be 14 per cent.

No, no, not the policy, that’s just spite. The economic estimate there.

The actual state of economic knowledge was “Add VAT and school fees, on average, will rise by something less than the rate of VAT. Exactly how much will depend and we’ll have to wait and see”.

Which is what has happened. So, pretty accurate then.

That some chose estimates of purportedly greater accuracy for political reasons is politics, not economics.

No country has become more of a US vassal than the UK. This evolution is exposed in an eye-opening book, Vassal State: How America Runs Britain. Donald Trump’s impending inauguration, accompanied by threats of tariffs and the downgrading of its commitment to Nato unless its client states bend even more to its will, has shaken western capitals. But, as author Angus Hanton carefully documents, this is not something new; the US has been putting America first for decades. Trump is only turning up the dial on a longstanding phenomenon. Changing this demands more than appointing the sinuous Lord Mandelson as British ambassador to the US: it is about recognising the extent of what is happening, then fighting fire with fire. It is time to put Britain first.

Hanton writes that 25% of British GDP is made up of sales of 1,256 US multinationals operating in Britain.

I mean I’m willing to be persuaded, yes. Could be, I guess, that 25% of value add in the UK is owned by Americans.

But I sorta doubt it. I have a feeling that what’s been done there is to add up turnover and then compare that to GDP. Which isn’t – really, no – how it’s done. Of course it’ll be enough to fool Willy Hutton but not actually true.

Amen to all of that, but the omens are not great. Nigel Farage portrays himself as a kind of national saviour, instead of being called out as a de facto US quisling backed by a largely fifth-column media intent on intensifying our vassalage.

D’ye think Willy might have been forthing at the mouth as he wrote that?

Millions of homes to get grants and cheap loans for solar panels
Ministers are drawing up plans to subsidise the work in a bid to win over consumers as the government attempts to meet its 2030 clean energy pledge

That cash has to come from somewhere. So, whose wallet gets nicked to pay for it?

The money will come from the government’s £6.6 billion warm homes plan and is due to be allocated in next year’s spending review.

And where’s that coming from?

These would be repaid potentially through bills, but at a lower annual cost than a household would currently pay in electricity charges.

No, that doesn’t change the cost. It just moves it around. Even oif we assume that it “works”, in the sense that household solar is cheaper than alternatives. That loss of interest – look, sorry, but opportunity costs are real costs – still has to be carried by someone.

Ministers are also considering increasing the amount households can make from “selling back” any unused electricity they generate to the grid to increase the incentives for homeowners to take up the offer.

Again, someone’s got to pay for that. More solar at the very time of day that everyone’s selling solar?

So, again, to repeat the question. Who has to pay for all this?

The Bank of England warned earlier this month that employers were increasingly responding to the Chancellor’s £25bn increase in employer National Insurance contributions (NICs) by raising prices, signalling that interest rates may remain higher for longer to prevent the economy from overheating.

If businesses could raise prices then they would raise prices. So, the point is not that businesses are raising prices because…..it’s why are businesses able to raise prices?

Because there’s still a lot of extra money floating around the economy. The solution is therefore to do more QT.

this really does mean we need to start again if we are to create a new economics

You can – if you should so wish – start a new morals, a new ethics, can define new goals and all that. Go for it.

But given that economics studies – among other methods of dliing so, of course – how to get from here to there a new economics isn’t the point at all.

It works the other way around. So, you define your new goal. The current economics will tell you how you can get there. Or, of course, that you can’t.

The UK economy had zero growth between July and September and is expected to have stagnated over the entire second half of 2024, undermining Keir Starmer’s promise to reboot growth.

In an unexpected downgrade as Labour comes under pressure over its economic management since taking power in July, figures from the Office for National Statistics showed growth in the third quarter was revised down to zero, below an initial estimate of 0.1% made last month.

Growth in the second quarter was also downgraded, from 0.5% to 0.4%.

Imagine you were trying to do that Keynesian demand management. You were aboslutely certain that this is the way the economy works, you should be fiddling with tax and spending – and the deficit – to ensure growth at a steady pace without inflation.

Then you find out that the information you’ve got to work with is always 6 months out of date by the time it is finally nailed down – as with that Q2 number.

You should – note should – conclude that even if the theory’s right you’ve not the info to make it work.

You know, Hayek was right?

And with the latest polls indicating that Reform UK is growing in popularity as economic progress stutters, Reeves launched a broadside at Farage and his party’s lack of fiscal credibility.

