Going nowhere faster

29. January 2025 · Write a comment · Categories: Actuarial, Climate Change, Economics, Prediction, Risk
Risk trajectory (black circle) shows the anticipated future state for the risk in 2050. Current risk position in grey. Source: https://actuaries.org.uk/planetary-solvency

The excellent report from the Institute and Faculty of Actuaries and the University of Exeter Planetary Solvency – finding our balance with nature splits the risk trajectories into four sections: Climate, Nature, Society and Economy. I have focused on the Society one above as, in my view, this is the reason we are interested in all of the other ones. According to the Planetary Solvency report, we are on track for a society in 2050 described as follows:

Nature and climate risk trajectories will drive further biophysical constraints including stresses on water supply, further food supply impacts, heat stress, increased disease vectors, likely to drive migration and conflict. Possible to Likely risk of Severe to Decimation level societal impacts, with increasingly severe direct and indirect consequences of climate and nature risks driving socio-political fragmentation in exposed and vulnerable regions.

So what are we doing about it? Well the United States has just voted in Donald Trump as President. There was a flurry of executive orders issued in his first week (with the appropriate caveats about how many of these might actually be implemented), the climate-related ones of which are neatly summarised here by Bill McKibben:

The attacks on sensible energy policy have been swift and savage. We exited the Paris climate accords, paused IRA spending, halted wind and solar projects, gutted the effort to help us transition to electric vehicles, lifted the pause on new LNG export projects, canceled the Climate Corps just as it was getting off the ground, and closed the various government agencies dedicated to environmental justice. Oh, and we declared an “energy emergency” to make it easier to do all of the above.

Timothy Snyder has written about how to respond to tyranny in your own country. What is happening currently in the United States is threatening tyranny for many (as Robert Reich lists here):

The government now recognizes only two “immutable” genders, male and female. Migrants (now referred to as “aliens”) are being turned away at the border. Immigration agents are freed to target hospitals, schools, and churches in search of people to deport. Diversity efforts in the federal government have been dismantled and employees turned into snitches. Federal money will be barred from paying for many abortions.

The first thing you should do, according to Timothy Snyder, is to not obey in advance.

Most of the power of authoritarianism is freely given. In times like these, individuals think ahead about what a more repressive government will want, and then offer themselves without being asked. A citizen who adapts in this way is teaching power what it can do.

And how did we respond to all of this in the UK? Well Keir Starmer was keen to tell The Donald that we were deregulating to boost growth in their first phone call. His reward for this was the story that Trump thought he was doing a good job. Supposedly an endorsement from the “Drill Baby Drill” guy is the proper corrective from being told he should be locked up by the Nazi salute guy.

And then there were the actions on the environment. From the talking out of the Climate and Nature Bill which sought to meet new legally binding targets on climate change and protect nature. To a housing policy which will be both hugely environmentally destructive and fail to make houses more affordable. To announcing the intention to overhaul the planning rules, in the upcoming Planning and Infrastructure Bill, to reduce the power of people to object (and, as the Conservatives’ restrictions on protest have not been lifted, subsequently bang them up for years on end if we subsequently demonstrate about it) so that global firms would think that the UK was a “great place to invest” .

And then today we had Rachel Reeves’ big speech. Approval for developing the third runway at Heathrow, as had been extensively trailed, and the creation of “Europe’s Silicon Valley” between Oxford and Cambridge were the main announcements. There was quite a lot of talk about investment in sustainable aviation fuel (which means biofuels, the benefits of which have already been shown to be wiped out by rising demand).

And as for the Silicon Valley idea, I am not sure we want one. First there is the lack of real innovation despite the excellent game they talk. And second, is it going to be the authoritarian nightmare that the Californian one is turning into? The early signs are not good. Just last week Marcus Bokkerink, the Chair of the Competition and Markets Authority (CMA), was replaced by Doug Gurr, until recently Jeff Bezos’ head of Amazon UK. So not exactly standing up to Technofeudalism then.

According to Cory Doctorow:

Marcus Bokkerink, the outgoing head of the CMA, was amazing, and he had charge over the CMA’s Digital Markets Unit, the largest, best-staffed technical body of any competition regulator, anywhere in the world. The DMU uses its investigatory powers to dig deep into complex monopolistic businesses like Amazon, and just last year, the DMU was given new enforcement powers that would let it custom-craft regulations to address tech monopolization (again, like Amazon’s).

But it’s even worse. The CMA and DMU are the headwaters of a global system of super-effective Big Tech regulation. The CMA’s deeply investigated reports on tech monopolists are used as the basis for EU regulations and enforcement actions, and these actions are then re-run by other world governments, like South Korea and Japan.

When you see Trump flanked by Bezos and the other Tech Bros at his inauguration, it certainly feels like we are obeying in advance. Rachel Reeves’ speech had an enormous increase in energy demand implicit in pretty much every measure announced, which is expected because, GDP (the thing she is looking to boost) and energy consumption have been in lockstep forever. This is the implication of prioritising GDP growth over everything else.

What were missing were both a compensatory increase in renewable energy capacity and/or a reorganisation of our economy away from energy intensity. The problem for the government is that the latter would not increase GDP, so instead we get into the absurd position of the Business Secretary saying we “cannot afford to not build runways”.

However it seems that when the motivation is big enough (in this case to dispute the assertion that the Russian economy is doing well in wartime despite the official statistics, which the EU really needs to do in order to continue to make the case for sanctions) alternative ways to measure the economy can be found. In section 3.2 we find this:

The general assumption of connecting GDP growth to making people better off is not relevant in this situation, which should be included in any discussion of how the Russian economy is doing.

