Misreading the signs

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Government spokespersons have been quick to try and spin the fact that the UK has been hit by Trump with a lower tariff than others as a product of Sir Starmer’s genius approach of doing whatever it takes to please Trump – saying ‘yes sir’ in all the right places, offering the shiny bauble of a visit to the King of England, hinting at reducing taxes on US tech companies etc. It’s a form of self-reassurance for a government which doesn’t really know what to do.

I’m not sure that it’s true, though. Trump didn’t get to a policy of charging exorbitant tariffs on non-existent imports from uninhabited islands by considering how nice the penguins were being to him, even if some of them are indeed king penguins. The approach he took was the entirely arbitrary one of counting the number of apples in Tesco, dividing it by the number of oranges in Aldi and halving the difference, or some other equally irrational mathematical approach. The UK has been subjected to exactly the same calculation, based on exactly the same algorithm, as all the other countries; there’s no special treatment involved at all. The tariff on UK goods is low because the UK does not have a trading surplus with the US, which implies a lesser punishment has been meted out because the UK is not particularly good at selling goods to the US.

It might legitimately be counted as a Brexit dividend, though. Had the UK still been part of the EU, the punishment would have been based on the balance of trade between the US and the EU, and because the rest of the EU appears to be rather good at selling more to the US than it buys from them, the UK would have been hit with the same tariffs. I’m not entirely convinced, though, that enabling the UK to be judged on the basis of its own failures rather than on the success of the EU as a whole is a ‘dividend’ about which we should be boasting.

The worst aspect about assuming that  a lower tariff is some sort of success, however, is that it provides Sir Starmer with a self-justification for a policy of continuing to appease His Orangeness. When what is needed is a collective approach, seeking to obtain and maintain an individual advantage over what used to be called our partners doesn’t look like the approach most likely to bring about any change.

How real is paper wealth?

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‘The markets’ have reacted fairly predictably to Trump’s puerile attempt at a conjuring trick by registering some dramatic drops. The analysts tell us that this reflects their pessimism about inflation, interest rates, and economic growth, all of which are likely to be adversely affected by the trade war which Trump has kicked off. Whilst I don’t doubt that economists (most of them, anyway – there are always some who’ll take a different view) do indeed see Trump’s actions as a threat to economic prosperity, I wonder if that’s what ‘the markets’ are really reacting to. It probably would be the case if markets were doing what classical economics says that they do, which is matching capital with investment opportunities in expectation of future profits. But if those same markets are actually more about gambling and speculation, which is probably the reality behind most trading, then what really drives them is an attempt to second guess what other players will do in response to tariffs in the hope of turning a profit by making a better guess than those other players.

It underlines that share prices an extremely poor indicator of economic value; they often bear little relation to the value of the underlying economic assets which they nominally represent. And their volatility makes them a poor measure of the wealth of their owners. To take just one simple but current example, the share price of Tesla has plummeted since Musk got involved with Trump’s administration. He’s still a very wealthy man, on paper, but his total wealth is apparently a lot less now than it was a few months ago. In his case, the scale of things means that it makes little practical difference, but the question is whether ‘paper wealth’ is a sound basis for assessing anything.

That’s relevant in the context of the increasingly strident calls for a wealth tax here in the UK. Whilst the idea appeals to many of us, assessing the amount of wealth owned by an individual is not a simple or straightforward task, especially if the value of a significant component of that wealth can vary from day to day – or even hour to hour. And non-paper wealth – property, land etc. – is not easily realisable or assessable without being realised. What is easier to assess, albeit still difficult when the tax system is complicated and people can afford to pay expensive advisers (although both of those obstacles could be overcome by a government intent on fairness), is the income generated by that wealth including, of course, any increase in value from the date of acquisition to the date of disposal of any asset. We certainly should do more to tax the wealthy, but taxing the wealthy isn’t necessarily the same thing as taxing their wealth. Their income is a lot easier to get at.