“What’s Nigel Farage’s answer on the economy? How is he going to make working people better off? He hasn’t got a clue. How’s he going to grow the economy? He’s not got the faintest,” she said.

Let’s put it this way. I trust Nigel’s basic instincts on economics rather more than I do yours.

A drop in investment caused by the Chancellor slashing tax relief risks outweighing the extra income the Exchequer expects to gain from the changes, according to analysis by CBI Economics.

Its report says the Treasury has “underestimated the impact” of changes to business property relief (BPR), with the majority of family businesses forced to cut investment because of the raid.

Analysts estimate that 125,678 jobs will be lost as a result. Overall, the loss of economic activity will lead to a £2.6bn reduction in income from taxes such as corporation tax, income tax and national insurance over the next five years, the research suggests.

This is much more than the estimated £1.38bn in extra inheritance tax Ms Reeves hopes to raise from cutting BPR, meaning that the Exchequer will be £1.26bn worse off than under the status quo.

There really is a Laffer Curve, the rate of the peak is different for each tax in each society.

I’d not, wholly, greatly trust any one caclulation on where that number is but the existence of it is certain.

Could we be over it here? Sure we could.

Not sure where I hard this, but it was years back – maybe even in comments here. Pollies are greedy for5 money to spend, Therefore tax rates always do rise to just over the peak – it’s when yields start to fall that greed limits them. Not that anyone reallyconsciously thinks about this so much as trial and error leads to tax rates maximising revenue – or, going a bit over that rate.

In the op-ed, Weber argued that tempering inflation is not a zero-sum game. “If your house is on fire, you would not want to wait until the fire eventually dies out. Neither do you wish to destroy the house by flooding it,” Weber wrote at the time.

She called for an alternative solution, “tailored controls on carefully selected prices”. She pointed out the “explosion of profits” that were seen in the middle of the pandemic: corporations were benefiting greatly from government stimulus and, in turn, continued to jack up prices. The government could step in by capping prices strategically.

The response to her op-ed was eviscerating. First, it was people in crypto and rightwing groups on Twitter that started piling on Weber. Then the economists started weighing in. The Nobel prize winner Paul Krugman said in a tweet – that he later deleted and apologized for – that the idea was “truly stupid”.

“It basically opened up the floodgates of hate,” Weber said.

In the years since, Weber has experienced something of a redemption arc. Though her argument about strategic price controls was seen as radical at the time, now that countries around the world have dealt with skyrocketing inflation and the political fallout it can cause, her ideas now come off as incredibly prescient.

Weber has worked with the federal government in Germany, her home country, to implement price controls on gas and heating prices after Russia invaded Ukraine. The European Union soon followed suit with its own cap on gas prices.

Energy price caps are a successful policy we should do more of? Oh Aye?

Add it all up, and one point is completely clear. None of the big state-led programmes has managed to achieve even a fraction as much as SpaceX, or to a lesser extent Blue Origin, already have.

Yes, Musk’s company has had some government contracts, and it inevitably operates in a highly regulated environment. But even so, it has proved itself a ruthlessly commercial company.

Space X has also pared back dramatically on costs, massively reducing the amount of money that it takes to get into space, and it will do so even more as reusable rockets become increasingly common. It has found ways of monetising space, with its Starlink unit providing reliable internet connections wherever you are, and stable revenue streams mean the business has plenty of cash available to pour into its most ambitious projects.

The company has reinvented the way space can be exploited, and will no doubt double down on that over the next few years, especially if Musk presses forward with his plans for colonies on Mars.

Critical mission led projects with strict conditionality run by politics and the bureaucracy are going to make us so, so, rich, aren’t they?

There is a way that could conceivably be addressed, and it would fit the Treasury’s insistence that large-scale public spending has to fit the definition of investment. Set aside large plots of land for mixed developments based around large amounts of social housing with lifelong tenure. Announce start-dates for building, and roll out apprenticeships and further education courses that will bring a lot of the work involved to local people. Badge the whole thing up as the final arrival of what some people called levelling up; frame it as a return to tradition and brand it with union jacks, if necessary. And as you sell the idea, try to update the kind of plain-spoken, communitarian words once spoken by that great Labour god Aneurin Bevan: “We shall persist in the building of new permanent houses until every family in the country has a good, separate, modern home.”

Why not just abolish the TCPA and have a housebuilding boom like we did in the 1930s before the TCPA?