What is interesting about this analysis is that:

a. It is carried out by the kind of orthodox economists (the Stockholm Institute of Transition Economics) who believe GDP would be a good index to use in normal circumstances; and

b. They are saying this even if the GDP figures published by Russia are technically accurate. As they go on to say:

What this analysis suggests is that if we believe in official Russian statistics, then Russia has economic capacity to sustain current policies in the short run, a conclusion shared with many other observers. We also find, though, that beyond the GDP numbers, the redirection into a war economy is already putting pressure on all sectors not directly involved in the war, causing internal macroeconomic imbalances, increasing risks in the financial sector, and eroding export revenues and existing reserves. Short term growth is kept up by a massive fiscal stimulus, but the impact is mitigated by necessary monetary contraction to deal with inflationary pressures, and structural factors (demographics, weak property rights) limiting the possible economic response to the stimulus.

Some of which sound familiar closer to home – “necessary monetary contraction” (things we cannot afford) and “increasing risks in the financial sector” anyone?

We are currently facilitating a world where the only capacity we are increasing is to fly over the climate-ravaged areas of the globe and their fleeing populations. Fly Baby Fly is not going to get us anywhere we want to go.

Getting serious about politics

16. January 2025 · Write a comment · Categories: Actuarial, Climate Change, Economics, Regulation, Risk

When I started writing this blog in April 2013, one of its main purposes was to highlight how poor we are at forecasting things, and suggest that our decision-making would improve if we acknowledged this fact. The best example I could find at the time to illustrate this point were the Office of Budget Responsibility (OBR) Gross Domestic Product (GDP) growth forecasts over the previous 3 years. They do not appear to have improved much since then.

Fast forward to 2025 and apparently we have a crisis. Rachel Reeves has been forced to defend her budget following rises in 10 year gilt yields to levels not seen since the financial crisis and the Prime Minister has been forced to say that she will stay in post for the rest of Parliament. Everyone has piled in, from the former Deputy Governor of the Bank of England to the Institute for Fiscal Studies. So is there in fact a crisis? Well no, not really. As an opinion piece in the FT has pointed out, the drivers of the latest rate rise are not really UK-specific at all. Another piece in the FT puts the gilt yield “crisis” into yet further perspective. Finally, there is the comparison with the US gilt market, which moved above its 2008 level in 2022.

The reason for all of the hype of course is the totally self-constructed cul-de-sac that the Government has built around its economic policy options. Tiny movements in government debt or CPI or GDP or indeed gilt yields have been given heightened significance by being explicitly tied to how much the Government will allow itself to spend on its various programmes. As stated in the FT:

Only the OBR can accurately predict how much headroom the Treasury has against its fiscal rules, the Treasury insisted on Wednesday. “Anything else is pure speculation,” it added.

I refer back to the aforementioned forecast history of the OBR and ask how we ever got in a situation where their forecasts would determine how the UK government behaved. As the recent essay by Stefan Eich (on Adam Tooze’s Chartbook) points out, Keynes said:

“Our power of prediction is so slight, our knowledge of remote consequences so uncertain that it is seldom wise to sacrifice a present benefit for a doubtful advantage in the future.” It was consequently rarely right to sacrifice the well-being of the present generation for the sake of a supposed millennium in the remote future.

Meanwhile we are now doing precisely this on the basis of OBR forecasts. As Rachel Reeves set out at the start of her chancellorship in July, in a precise inversion of Keynes:

Because if we cannot afford it, we cannot do it.

Unfortunately for the government, while they spend all of their time trying to solve this imaginary problem they have created for themselves, there are actual real problems that do need to be addressed, and which are currently being drowned out by the noise of political commentators with too little of substance to talk about apparently.

So Sir Michael Marmot, author of the landmark Institute of Health Equity reports on health inequalities in 2010 and 2020 and the recent report on the role of the property sector in improving health, referred to the maintenance of the two child benefit cap as “almost a form of eugenics”.

The Trussell Trust reports that:

A record 9.3 million people face hunger and hardship across the UK. This includes 6.3 million adults and 3 million children. This represents one in seven (14.0%) people across the UK, and one in five (20.9%) children. Current levels are more than a third higher than they were 20 years ago, when 6.7 million people faced hunger and hardship.

And a group from the Institute and Faculty of Actuaries, in partnership with Prof Tim Lenton and his team from the University of Exeter, set out in a report today (Guardian summary here, Planet Critical discussion here) the dangers of the current massive underestimation of climate change risk. As Tim Lenton says:

The choice is simple: continue to be surprised by rapidly escalating and unexpected climate and nature-driven risks, or implement realistic Planetary Solvency risk assessments to build resilience and support ongoing prosperity. We urge policymakers to work with scientists and risk professionals to take this forward before we run the ship of human progress aground on the rocks of poor risk management.

The part which really stood out for me (in such contrast to the equally massively exaggerated risks ascribed to movements in bond markets this week) was on the inadequacy of global risk management practices:

  • Policymakers often prioritise the economy, with their information flows focused on this. But our dominant economic model doesn’t recognise a dependence on the Earth system, viewing climate and nature risks as externalities.
  • Climate change risk assessment methodologies understate economic impact, as they often exclude many of the most severe risks that are expected and do not recognise there is a risk of ruin. They are precisely wrong, rather than being roughly right.
  • The degradation of natural assets such as forests and soils, or the acidification and pollution of the ocean, act as a risk multiplier on the impacts of climate change and vice versa. Traditional risk management techniques typically focus on single risks in isolation, missing network effects and interconnections, underestimating cascading, compounding risks.
  • Current risk management approaches fall short of the RESILIENCE principles detailed in this report for realistic and effective risk management. Consequently, policymaker risk information is likely to significantly understate the potential impact of climate and nature risks, weakening the argument for urgent action.
  • These limitations mean that policymakers are likely to have accepted much higher levels of risk than is commonly realised.