Sir Billy No-Mates

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It’s unclear exactly what Trump is hoping to achieve by imposing tariffs on all good imported to the US. Sometimes he implies that it’s a temporary move to restore what he calls 'fairness', whilst at other times, he implies that it’s intended to be a long term replacement for income tax – a way, in effect, of transferring taxation from the income of the richest to the expenditure of the poorest. He either doesn’t understand, or is pretending not to understand, what tariffs are or how they work. My money’s on the former; partly because it’s the simplest explanation and Occam’s Razor applies, and partly because anyone who thinks that tariffs can be applied to smuggled fentanyl is clearly demonstrating his lack of understanding. Whilst the idea that smugglers would stop at the border to fill in forms and pay the tariff is attractive, its relationship to reality is somewhat distant.

The underlying statistics on which the tariffs are based are also questionable: the idea than an island group only inhabited by penguins and seals is exporting quantities of “machinery and electrical” goods to the US is fanciful at best. Whoever produced the figures for his show yesterday clearly didn’t apply any sort of ‘sense check’ to the numbers before letting His Orangeness loose to announce them. The calculation of the total value of tariff and non-tariff barriers is opaque, to say the least, but then basing decisions on arbitrary figures pulled out of thin air is his normal modus operandi.

However flimsy the factual basis, however arbitrary the decisions taken as a result, the fact is that the tariffs are going to be in force (until he changes his mind, which could be tomorrow - or even later today - based on experience to date), and the question is about how to respond. The main losers, in the immediate short term at least, will be US consumers. Even if the companies importing goods from elsewhere succeed in ‘persuading’ their suppliers to drop prices, or themselves decide to somehow ‘absorb’ part of the increase, the bottom line is that, for US consumers, prices of imported goods will rise. That isn’t a bug, it’s a feature; intended to encourage more domestic production. It might even work, but not on a large scale in the timescale of the current Trump presidency. Investment decisions required to build domestic capacity to replace imports aren’t going to happen overnight. To the extent that US demand for their products reduces or they feel obliged to reduce their pre-tariff prices, companies in all of the countries hit by tariffs, as well as their employees, will also be losers although, again, the timescale of that happening depends on how inelastic the demand for their products is.

For all the same reasons, it follows that the main losers when countries impose retaliatory tariffs will, in the short term, be the consumers in those countries; the process is a reciprocal one. For that reason, and despite all the natural desire to hit back at the person and country responsible, the immediate reaction of Sir Starmer (which is that he should not react immediately) is probably sensible as far as it goes. If and when it becomes clear that Trump’s approach is giving some US companies either individually or by sector an advantage over UK companies, that is the time to respond forcefully. Protectionism can also be reciprocal, another of those unfortunate facts which Trump seems incapable of understanding.

The bigger concern with Sir Starmer’s response is about whether trying to ingratiate himself and the UK with His Orangeness is the best way to deal with a bully. Being best mates with a bully might buy some relief in the short term, but it facilitates the bullying of others and, in the long term, the bully will always come back for more. Sir Starmer’s apparent unwillingness to collaborate with others rather than seek advantage over them is unhelpful, and fails to acknowledge that, however important the UK might have thought itself to be in the past, the future of these islands is inevitably linked to that of the rest of Europe. His reluctance to accept that a choice has to be made is itself making the default choice of sucking up to the bully. Talk of a reset of the relationship between the UK and the EU is just hot air when the government is seeking to negotiate an advantage for itself over the EU partners. Pretending to be everyone’s best friend is the best way to end up friendless.

Following the money

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He might twist and turn a little on the issue, but there’s no real doubt that Farage wants to move from an NHS funded out of taxes to one funded more by insurance. He knows, though, that the NHS ideal of services being free at the point at which they are required is popular, and he’s obviously finding it difficult to find a form of words which means that would still be true as well as meaning that those who can afford to pay for insurance will do so. 

It isn’t just a Farage thing, either. There are plenty of Tories as well as an increasing number of Labour politicians who seem to be thinking along similar lines, with they key phrase always being about ‘those who can afford to…’. A system of health care based on the most well-off paying more than the poorest sounds hard to argue against – but what advocates of such an approach want us to forget is that that’s exactly what we have now. Health care is free for all, funded by tax and National Insurance, and those who earn the most pay the most. In principle, there’s no necessary difference between the two models. In principle, it shouldn’t matter which model we use, so why are they so keen to change?