Note that TCPA abolishment includes abolishing Section 106 and all the rest.

WTF have a plan when the correct answer is no plan?

“I remember when I realised I was earning just more than minimum wage despite gaining a high 2:1 degree from a reputable university,” says Tara, a 24-year-old marketing executive who graduated from Southampton University last year. “I try not to focus on it because of how frustrated I get.” Sam, who studied law at a Russell Group university and now works in government on £28,000 a year, has similar gripes: “I expected I’d be earning more.”

What rankles Tara, Sam and many others in a similar position is not just being squeezed by stagnant wage growth, high inflation and heavy student debts, but that they’re barely earning more than the mandatory minimum.

This is what a society with little inequality is. Everyone making around the same sort of wage. That’s actually the point, the end goal, for some.

Of course, the righteous, the elect, they’ll enjoy more but it won’t be classed as income. A bigger council house in hte right area, special food deliveries, Zil lanes for the Commissars.

Tens of thousands of teens lying about their age on social media to beat safeguards
Users as young as eight say they claim to be over 18 when using apps

Kiddies lie to beat adults, do they? That is a surprise.

This is also why detailed planning of the economy always fails. Peope lie, d’ye see?

A poll of 266 business leaders by the CBI underlines the extent to which workers will be hit by employer tax rises, with 62pc saying they will respond by slashing hiring plans. Almost half said they will be forced to lay off staff, while 46pc are looking to delay pay rises for their workforce.

Change the price of employing someone and you’ll change the number of people employed.

Tough logic to follow there, eh?

One of the first lessons for any economics student is to meet an imaginary species called Homo economicus, who is 100 per cent rational.

He, she or it (such distinctions are irrelevant) can always be trusted to maximise personal profit, from seeking out the best deals to selling her own child if the price is high enough.

It is maximise “utility”.

Sigh.

to understand numbers. So, bird in Iceland cheering about working hours reductions:

Through the centuries, women’s headstones have rarely had titles other than “Housewife” or perhaps “Wife of [insert husband’s job title]”. Although today women in Iceland have all sorts of jobs, we have yet to reach full equality. But an important step on that journey has been the shortening of the 40-hour working week to 36 hours.

This change started in 2019 in response to campaigning by some of our biggest unions and following the success of trials that involved more than 1% of Iceland’s working population. As a result, close on 90% of the country’s working population now work shorter hours or have the right to shorten their working week.

Trials, law, campaigns etc.

Yet, even without all of those things UK working hours are also falling. By about the same amount too. Those ONS numbers are fuill and part time together. But later on you can see that the big fall driving that average down is reductions in male full time hours. And full time in the UK generally does mean 37.5 hours. One reason I know this is that if you multiply up and hourly rate by 40 and call that weekly wage you’ll always get a few folk sayin’ but, no, that’s too high in hours.

This is also naturally so – as people get richer they take some opf their greater wealth in more leisure. Just do, that’s what happens. But it’s not necessary to have unions and laws and campaigns about it – because this is just what naturally happens.

Gross Domestic Product (GDP) has long been used as the primary indicator of a nation’s economic health, but it falls short in capturing the nuances of societal well-being and true prosperity. While it measures the value of transactions in an economy, GDP is ultimately an approximation, not a reflection of quality of life or happiness.

GDP grows when transactions increase, but not all transactions represent genuine progress. For instance, if a man divorces his wife and then pays her to cook and clean, GDP records this as an economic gain. Yet, the activities themselves—cooking and cleaning—haven’t changed, only their categorization as paid labor. This illustrates how GDP can misrepresent societal changes as economic improvements.

Furthermore, GDP fails to account for utility—what actually makes people happy or fulfilled. Imagine someone choosing to work half-time to spend their afternoons fishing, prioritizing leisure over income. While this decision might lower GDP, it could significantly increase their personal satisfaction and well-being. Such scenarios highlight the disconnection between economic output and individual happiness.

By focusing solely on financial transactions, GDP neglects other vital aspects of life, such as environmental health, social cohesion, and personal fulfillment. Such a wide measurement of individual desires is, of course, difficult. Difficult to the point that instead of having targets for what should happen, rather better is to wait, watch, and see what does happen. This spontaneity acknowledges the diversity of human preferences and the unpredictable ways people find fulfillment.

For a more holistic view of progress, we need metrics that emphasize well-being, sustainability, and equitable distribution of resources, rather than merely tracking the flow of money.