If policymakers judged these risks on the same calibration scale as they current view the knockabout on financial markets I doubt we would ever hear about the intricacies of the 10 year gilt yield or the decimal places of CPI ever again. Similarly, if the societal impact of prolonged policies targeting the poor was included (perhaps in the form of meaningful measures of poverty based on the work of the Social Metrics Commission), rather than the level of the FTSE 100, we might start to make inroads into the current dire statistics.

We have hard problems to solve which require a serious government prepared to be bold, do big things and take the political risk of doing so (because the political risks are so tiny compared to the actual risks the population face), not one so focused and constrained by minutiae that it defeats itself.

Elon Musk’s move into politics: Yanis Varoufakis and Cory Doctorow on Fighting Billionaire Control

10. January 2025 · Write a comment · Categories: Economics, Regulation, Science Fiction

Came across this on YouTube today and it was such a brilliant discussion in the same area as my post from yesterday (which went out before I had seen this), but which went much further in a number of really interesting directions, that I thought many of you would be interested. Look out for a mention early in the video for the late great Iain Banks, science fiction fans!

Where there is no profit

09. January 2025 · Write a comment · Categories: Actuarial, Climate Change, Economics

I thought I would return to a point I raised in my musings on Deadmeat before Christmas, because it has probably got the most reaction from readers of the blog of anything I wrote in 2024. Most of the reaction, it has to be said, was disbelieving. The point in question was this:

And this is the key I think. What economists call “public goods”, goods which are non-rivalrous (ie your use of the sun’s energy does not stop somebody else’s unless you put them in the shade) and non-excludable (ie you cannot easily stop someone else from using it, in this case by sticking a solar panel on their roof), are very difficult if not impossible to make a profit from. Private markets will therefore not provide these goods, possibly at all without extremely artificial regulation (something we have probably had enough of with our utilities in the UK) and certainly not in the quantity that will be required.

Economics by Sloman, Garratt and Guest, which informs the Institute and Faculty of Actuaries’ core reading for its Business Economics syllabus states (in its 10th edition) that a pure public good is:

A good or service that has the characteristics of being perfectly non-rival and completely non-excludable and, as a result, would not be provided by the free market.

It then goes on to say that:

There is some debate as to whether pure public goods actually exist or whether they are merely a theoretical idea.

This I think brings us back to the extremely artificial regulation I mentioned above, as a lot of the economists who have got their views into this book (the sort that have contributed to the “debate” over whether pure public goods exist) appear to struggle with the idea that markets cannot provide everything better, even if you have to embark on some pretty tortuous contortions to create them.

My conclusion in my previous post was as follows:

Therefore if the private sector will not provide public goods and renewable power is predominantly a public good, then it follows that renewable power needs to be in public ownership. And if the climate crisis requires all power to be renewable and zero carbon, which it does, then it also follows that the entire power sector ultimately needs to be in public ownership too.

However I now realise that this is not quite correct. There is an alternative to public ownership. Not the ridiculous quasi-markets which bedevil our utilities in the UK currently, which I don’t expect to be with us for many more decades, but something else which is alive and well and in the process of taking over capitalism as we know it: private monopoly.

As Yanis Varoufakis says in Technofeudalism about green energy in particular:

Advances in green energy are pushing down fast the costs of green electricity generation. Even though the life cycle of fossil fuels has been extended, ruinously for the planet, cloud-based green energy is growing – and, with it, so is the relative power of cloudalists.

“Cloudalists” are our modern feudal lords. Whereas capitalism was a system in which the most powerful people as owners of capital were able to dictate how and where workers could use their capital to make profit for them, under technofeudalism the money is made as rent.

In the section entitled “The New Enclosures” Varoufakis says:

“In the eighteenth century, it was land that the many were denied access to. In the twenty-first century, it is access to our own identity.” Expanding on this:

Strewn across countless privately owned digital realms, it has many owners, none of whom is us: a private bank owns your ID codes and your entire publishing record. Facebook is intimately familiar with whom – and what – you like. Twitter remembers every little thought that caught your attention, every opinion that you agreed with, that made you furious, that you lingered over idly before scrolling on. Apple and Google know better than you do what you watch, read, buy, whom you meet, when and where. Spotify owns a record of your musical preferences more complete than the one stored in your conscious memory. And behind them all are countless others, invisibly gathering, monitoring , sifting and trading your activity for information about you. With every day that passes, some cloud-based corporation, whose owners you will never care to know, owns another aspect of your identity.

As Cory Doctorow says in his review of Technofeudalism:

Varoufakis points to ways that the cloudalists can cement their gains: for example, “green” energy doesn’t rely on land-leases (like fossil fuels), but it does rely on networked grids and data-protocols that can be loaded up with IP, either or both of which can be turned into chokepoints for feudal rent-extraction.

To make things worse, Varoufakis argues that cloudalists won’t be able to muster the degree of coordination and patience needed to actually resolve the climate emergency – they’ll not only extract rent from every source of renewables, but they’ll also silo them in ways that make them incapable of doing the things we need them to do.

When did we get so complacent about private monopolies? As Cory Doctorow reminds us in The Internet Con, in the 19th century debate in the US Senate about monopolies, Senator John Sherman (of the 1890 Sherman Act) gave the war against monopolies equal importance to the recently won War of Independence from the British Crown:

If we will not endure a King as a political power we should not endure a King over the production, transportation, and sale of the necessaries of life. If we would not submit to an emperor we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity.

The “harmful dominance” theory of antitrust (ie the idea that companies which dominate an industry are potentially harmful just because they are dominant, before they even start to abuse their dominant positions) led to the dismantling of several “empires”, including that of Rockefeller’s Standard Oil Company in the early 20th century.

But the power of the Varoufakis’ cloudalists vastly exceeds anything Rockefeller (oil), Carnegie (steel), Vanderbilt (railroads and shipping) and, of course, JP Morgan could muster even at the height of their influence.