Ultimately, there are several reasons, none of which they are particularly explicit about.

The first two are purely ideological: they have an almost pathological hatred of taxation, the state, and the whole idea that the state should be doing anything. Handing over the NHS to the management of a network of private providers and private insurance companies is, in their eyes, axiomatically better. That leads us on to the second reason, which is almost a corollary: they believe that all economic activity (and whilst ‘economic activity’ isn’t the first description of the NHS which springs to mind for many of us, the NHS is actually a significant part of the UK economy) should be profit-generating.

There are also two probable consequences of an insurance-based system along the lines that they are suggesting. They are both features rather than bugs. The first is that the target group for paying more is rather larger than the wealthy few who might be more easily targeted by a more progressive tax system. What might be called the ‘middle earners’ are the ones who would end up paying more. They might be ‘able’ to afford it, although it is always and inevitably the case that people paying more for one thing end up with less disposable income to spend on other things. That is the price they would pay for having a more reliable and available health service. The second is that we would end up with a two-tier health system. The UK, allegedly, cannot afford to improve the NHS for all, but a system of private providers available only to those paying for insurance would provide a better service than the residual NHS which would continue to exist to serve those who could not afford, or choose not, to pay for insurance. It is, after all, that belief that they will get a better or faster service that drives many to pay for private insurance currently.

The ‘winners’ from the alternative system would be those owning the shares in the companies guaranteed to make a handsome profit; there is a group in the middle who would lose financially but probably gain in terms of an improved service; the ‘losers’ will be those who are thrown back on an inadequate public NHS, getting a second-class service – typically, the poorest and the lowest earners. It’s obvious why the first of those three groups would see this as being in their personal interest. They will be a reliable source of donations for any party promoting such a policy. Those in the second group would have to weigh up the pros and cons rather more carefully; some would favour it, others less so. But the target electoral group for Farage and his gang is actually the third group. His reluctance to spell things out starts to look entirely rational.

Planning on the basis of blind faith

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The establishment of the Office for Budget Responsibility by George Osborne in 2010 was a cunning plan to embed orthodox neoliberal economic thinking into the UK economy; to guarantee, in effect, that no non-Conservative government (for which, read Labour) could ever try to follow a different path. He never intended that it would trip up a Conservative government but, in fairness, who could honestly have foreseen Liz Truss? When the inevitable happened, and a Tory Party riven by Brexit, broken by lies, and displaying utter incompetence eventually gave way to a Labour government, the plan worked like a dream. Lacking in sufficient imagination to realise that she could just abolish the OBR (other countries manage without one), appoint different people to run it, or simply change its remit, all of which are in the power of the government, Reeves has chosen instead to do exactly what Osborne planned, and treat its conclusions as though they were written on tablets of stone handed down from on high.

She wanted to count her benefit cuts as saving £5 billion, but the OBR calculated that they would only save £3.4 billion, so off she dutifully went to lop another £1.6 billion off future spending plans. Experience tells us one clear truth – both her original estimate and that of the OBR are wrong. We don’t know by how much (or even in which direction), but planning on the basis that either one is correct five years in advance would be stupidity of the highest order (and therefore, apparently, a basic tenet of government financial planning). As JK Galbraith so succinctly put it, “The only function of economic forecasting is to make astrology look respectable”.

It’s interesting to note, though, that Reeves’ faith in the power of economic forecasting is selective. When a forecast produced by the OBR ‘forces’ her to do what she wants to do anyway (and anyone who believes that she really doesn’t want to cut benefits needs to get out more), it’s an immutable law of economics; when another forecast by her own government tells her that the result of her actions will be to push 250,000 more people (including 50,000 children) into poverty, she demurs, and claims that they’ve got it wrong because her benefit cuts will miraculously result in more people being in work. The forecast almost certainly is wrong, of course (back to Galbraith), but by how much and in which direction we won’t know for some time to come. What we do know, without having to wait any time at all, is that we have a Labour government which is remarkably relaxed about putting more people into poverty when it’s entirely within their own control not to do so.

