Fridgeonomics and why the early bird fails the exam Top of the Charts 24 February 2023 Torsten Bell Afternoon all, Have I got this right? The same people that did the Brexit deal, the fundamental choice of which was to sell out Unionism, have now decided it was terrible because of what it did to Unionists? AND they’re attacking Rishi Sunak for trying to fix it? Britain might not have any tomatoes but brass necks are not in short supply. Meanwhile Kate Forbes seems to think she’s being illiberally cancelled for not supporting gay marriage/anyone having sex outside marriage. Which is odd because I’m pretty sure you’re not being cancelled if you’re being allowed to run for office and people just don’t want to vote for you. In fact, isn’t that one of the key features of liberal democracy? Anyway, once you’ve got over the shock of discovering that politics doesn’t always value logic or consistency, this week’s reads take you from fridges to the Town and Country Planning Act 1947. Have a read. Or don’t. We’re very liberal like that. Have a great weekend. Torsten Chief Executive Resolution Foundation Fridge fascination. I’m writing TOTCs in the kitchen today, with the fridge in sight. A great new blog reminds me that it alone uses more electricity a year than most people in Africa. The author, Todd Moss, actually first showed this a decade back – but the blog is interesting because it reflects on what this stark fact has led to by way of conclusions over the past ten years. He takes particularly affront at those whose take is that the west/fridges use too much electricity, rather than demanding far more energy use/prosperity/fridges across Africa. The basic gist is that energy [decarbonised obviously] is a good thing. Yes it is. Sleepy students. This is ridiculous is my immediate/prejudiced response to a new article warning academics against scheduling lectures for early in the morning. It finds that the attendance rate for lecture classes at 8am was around 10 percentage points lower than compared with those that started at 10am, because the students were… sleeping – to which my response is the lazy so-and-sos should get with the programme. The overly soft authors of this piece reassure us that students “rarely slept past the start of classes that began at noon or later”. I bloody hope not. But contra to my prejudice, the researchers go on to show that those with more morning classes get worse grades, including for courses they take that didn’t have morning lectures. That means they do worse, because the youth suffer youth suffer from the lack of sleep that early classes induce. The authors basically conclude we shouldn’t have early classes. The softies. Naughty non-banks. There’s some useful pondering on our post-GFC financial plumbing in a new note from the Bank for International Settlements (the central banks’ central bank). One thing that makes recessions worse is if those providing finance pull back from lending just when companies need access to credit to see them through a tough patch. The chance of this happening may have increased because of the growth of non-bank lending (i.e. lenders who don’t take deposits and therefore get regulated like banks) since the financial crisis. Why? Because non-bank lenders reduce credit to firms 50 per cent more than banks in a crisis. The key reason is that while a long-term relationship between a bank and a borrower can help a borrower access loans (and do so at lower cost) in times of crisis, this doesn’t happen with non-bank lenders. Interactions with your bank might feel transactional, but it turns out it’s a deep and meaningful relationship compared to non-banks. Housing horror. You’ll have noticed we don’t have enough houses (unless you’re one of the contrarians who argue otherwise, in which case pipe down). But who is the villain of this story? Don’t just blame Thatcher/the end of major council house building, argues research from the Centre for Cities. The culprit is actually the Town and Country Planning Act 1947. The authors argue that by taking the UK down a discretionary planning system route instead of a European zoning model it drove the fall in housebuilding from 2 per cent growth per year pre-WW2, to 1.2 per cent since. The result: between 1955 and 1979 the number of homes per person grew by half the pace seen in Switzerland and Sweden. By the time Thatcher arrived, the UK had already gone from having 5 per cent more homes per person, to having 2 per cent fewer. Maybe this is the one and only time we need to spend more time thinking about what happened during/after the war. Troubling tax. For some politicians the key to boosting investment is competitive corporation tax, in part arguing lower taxes than competitors will encourage multinationals to shift investment to your country. Others argue corporate tax levels make no real difference to investment. A new paper offers a nuanced counter-argument to both. It shows that when a foreign country increases their tax rate multinationals do not increase their investment in the domestic subsidiary, but in fact cut it (by 0.4 per cent for a 1 per cent hike). Why? Because the impact of being part of a wider supply chain that is affected by the tax increase (contra-those saying tax rates are irrelevant) outweighs the improvement in the relative return on investment domestically (contra-those who just think in tax competition terms). So, put away your simple stories about relative tax rate down = investment up. It turns out that globalisation, driven to a significant extent by multinationals, is complicated. Chart of the Week Inflation remains high and we want it down. The row about how tends to involve economists/central bankers warning about surging wages and other economists/activists shouting “what about profits you capitalist dogs”. We’ve covered wages in previous TOTCs ((our latest thoughts are here), so COTW covers the profits side of things. Are profits surging as some claim? Nope is the really simple answer. Some companies are making huge profits – but they’re narrowly based… on the bed of the North Sea (UK continental shelf), as COTW shows. Look beyond oil/gas to sectors where the vast bulk of our firms are, and you can see that profit levels are either flat as in the services sector (their profitability has fallen but that’s because of more capital being employed); or falling sharply as in the manufacturing sector where rising input prices have reduced margins. Two conclusions should be obvious. First windfall taxes on energy producers are obviously the right answer and it’s mad some opposed them. And second, yes there is a workers vs. firms contest for who bears what share of the pain from the UK getting poorer thanks to higher energy import costs. But the scale of the pain is so big there’s more than enough of it to lead to both profits and wages falling. Which is nice.