Which brings me back to my original contention that the energy sector needs to be in public ownership. There may be many other “necessaries of life” which we may also want to consider bringing back into the public realm if their provision is otherwise going to slip beyond our regulatory grasp. Because the alternative is to relinquish any last vestiges of control over how we run our lives to puffed up billionaires. If you object to Elon Musk conducting polls about whether to stage a coup in the UK, then it is probably worth expending some effort on trying to stop someone like him deciding whether you can heat your home, cook a meal or charge your phone.

Happy New Year!

03. January 2025 · Write a comment · Categories: Cartoons, Economics, Professions, Risk, Science Fiction

Happy new year to everyone who reads this blog! I am planning for there to be quite a lot more activity here in 2025, moving from an average of one article a month to at least weekly. There should be more cartoons too – Pinhead and Spikes even made it to our Christmas cake this year.

There is a lot I want to write about this year. Expect some or all of the following themes in the next few months (in no particular order):

  • Some examples using Steve Keen’s Ravel software to demonstrate how Government debt is not the constraint they think it is.
  • Extending Naomi Alderman’s argument in The Future that we could get rid of the Tech Bros and not miss them, effectively upending Ayn Rand’s ideas in Atlas Shrugged. They are not key workers.
  • Keynes’ argument that, with the future so uncertain, we should not sacrifice people in the present to our models of it.
  • Spiegelhalter on the four types of luck, which cuts away at the meritocracy argument for distributing wealth.
  • How the professions have become a way of solidifying and enabling the massively uneven distribution we see. Have they outgrown their usefulness in their current form, just like the guilds did?
  • How the choice for providing public goods appears to boil down to public ownership or private monopoly – with accompanying Technofeudalism replacing capitalism. Why are we so much more relaxed about private monopolies than we were 100 years ago, when it accelerates inequalities so much?
  • The relationship between worldbuilding in science fiction and people living in their own models in the policy making world. Great example of this just this morning in the FT.

So plenty to do. If this sounds interesting to you, please stick with the blog, which will not be going to Substack and will not be charging a subscription. If it sounds really interesting to you, tell a friend! Will be in touch again soon.

Deadmeat was overshot

18. December 2024 · Write a comment · Categories: Actuarial, Cartoons, Climate Change, Economics, Regulation, Science Fiction
Picture of Pinhead character wearing a Deadpool type mask made out of one of his ties

Imagine a super-hero who could not be killed. No I don’t mean Deadpool. A more apt name for our super-hero would be Deadmeat. Deadmeat is empirically dead, but, rather like the Monty Python parrot, is being energetically kept alive by the pretence of its continued existence amongst all of those around it. So much so that it becomes impolite to expose the pretence and point out that Deadmeat is in fact dead. If you really push, and someone likes you enough to want to give you an explanation, you will have a hand put on your shoulder and be led away to a corner to have the pretence explained to you. What that explanation turns out to be is something like this. Deadmeat is of course the Paris climate agreement from 2015 which committed 193 countries plus the EU to “pursue efforts” to limit global temperature rises to 1.5C, and to keep them “well below” 2.0C above those recorded in pre-industrial times.

Deadmeat, it turns out, wasn’t shot. Deadmeat was overshot. Under overshoot, we bring the terrible thing back under control after it has done the damage and hope we can fix the damage at a later date. It’s a bit like the belief in cryopreservation or uploading our brains into cyberspace in the hope that we can have our bodies fixed with future medicine or be provided with artificial bodies. It means relying on science fiction to save us.

Andreas Malm and Wim Carton have considered this approach and how we got here in their latest book Overshoot. For me there are two big ideas in this book, although the account of how things definitively got away from us immediately post pandemic and exactly how that played out is mesmerising too. I thoroughly recommend a read.

The first big idea is the problem with the justification for overshoot in the first place, which is that at some point in the future we will be so much richer and more technologically advanced that it will be much easier to bring carbon dioxide levels down to sustainable levels than to try and stay within sustainable levels now. In what they call “The Contradiction of the Last Moment” Malm and Carton show how an intense fresh round of fossil fuel investment is almost certain to occur close to a temperature deadline (ie fossil fuel companies rushing to build more infrastructure while it is still allowed), whether it is 1.5 or 2 degrees or something higher. Then, as they put it “the interest in missing it will be overwhelmingly strong”. If an investment is 40 or 50 years old, then it might not be so disastrous to have it retired, but if a fossil fuel company has invested billions in the last few years in it? They will fight tooth and nail to keep it open and producing. And by prolonging the time until the retirement of fossil fuel infrastructure, the capital which has used the time to entrench its position and now owns a thousand new plants rather than a few hundred will be in a much stronger position to dictate policy. The longer we leave it, they argue, the harder it will become to retire fossil fuels, not easier.

The second big idea explains why, despite the enormous price collapse of solar power in particular, there is no Big Solar to compete with Big Oil. As they put it “there was no Microsoft or Apple or Facebook. More broadly, there was no Boulton & Watt of the flow, no Edison Machine Works, no Ford factories, no ascendant clusters of capital accumulation riding this wave.” The only remotely comparable company would be Tesla, but they produced cars. Why is this?

Malm and Carton talk about “the scissor”, the difference between the stock of the fossil fuel industry and the flow of renewable power. Fossil fuel’s “highly rivalrous goods: the consumption of one barrel of oil or one wagon-load of coal means that no one can ever consume it again. Every piece of fossil fuel burns once and once only. But supplies of sunlight and wind are in no way affected by any one consumer’s use.”