Minds don't need to be particularly great to think alike

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Apologists for Britain’s colonial past invariably point to what they see as the ‘good’ outcomes of imperial conquest for the conquered, usually expressed in terms of systems of government, the rule of law, Christianity, cricket, and the English language. Whether these are actually ‘good’ things or not depends on perspective; the assumption that they are is itself a product of the imperialist mindset, revolving as it does around some concept of cultural superiority. Leaving that aside and assuming, for the sake of argument, that these are indeed good things, none of them actually formed any part of the original intention of conquest. That was always about access to resources, and the opportunity to use the power of the imperial state to extract wealth which could be accumulated by individuals, and much of which was repatriated to the shores of the imperial power. That wealth, taken by force from the conquered peoples, was the basis of the great wealth of the cities of the imperial powers, including, of course, Britain. In return, the natives got Shakespeare, a bargain for which they should, apparently, be eternally grateful.

Sometimes, people confuse imperialism with colonialism; but not every country added to the empire was actually heavily colonised. Some were, of course – the territories currently known as the USA being one of them. From a British point of view, the other territories most heavily colonised were places such as Canada, Australia, and New Zealand. They’re not known as the ‘white commonwealth’ without reason. The USA (a former colony in the true sense of the word) and its constitution were founded on a number of ideas, one of which was the rejection of colonialism and imperialism, and the idea of ‘freedom’ (a word which has many different meanings). Watching that former colony lapse into its own form of imperialism ought to be surprising but is somehow not.

The methods are different in the twenty-first century; although Trump hasn’t ruled out direct military conquest, he has a clear preference for economic domination, even if his grasp of economics leaves more than a little to be desired. But his motivation – control of resources, and the transfer of wealth from other countries to the US – is a direct match for the motivation which led to the empires of the past. And blatantly so. Having got Ukraine to agree to allow half of its mineral wealth to be expropriated on the basis of a lie that aid provided was a loan rather than a gift, he has done as all bullies do when the bullied bow down before them. His conclusion from the willingness of Ukraine to give up 50% is that he didn’t ask for enough, so he’s doubled his demand. He now wants control of all of it. Along with a veto on Ukrainian policy.

His motivation for taking Greenland, although presented in terms of ‘security’ is much the same. He wants access to its resources, and his promise that Greenlanders will become rich if they allow it is as valid as his promise that US citizens would become richer by electing him; it’s a promise which is only ever intended to apply to a tiny minority. Yesterday, Putin declared that he thinks Trump is serious about taking Greenland, but thinks that it's what he described as “an issue that concerns two states and has nothing to do with us”. It’s an open invitation to Trump to view Russia’s intentions in relation to Ukraine in the same terms. The two presidents are clearly thinking along similar lines. And the opinions of others count for nothing, with either of them.

Uninvited guests

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Relative to the size of its population, Greenland must surely be about to become the most-visited country by US dignitaries in the period since Trump was elected for the second time. His son, Donald Junior, undertook an entirely ‘private’ visit before his father was even installed in the White House, turning up in a discreet fashion giant Trump-branded jet and spending the day there, during which homeless people were invited in off the street to enjoy a free lunch wearing MAGA hats (which the ‘tourists’ had coincidentally brought with them) for the benefit of the photographers (who had also conveniently tagged along for this ‘private’ visit).

Next up, originally scheduled for Thursday to Saturday, was another ‘private’ visit by the Vice President’s wife to ‘watch a dog-sled competition’, which the VP himself rather impulsively decided to join. After all, what sort of VP is so busy that he can’t suddenly drop his semi-public planning of bombing raids to take a three-day trip to the Arctic to watch a few dog sleds racing? Coincidentally, the National Security Advisor (assuming he’s still in post tomorrow) and the Energy Secretary are also joining the group in order to visit the US base on the island before they were planning for themselves to become part of the assembled audience for the dog sledding. Until, that is, there was some pushback, as a result of which the dog watching has been cancelled, and the group will confine themselves to a one-day visit to the US base, whilst the armoured cars which had already been delivered to transport them around the island were sent back to the US. Pity that – it rather spoiled the punch line about half the US government literally going to the dogs.

