Political presumptions, horrible histories – and an energy emergency Top of the Charts 26 August 2022 Torsten Bell Afternoon all, It’s good to be back after a very pleasant few weeks in the Alps. Walking steeply rising paths has been much-needed relief from looking at charts of ever more steeply rising energy prices. And it’s good to see you’ve all really been pulling your fingers out while I was away – truly impressive to have got on with confirming a trebling of energy bills while making precisely zero progress on the policy response. This is not what winning as a country looks like, and it’s not tenable for much longer without projections for a total catastrophe this winter turning into a reality. We’ve got a read and COTW on this central issue of the year – the latter drawing on our own report this week on how we go about trying to tackle this mess (with huge thanks to the team who have been working so hard on it while I was off). Light relief comes in the form of news that the IMF has gone from being a bastion of neoliberalism to a bunch of dangerous lefties, and that employers can use bonuses based on overall team performance to drive better team performance (one for Truss/Sunak to try out on the new Cabinet). Have a good Bank Holiday. Torsten Bell Chief Executive Resolution Foundation Energy emergency. You’ll have been subjected to takes on the energy crisis from anyone with a twitter account, but it’s worth highlighting this from Duncan Weldon. It does a good job of explaining why wholesale price rises this unimaginably large qualitatively, not just quantitively, change the nature of this crisis. Predictions of inflation hitting 18 per cent, or the price cap exceeding £5,000, won’t happen because ultimately the Government won’t let it. But once you recognise that another load of difficult problems come into focus, not least for the interaction between fiscal (borrowing’s about to skyrocket again) and monetary policy (this will encourage further rate rises). I broadly agree, although am less certain than Duncan that rationing will be required, because high prices are proving effective at destroying commercial energy demand – there’s a reason a recession is coming. Inequality interest. The World Bank and the IMF were set up in 1944 during a surge in appetite for international economic cooperation. An interesting new note digs into how their interest in questions of inequality has changed in the decades since (during which time inequality between and within countries has been significant but not unchanging – recent decades have seen inequality fall between countries while rising within them). The Fund in particular had very little interest at all until the late 1990s – if you look at one part of this check out Figure 2 on page 17, which shows the word was hardly mentioned in IMF documents until then, while it’s use has gone through the roof since the financial crisis. What’s on research agendas, not just catwalks, changes with fashions (in this case shaped by wider fashions in economics and ideological shifts in advanced economies, who are the biggest shareholders of the Fund and Bank). Political presumptions. One frequently-heard critique of modern politicians is that they just tell the public what they want to hear. Which turns out to be unfair, because politicians often haven’t got a clue what the public want… That’s one reading of a paper (free version) that asks over 800 politicians from Belgium, Canada, Germany and Switzerland where they think the public stand on different policies. They only do a marginally better job of accurately doing so than regular punters – including on a basic question of what the majority favours on a range of binary policy issues. This is basically like a doctor only being a little bit better at surgery than me… Horrible Histories. TOTCs is fully behind the recent fight back of economic history against its marginalisation within the wider economics discipline. A new working paper documents the ebb and flow of economic history’s place in British higher education – from it riding the boom years of university expansion in the 1960s and 70s, to the widespread disappearance of independent economic history departments by the 1990s (only LSE is still holding out). It goes on to note that many undergrad economics students are not being taught economic history (it’s only compulsory in a third of Russell Group universities). Which is a shame, because it turns out we’ve had financial crises, pandemics and energy price shocks before… Triumphant teamwork. Employers often give workers financial rewards based on their individual performance – bankers love their bonuses. But that’s a problem for complicated interdependent work where individual performance is rarely visible. Basing bonuses on team performance is the alternative option, but some worry that leads workers to free ride on their colleagues. Those worries are misplaced finds a new study documenting what happened when a manufacturing company (they make diggers, etc.) introduced group-based incentives in one factory but not another: the factory with the incentives increased performance by 19 per cent. Employees worked more efficiently and showed up to work more often – and better workers chose to join the team. Turns out peer pressure pays. Chart of the Week You don’t need to be a Resolution Foundation economist to know the trebling of energy costs in a year is a living standards catastrophe. Our Chart of the Week – analysing today’s Ofgem announcement and latest Cornwall Insight projections– shows the detail of what this all means for household bills over the coming months (full gory details in this thread). Last winter, typical monthly energy bills (for the winter period) averaged around £155 a month. This winter they’re set to average around £500 a month, peaking at over £700 in January. The UK’s four million customers on pre-payment meters, who aren’t able to smooth their bills over the year, will have to find that cash upfront just to keep the heating on. £700 is over half of their entire disposable income so thousands of homes will be going cold across the country. That’s why we’ll have to be capping costs below market rates in a matter of weeks. We can’t stop this crisis making us all poorer, but we can choose who shares the burden most – and it can’t be poor households forced to turn the lights and heating off.