And this is the key I think. What economists call “public goods”, goods which are non-rivalrous (ie your use of the sun’s energy does not stop somebody else’s unless you put them in the shade) and non-excludable (ie you cannot easily stop someone else from using it, in this case by sticking a solar panel on their roof), are very difficult if not impossible to make a profit from. Private markets will therefore not provide these goods, possibly at all without extremely artificial regulation (something we have probably had enough of with our utilities in the UK) and certainly not in the quantity that will be required.

In Postcapitalism, Paul Mason discussed the options when the price mechanism disappears and additional units of output cannot be charged for. As he put it:

Technologically, we are headed for zero-price goods, unmeasurable work, an exponential takeoff in productivity and the extensive automation of physical processes. Socially, we are trapped in a world of monopolies, inefficiency, the ruins of a finance-dominated free market and a proliferation of “bullshit jobs”.

This also ties in with my own experience and others I have spoken to over the years about how hard it is to invest outside of fossil fuels and make a return.

Therefore if the private sector will not provide public goods and renewable power is predominantly a public good, then it follows that renewable power needs to be in public ownership. And if the climate crisis requires all power to be renewable and zero carbon, which it does, then it also follows that the entire power sector ultimately needs to be in public ownership too.

And then the motivation for overshoot becomes clear and how high the stakes are: not just the proceeds of the sale from one dead parrot as it turns out, but the future of private power generation. My fear is that the Deadmeat franchise may end up having as many sequels as Godzilla (38 and counting). With the potential to do rather more damage in the process.

Carolian Radicals

20. October 2024 · Write a comment · Categories: Birmingham, Economics, Regulation
The Stonebreaker is an 1857 oil-on-canvas painting by Henry Wallis. It depicts a manual labourer who appears to be asleep, worn out by his work, but may have been worked to death as his body is so still that a stoat has climbed onto his right foot
The Stone Breaker, 1857 Artist: Henry Wallis. Creative Commons 0 – Public Domain. Photo by Birmingham Museums Trust, licensed under CC0

The Europe of the 1830s and 1840s was a place of extreme political ferment which led to long-term changes to the way in which all Europeans, including the ones across the English Channel, saw themselves. According to Christopher Clark’s excellent Revolutionary Spring – Fighting for a New World 1848-1849: “parallel political tumults broke out across the entire continent, from Switzerland and Portugal to Wallachia and Moldavia, from Norway, Denmark and Sweden to Palermo and the Ionian Islands. This was the only truly European revolution that there had ever been.”

However you wouldn’t know it from the current Radical Victorians exhibition at the Birmingham Museum and Art Gallery. This explores three generations of progressive British artists working between 1840 and 1910: the Pre-Raphaelite Brotherhood and their circle; the second wave of Pre-Raphaelite artists who gathered around Rossetti from the late 1850s, including William Morris and Birmingham-born Edward Burne-Jones; and a third generation of designers and makers associated with the Arts and Crafts movement, working from the turn of the century to just before the First World War.

It’s a very good exhibition, but the only painting I could find in it which referred to the economic crises of the 1840s and 50s at all was the one above, of a stone breaker worked to death. There was also the famous one of a couple emigrating to Australia (shown below) which may be a response to domestic economic circumstances although, based on a self portrait of Madox Brown as it is, it may just as well be a response to the lack of art appreciation in the UK:

The Last of England, 1852-1855 Artist: Ford Madox Brown Creative Commons 0 – Public Domain. Optional attribution: Photo by Birmingham Museums Trust, licensed under CC0

But that is it! Despite the Victorian Radicals’ believing that art and creativity could change the world and be a real force for good in society, their gaze rarely moved from “realistic” depictions of their friends posing in rustic or suburban landscapes at a time of massive social upheaval.

At the time Britain was rather smug about having avoided revolution, but the evidence suggests that it could have easily been very different were it not for the measures taken by Robert Peel’s Government: the reintroduction of income tax on upper middle class incomes in 1842; the Bank Charter Act of 1844 which suppressed financial speculation by restricting the right to issue bank notes to the Bank of England only and creating a maximum ratio between notes issued and the Bank’s gold reserves; and the repeal of the Corn Laws in 1846 which considerably weakened the landlords’ grain monopoly and allowed for grain imports which did reduce prices but fundamentally changed the structure of the UK economy. This was explosive stuff which brought down Peel’s government and split the Conservative Party.

Policing in the UK was also very muscular. 15,000 Chartist activists were arrested in 1843 and a meeting of 150,000 Chartists at Kennington Common in 1848 was met by 4,000 police, 12,000 troops and 85,000 special constables (volunteers with clubs, including the future Emperor Napoleon III who was in exile from France at the time). There were so many transportations to the colonies that there were mass protests in Australia and the Cape. There were riots in Jamaica and British Guyana when sugar tariffs were dropped to reduce prices back in the UK and when, rather than burdening British taxpayers further, taxes were applied in Ceylon (now Sri Lanka), a protest movement numbering 60,000 was created.

In June 2024, Michael Marmot and Jessica Allen published A programme for greater health equity for the next UK government. In it they say the following:

Much of what went wrong with respect to the social determinants of health equity in the period after 2010 comes under the rubric of austerity, imposed by a Conservative Party led coalition Government. In the 2020 Marmot Review, we reported that in 2010 public sector expenditure had been 42% of GDP. Over the next decade, public sector expenditure went down year on year. By the end of the decade, public sector expenditure had become 35% of GDP. An annual reduction of 7% is enormous. In 2023, total UK GDP was £2·687 trillion. 7 7% of that is £188 billion. At today’s prices, annual public sector expenditure in 2019 was £188 billion less than it was in 2010. It is then not a surprise that relative child poverty went up— the steepest rise among 39 OECD countries; 8 absolute measures of destitution increased; welfare payments apart from pensions did not keep pace with inflation; spending on education per pupil went down; the housing shortage became more marked and homelessness and rough sleeping increased; and increases in health-care expenditure fell sharply compared with historic trends. Alongside these major changes, came the slowest improvement in life expectancy in the UK during the decade after 2010, of any rich country except Iceland and the USA.