According to Trump (a form of words which is enough in itself to tells us that whatever follows will be a lie), the delegation on this ‘private’ visit had been ‘invited’ by unnamed Greenlandic officials, although no-one in the Greenlandic government seems to know anything about any invitation. It was probably issued by the new officials whose appointment to run the island Trump has not yet announced. It’s certainly in line with Trump’s equally specious claim that Greenlanders ‘want’ to become part of the USA despite (presumably ‘fake’) opinion poll findings to the contrary. It’s not a Trump original playbook, of course: Putin also ‘knew’ that Crimeans were aching to become part of Russia before he seized the territory in 2014. Even longer ago, a certain European dictator ‘knew’ that Austrians wanted to be German deep down, even if they didn’t know it themselves. As both that dictator and Putin knew, it’s far better to hold a referendum on the issue after taking control, when the voting and the counting of the votes can be ‘properly supervised’ than to accept the verdict of polls taken in advance.

But, to continue the parallel with Crimea, how long will it be before the US equivalent of ‘little green men’ start mysteriously appearing on the streets of Nuuk?

Avoiding the question

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Pensions are a complicated business, and the UK State Pension is particularly so, given that the rules, amounts and eligibility criteria for the different rates keep changing. But in looking at the history of the triple lock, we need to go back to the Thatcher years. For some years prior to 1980, the uprating of pensions was based on a combination of average earnings and the Retail Price Index, but Thatcher’s legislation in 1980 ended the link with average earnings. Over the long term (even if it doesn’t always feel that way!), wages tend to rise faster than prices, which is why people generally feel better off over time and enjoy a rising standard of living. But an income linked only to prices will inevitably do no more than maintain a standard of living, and the extent to which it even does that will depend on which prices are included in the calculation and the extent to which the things purchased by an individual match that selected ‘basket’. Those on lower incomes (such as those dependent on the state pension) often find that their more personal rate of inflation is higher than the overall average, meaning that they slip backwards.

The triple lock was intended to reverse that decline and bring the state pension back to the effective relationship it had with earnings prior to 1980. On that basis, Steve Webb (the Minister who introduced the policy) was surely right when he said recently that "there will come a point when it's done its job". Whether merely ‘restoring’ that relationship to its pre-Thatcher level is the right target or not is a matter of opinion; there has been remarkably little debate about what the ‘right’ relationship between earnings and pensions should be. 30%? 50%? 80%? 100%? Parking that issue, the question in considering whether the triple lock has done its job or not should be an assessment of whether the percentage is or is not back to the 1980 level. At that point, and assuming some sort of agreement on the ‘right’ percentage of average earnings, a single lock (with average earnings) is all that is needed, and would also align the incomes of pensioners and employed people in the same relationship with price inflation. But making that assessment isn’t straightforward because of other changes to pensions (including the move from the old married couple pension to individual pensions, for example), but if any of those arguing for the abolition of the triple lock truly felt that they could make a good case for having restored the 1980 value of pensions, we can be certain that they’d be shouting it from the rooftops. The rooftops are looking and sounding conspicuously quiet.

They don’t, of course, put it in these terms, but anyone arguing for abolition of the triple lock (and Labour seems to have its share of them as well as the Tories) is effectively arguing for an arrangement which, at best, locks the rate of pensions at its existing relationship with average earnings. It’s easy enough to see why they avoid putting it that way – it’s not an argument that I’d want to make given the comparatively low level of the UK state pension. Those arguing that better off pensioners (those with savings and investments or good occupational or private pensions) don’t ‘need’ the full state pension and should be paid a lower amount are being disingenuous at best, and avoiding the real point at worst. Pensions, of necessity, require long term decision-making, and many people will have planned for their retirement on the basis of assuming that the ‘deal’ that they thought they were getting when they started work – paying NI in return for pensions in later life – would be honoured in due course. Had they known in advance that that particular income source would then be means-tested, they may well have taken different decisions, but they can’t go back and do something different. There is another way, though. Those on higher incomes – whether through pensions, interest payments, dividends, rents or wages – could be asked to pay more in tax. The source of that income ought to be irrelevant: the clue is in the name, it’s an income tax. The talk about reducing the state pension for some recipients is really about avoiding that issue. Labour, just like the Tories, is reluctant to tax more heavily those who can best afford to pay it. Talk of ‘need’ or ‘means tests’ is just a distraction from that reluctance to in any way reduce the disposable income of the group in society which they represent and serve - the most well-off.