We have a new Government, 100 days in, in our new Carolian era. What will future generations say about who this government answered to? Will it turn out to have been our modern stone breakers, working themselves into sickness and early death below the radar of a modern media at least as divorced from the concerns of ordinary people as the Victorian Radicals were? Or will their hard decisions turn out to necessitate other priorities? Time will tell.

Tina and Tiaras

01. August 2024 · Write a comment · Categories: Climate Change, Economics
Reconstructed image of Nebelivka (Forensic Architecture 2023)

One of the most idiotic things that Margaret Thatcher ever said is that “there is no alternative” or TINA, as it became known. More aimed at the “wets” in her own party than anyone else, it has become for some a statement of policy.

As David Wengrow pointed out at last year’s Hay Festival, talking about the excellent Dawn of Everything co-written with the late great David Graeber, of the 200,000 years of human history, the furthest back we can currently get back to and have some idea of how we might have lived is only around 30,000 years. Most of the other 170,000 years is a mystery to us. Have we always lived the way we do now? No, obviously not, even in the bit we do know about.

However the point the TINA people are making is that, once your society gets to a certain level of development and complexity, there is no alternative to the system of nation states operating within economies driven by globalised capital and all of the constraints that puts on any particular government’s policy options. So is that true?

Again apparently not. The Nebelivka Hypothesis exhibition at the Venice Biennale, which Forensic Architecture produced in partnership with David Wengrow, shows one example of a complex society which seemed to be constructed very differently:

Between the southern Bug and Dnieper rivers of central Ukraine, less than a metre below agricultural fields, geophysical surveys reveal the unsuspected legacy of 6,000-year-old settlements, similar in scale to the early cities of Mesopotamia. But these early Ukrainian cities are centre-less. Or rather, they are organised as concentric rings of domestic buildings, around a mysterious open space. No trace is found of temples, palaces, administration, rich burials, nor any other signs of centralised control or social stratification.

Even within the 30,000 years for which we have evidence, Graeber and Wengrow have shown how the archaeological evidence indicates that bureaucracy and hierarchy are not necessary in complex societies. Another prominent example of this, in addition to Nebelivka, is Poverty Point, in modern Louisiana. Constructed between 1700 and 1100 BCE by hunter gatherers, it had huge amphitheatres on a scale to match Athens but no temples or palaces.

There were other societies who flipped their social structure according to the seasons – for example, in the Great Plains in the main hunting seasons, when strict discipline was needed, a police force and hierarchy emerged, which then dissolved again when the need for it had passed.

Then there was Teotihuacan, a massive Aztec city of around 100,000 people where, until about 300, the colossal feats of engineering created pyramids and temples which had characterised the city up to that point stopped. Temples were desecrated and there was no new pyramid construction. Instead they started to build very high quality stone apartments for family units, with internal drainage, finely plastered floors and walls, providing comfortable accommodation for most of the city’s residents. Were they likely to be operating the same TINA system of the pyramid builders? It seems highly unlikely.

I had been struggling to imagine a society which flipped from one form of social organisation to another until I read The Gallows Pole by Benjamin Myers, about a Yorkshire valley in the 1760s. What both the TV adaptation (really a prequel of the book) by Shane Meadows and the book do in different but complementary ways is show how a society which had been working in one way might, under considerable pressure to survive, suddenly start operating in a completely different way with a totally different social hierarchy, switching from a rather ambivalent allegiance to King George III to a real devotion to the King David Hartley who had, at least temporarily, saved them from the starvation caused by the collapse of the wool market following the end of the Seven Years War in 1763.

The Cragg Vale Coiners’ attempts to evade detection led to a couple of murders before they were eventually hunted down by the authorities and that particular flipping of social organisation was snuffed out. How important it was that it was snuffed out is underlined by Christine Desan in the 18th century architecture of modern money, which describes this experimental time for money operating in the economy:

At the end of 17th century, the English resolved the debate over money they had conducted since the Restoration. For the first time, bank currency written against public debt circulated. It could be redeemed for silver or gold coin. That traditional medium—coin—would be reformed according to the notably non-traditional theory that it was a static amount of metal. An auxiliary kind of currency expressly based on the government’s own issue and promise of revenues, Exchequer bills, also began to circulate. The new order was a work in progress. In ways its authors only vaguely anticipated, the design was powerfully productive of modern capitalism.

So it seems that there are always alternatives.

Meanwhile one of the most pernicious examples of TINA is in response to the challenge of climate change. Chris Shaw’s appearance at the Dark Times Academy launch yesterday reminded me of this. Chris was talking about his book, Liberalism and the Challenge of Climate Change. In a wide ranging talk, he discussed the problem with the cult of the individual that liberalism has created getting in the way of collectivist approaches to shared problems like climate change. The book looks at how the philosophical and ideological challenge climate change poses to the legitimacy of free-market liberalism has been marginalised, closing off the possibility of imagining a different kind of future for humanity. Text book TINA.

And this is a particularly ridiculous use of TINA, when it is so obvious that there are alternatives to the relentless increase in habitat (including our own) and biodiversity destruction in lock-step with the ever-increasing and intoxicating levels of carbon we are filling the global atmosphere with. I discussed some of the arguments raging amongst those grappling with these challenges in my previous blog. But, rather than joining the discussion about the huge societal changes needed, we are instead told that fiscal rules are the priority for the current government and that any green new deal spending will need to wait until “later in the parliament”.

As Chancellor, Rachel Reeves has gone further, with a phrase which I really hope does not come to define this government:

If we cannot afford it, we cannot do it.