Helping the medicine go down a different throat

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As I remember childhood, being given a spoonful of sugar with, or immediately after taking, some particularly unpleasant medication was a common practice. Today’s health experts probably wouldn’t approve of giving a child a spoonful of pure sugar in any circumstances, but then medicines tend not to be so foul-tasting these days, and have largely been replaced by bland taste-free pills of one sort or another anyway. I’m aware of no circumstances, though, under which the spoonful of sugar would have been given to a completely different child instead of the one who was suffering from whatever disease was being treated.

But then I’m not Chancellor of the Exchequer, so what would I know? According to modern economic theory of the Reevesian kind, spending £2 billion to build 18,000 affordable homes for one group of people will sweeten the pill represented by the £5 billion in benefits being removed from an entirely different and much larger group of people. It’s an ‘interesting’, if somewhat unscientific, proposition, but it would never survive the sort of thorough testing required for the acceptance of any new approach to medical treatment, with its concomitant stress on empirical data. It also looks unlikely to survive the rather less thorough (and completely untested) implementation which is about to happen. It makes sense only as an exercise in dividing people into groups and encouraging them to blame other groups for any problems they might have.

Cutting in the right place isn't as easy as it sounds

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Many years ago, when I was working as a Systems Analyst designing computer systems, I ended up talking to an administrator in one department and looking at all the information she collected and collated into reports. One report was particularly complex, and was going to pose problems in ensuring that all the data was available in the right place and format to produce it; as things stood it was taking her a week or so every month to locate and compile the information. I asked what happened to the report when she had produced it and she pointed to the cabinet where it was filed. In response to the follow up question about who looked at it afterwards, the reply I got was along the lines of “No-one. But the Director asked for it once a few years ago and we didn’t have it. So now we make sure we’ve always got it.”

It's a small example of the way in which large organisations can accumulate tasks and activities which serve little purpose, but the people performing them don’t have the authority to stop them, and those who do have the authority usually don’t even know they’re happening. And it’s one of the reasons why there is almost always scope, in any large organisation, to eliminate certain activities (and the people performing them) with zero impact on the overall performance. So when someone – like for example, the Chancellor – claims that there are too many people in the civil service and that the number can be easily reduced, part of my reaction is to think that she’s probably right. In principle. What she does not (and cannot) know, however, is how many are surplus to requirements and which ones they are. One of the consequences of that is that an arbitrarily imposed top-down target almost invariably ends up removing at least some of the ‘wrong’ people, whilst those busily engaged in preparing obscure reports ‘just in case’ carry on regardless.

The ‘savings’ aren’t easy to quantify either, and depend at least partly on the method used to identify those who will get the chop. If the reduction is achieved by removing some of the oldest people, then in a hierarchical organisation like the civil service they may well turn out to be both the most senior and the most highly-paid, for whom a redundancy package and early retirement may look attractive. And since both the redundancy payments and the pensions come out of different pots, the ‘savings’ can appear to be quite high. But whatever the Chancellor may say about targeting ‘back office’ functions rather than front line operations, that isn’t the way arbitrary targets work out in practice, and the total savings at a macro level may well be considerably less than they appear looking at a single budget line.

In essence, her thinking doesn’t seem to be that different from that of Musk, even if not so scattergun an approach or so deep a level of cuts. But both of them start from the assumption that public spending adds no value, and is an ‘overhead’ on the rest of the economy. The US administration is even thinking in terms of redefining GDP itself to exclude government expenditure, which is a somewhat drastic approach. It's neo-liberal economic claptrap, of course. The public sector contributes a great deal to the well-being of citizens. Once upon a time, a Labour government would have seen that as a good thing.