This appears to be a deliberate, almost Animal-Farm-level, reversal of the famous quote from Keynes (from a 1942 talk for the BBC – transcript sourced from here):

Let us not submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income … Why should we not add in every substantial city the dignity of an ancient university or a European capital … an ample theater, a concert hall, a dance hall, a gallery, cafes, and so forth. Assuredly we can afford this and so much more. Anything we can actually do, we can afford. … We are immeasurably richer than our predecessors. Is it not evident that some sophistry, some fallacy, governs our collective action if we are forced to be so much meaner than they in the embellishments of life? …

Yet these must be only the trimmings on the more solid, urgent and necessary outgoings on housing the people, on reconstructing industry and transport and on replanning the environment of our daily life. Not only shall we come to possess these excellent things. With a big programme carried out at a regulated pace we can hope to keep employment good for many years to come. We shall, in fact, have built our New Jerusalem out of the labour which in our former vain folly we were keeping unused and unhappy in enforced idleness.

If we really are the complex sophisticated developed society that we think we are, then it’s time to put a tiara on Tina and start seriously discussing alternative approaches to all our problems.

Water water everywhere

11. April 2024 · Write a comment · Categories: Actuarial, Cartoons, Economics, Regulation

The Telegraph thinks the shareholders are to blame. The Guardian has the Australian investment bank Macquarie in its sights. Martin Bradley’s (the European Head of Infrastructure at Macquarie Asset Management) attempts in Infrastructure Investor at justifying their actions only seem to be making things worse. The FT is using it as an excuse to have a go at the Capital Asset Pricing Model. Count Binface has included in his manifesto for the London Mayoral election a requirement for the company’s management to “take a dip in the Thames, to see how they like it”.

I am talking of course about Thames Water, which really does appear to be everywhere at the moment. But how did we get here?

The management of water works by private companies was originally a legacy of the Victorians – most of the water supply and all waste water services moved into local government control from the late 19th and early 20th centuries. Control then passed from 165 different water supply bodies to 10 regional water authorities in 1974 before these were sold back to private companies in 1989.

Water is obviously a resource vital to all of us, as well as being what economists call a natural monopoly. There have been debates for quite some time now about renationalising the water industry – some arguing that it is too expensive and that a Welsh Water not-for-profit model is the answer, others saying that water, electricity and Royal Mail together would cost less than £50 billion to nationalise and would pay for themselves within 7 years if investors were just repaid what they had invested in the businesses, others saying that water is a failed business and could be acquired without compensation for shareholders as happened with Northern Rock.

What none of these appear to be arguing is that private monopolies should not exist as a reason for renationalising water. We have become so used to monopoly or oligopoly profits in everything from utilities to transport to mobile phones to supermarkets, that we sometimes forget that it has not always been like this.

This point was made to me powerfully in Cory Doctorow’s excellent The Internet Con – How to Seize the Means of Computation. The 19th century debate in the US Senate about monopolies was impassioned. Senator John Sherman of the 1890 Sherman Act effectively put the war against monopolies on an equivalent footing with the War of Independence from the British Crown:

If we will not endure a King as a political power we should not endure a King over the production, transportation, and sale of the necessaries of life. If we would not submit to an emperor we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity.

It’s stirring stuff. The “harmful dominance” theory of antitrust (ie the idea that companies which dominate an industry are potentially harmful just because they are dominant, before they even start to abuse their dominant positions) led to the dismantling of several “empires”, including that of Rockefeller’s Standard Oil Company in the early 20th century.

But then enter Robert Bork. Famous amongst other things for having an extremely dull taste in video rentals, Bork was Solicitor General of the US between 1973 and 1977, under Presidents Nixon and Ford, and Acting US Attorney General from 1982 to 1988 under President Reagan. Bork developed what he called a “consumer welfare” theory of antitrust. This allowed mergers and monopolies to proceed provided prices were lowered and/or quality improved, or even if they weren’t as long as some “exogenous factors” could be blamed for the price hikes or reduction in quality.

Sound familiar? It should, as we all still live in Bork’s world. For example, the microeconomics part of the Institute and Faculty of Actuaries’ Business Economics syllabus relating to imperfect markets reads as follows:

Note the focus on the different ways firms supposedly maximise profits (this approach is fairly thoroughly debunked by Steve Keen here) rather than on the market power they wield. The part which should include the regulation of monopolies reads as follows:

Note the lowering of expectations in 3.1.6: “Why government intervention might not improve market outcomes in practice even if the existence of ‘market failures’ suggest they can in theory”. However the real limitations are laid bare in 3.2. The main targets of “competition policy” in the text book (Economics by Sloman et al) you are pointed to by the core reading turn out to be what are referred to as “exclusionary abuses”, ie where businesses actively prevent effective competition from actual or potential competitors. As the preamble on competition policy in Sloman says:

Competition policy could ban various structures. For example, there could be restrictions on mergers leading to market share of more than a certain amount. (This is the harmful dominant approach, about which no more is said) Most countries, however, focus on whether the practices of particular monopolists or oligopolists are anti-competitive. Some practices may be made illegal, such as price fixing by oligopolists; others may be assessed on a case-by-case basis. Such an approach does not presume that the existence of power is against the public interest, but rather that certain uses of that power may be.

So, in other words, we will leave monopolistic businesses with the power and attempt to detect abuses of that power on a case-by case basis via overworked and under-resourced regulators. Sherman could have never cut Standard Oil down to size with this approach.

Yanis Varoufakis’ contention, in Technofeudalism, is that capitalism now only operates within the framework provided by the most extreme monopolists of Big Tech, with most of us either “cloud proles” (ie wage slaves working for Big Tech under feudal conditions) or “cloud serfs” (ie the rest of us working for Big Tech for free by creating content and sharing our data on their platforms). Big Tech’s size massively increased as a result of the bank bail out of 2008 and additional money pumped through them and the corporations working for them coupled with austerity for everyone else, which was therefore almost totally financialised – leading to the “everything rally” for asset owners.

As Varoufakis says:

When an activist state makes fabulously wealthier the same bankers whose quasi-criminal activities brought misery to the majority, while they are punished with self-defeating austerity, two new calamities beckon: poisoned politics and permanent stagnation.

Again, sound familiar?

It is not too late to push back against the monopolies which control our lives. Doctorow’s big idea in The Internet Con is interoperability, the ability of new technologies to plug into Big Tech’s services, systems and platforms, which Big Tech tends to resist with all of the power at its disposal. He makes a convincing case for how this simple change could reduce the size of Big Tech companies quickly and bring them within the scope of democratic control once more.

And for those businesses which need to be at monopoly scale to work at all? Water, for instance. That sounds like an unanswerable case for nationalisation to me. Perhaps assuming that dominant private companies are bound to be harmful needs to come back into fashion.

Some perspective on the sustainability of the national debt

19. March 2024 · Write a comment · Categories: Economics, Regulation

My evidence to the House of Lords Economic Affairs committee on the sustainability of the UK’s national debt is now available on the parliamentary website.

I was rather surprised to see that only 37 people submitted written evidence. My evidence was as follows (with the hyperlinks which got removed restored and the addition of the graph of the history of public sector net debt):

The “incredible” £2.6 trillion mentioned by Lord Bridges of Headley in the call for evidence suggests that you are using the public sector net debt excluding public sector banks figure, which is £2.671 trillion or 97.5% of GDP as at November 2023 according to the Public Sector Finances bulletin on the ONS website. You could more reasonably use the public sector net debt excluding public sector banks and the Bank of England figure, which recognises that otherwise you are notionally including a debt attributed to an organisation which has no debt, which therefore reduces this debt to £2.419 trillion or 88.3% of GDP. Or even better, you could also deduct the Bank of England Asset Purchase facility, which was used for QE and is held by a subsidiary company of the Bank of England controlled by the Treasury and therefore also not a debt in the commonly accepted sense of the word. This stands at £0.597 trillion in Q2 2023 according to the latest quarterly report from the DMO and would further reduce the debt to hopefully a slightly less incredible £1.822 trillion or 66.5% of GDP.

Even if you want to stick with your original number, despite a large part of it not being owed to anyone with any interest in being paid back, the public sector net debt according to the ONS following a global pandemic and Brexit as a percentage of GDP is lower in the UK than at any time between 1916-17 and 1960-61.

Our latest general government debt available on the IMF Datamapper, which is from 2022, of 101.4% of GDP also compares favourably with the United States (121.4%), Japan (261.3%) and France (111.7%), with only Germany (66.5%), China (77.1%) and India (83.1%) of our major partners or rivals with lower debt.

With this perspective in mind, my responses to a selection of the questions set out for the call for evidence would be as follows:

What is meant by a “sustainable” national debt? Does the metric of debt as a percentage of GDP adequately capture sustainability?

I think this means affordable, both currently and in the future. The only reason our current level of debt (which, as I have shown, is not particularly high either by international or historical comparison) is felt by some to be unaffordable is the sharp increases in interest rates by the Bank of England over the last two years. Central government debt interest, net of the Asset Purchase Facility was £112.1 billion in 2022-23, compared to £60.9 billion in 2021-22 and £26.7 billion in 2020-21.

According to the World Economic Outlook from the IMF in April 2023:

Overall, the analysis suggests that once the current inflationary episode has passed, interest rates are likely to revert toward pre-pandemic levels in advanced economies.

This is therefore a temporary problem and does not suggest that the level of debt is unsustainable at all. Interest rates should be brought down as quickly as possible, and the rate of interest on the Asset Purchase Facility should be reduced immediately to very low levels, as is already the case in many other countries including the Eurozone and Japan (the case for this was made in June 2022 in the New Economics Foundations’ report Between A Rock And A Hard Place).

The Government’s target is for public sector net debt (excluding the Bank of England) to be falling, as a percentage of GDP, by the fifth year of the OBR’s forecast. How meaningful is this target; and how does it inform an evaluation of the sustainability of our national debt?

I think this target is essentially meaningless given the high likelihood of a change of Government within the next year. In my opinion Government spending needs to be set according to need rather than by setting an arbitrary target for the level of debt as a percentage of GDP.

What are the market risks created by high levels of public debt; and what factors will influence the market’s appetite for this debt?

As the DMO Annual review for 2022-23 states: “The average cover ratio at gilt auctions in 2022-23 was 2.39, in line with 2.41, in 2021-22”, ie there are consistently nearly two and a half times as many bids for gilts as gilts being offered for sale. This indicates a continued strong demand for gilts.

What levels of productivity and growth are required to ensure our national debt is sustainable?

Our national debt is already sustainable.

If we are to ensure our national debt is sustainable, what might this mean for fiscal policy?

Our national debt is already sustainable.

Should the definition of the national debt differentiate between debt incurred for investments (which generate revenue for the Government), and other areas of spending?

Yes. One example would be where nationalised entities such as Network Rail are included as a liability but the corresponding revenue-producing asset is not set against this when included in the national debt figures.

It is striking to me what questions you are not asking, eg:

If we are to ensure our national debt is sustainable, what might this mean for monetary policy?

This seems to me to be a much more relevant question, as it would appear that the sole reason the unsustainability of the national debt has become an issue is due to the monetary policy of the Bank of England. Japan has negative interest rates, the Eurozone’s rate is 0.75% below ours. The high level of interest rates in the UK is having a negative impact on economic growth, investment and unemployment, as well as sharply increasing the cost of the national debt. The independence of the Bank of England and the nature of the targets it is set would both be more interesting subjects for a call for evidence than the sustainability of the national debt.

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