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Economics has a lesson for Remainers and lockdown-lovers who refuse to let facts change their minds

Economics has a lesson for Remainers and lockdown-lovers who refuse to let facts change their minds

Christmas is a time to be charitable.

So let’s spare a thought for those who fought against the referendum result.

Unlike the great unwashed, who simply didn’t understand the issues they were voting on, they had all been expensively educated at the right sort of schools and universities.

From the time the vote took place in 2016 right up until the day of Boris Johnson’s decisive victory in the election a year ago, a ruthless campaign was waged to nullify the vote.

How smart do they look now, all those Amber Rudds, Dominic Grieves, Gina Millers and Jo Swinsons?

They could have accepted the result and voted through one of the many versions of a deal proposed by Theresa May. Most of these involved a close and ongoing alignment with the EU.

Instead, they will end up with an arrangement which is the stuff of their nightmares.

Spare a thought, too, at this festive time for the hapless first minister of Wales, Mark Drakeford.

Towards the end of October, he placed Wales in a short “fire-break” lockdown to try to reduce its high infection rate. Sections of supermarkets were cordoned off by government diktat because they sold “non-essential”  items.

The seven-day moving average of daily new cases did indeed fall in Wales from around 300 per 100,000 to well under 200. But within a month of lifting the fire-break, it had risen even higher, to some 350. In the old mining valleys of South Wales, the new case rate is now 600 and rising.

Drakeford did what any self-respecting Corbynite would. He blamed the electorate.

On 10 December, speaking on BBC Breakfast, he remarked: “Not everybody has been willing to abide by the restrictions that are still necessary. We have seen people having house parties, people inviting large numbers of people back to their own houses when that is absolutely not allowed within our rules.”

His words recall the leaflets put out by the old East German Communist government in June 1953, after the workers’ uprising had been brutally suppressed by Soviet tanks. The people, they declared, had forfeited the confidence of the government. It could only be regained by “increased work quotas”.

The Welsh government followed the advice of experts in epidemiology, for whom no lockdown appears to be sufficiently strict.

But these experts did not anticipate that lockdown would make ordinary people less, rather than more, likely to behave in ways the experts deem appropriate.

These two vignettes — lockdown and the anti-Brexit movement — illustrate fundamental principles expounded by Friedrich Hayek and Herbert Simon, both Nobel laureates in economics.

They stressed the need to recognise the highly tentative, uncertain and experimental nature of successful decision-making. It is an evolutionary process, rather than one which can be optimised.

Good policy proceeds by trial and error. Rather than try and find the best possible solution — such as overturning the Brexit result — choose one which seems reasonably satisfactory.

Another key point is that failures need to be abandoned quickly. Lockdowns no longer seem to work, but experts continue to be fixated by them.

The works of Hayek and Simon should fill the stockings of Remainers and epidemiologists alike this Christmas.

As published in City AM Wednesday 16th December 2020
Image: EU flag mask by Ivan Bandura via Wikimedia CC BY 3.0
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Forget ‘reparations’, scrapping subsidies is the way to help get Wales back on its feet

Forget ‘reparations’, scrapping subsidies is the way to help get Wales back on its feet

Get ready to put your hands deep into your pockets for the boyos and girlos of the Welsh Valleys.  Adam Price, the leader of Plaid Cymru, called last week for the UK to pay “reparations” to Wales for the crime of reducing the country to poverty. For centuries, Wales has (apparently) been stripped of its natural resources and “deprived of its inheritance”.

Price’s demands are almost beyond parody. But they could become a frightening reality if a coalition government led by Jeremy Corbyn and various nationalist and green parties wins the next election.

The then-Labour leader of the Welsh Assembly, Carwyn Jones, set the new tone of Welsh whingeing the day after the Brexit vote in 2016.  “Wales,” he declared, “must not lose a penny of subsidy”. Wales, of course, had voted Leave.

There, in a sentence, was the economic policy of the Welsh government: hold out the begging bowl.

Wales is the poorest of the economic regions of the UK. Household income per head in 2017 – the latest date for which figures are available – was only £15,754, compared to the UK average of £19,514. The gap with the wealthiest regions is massive – the south east has an income per head 43 per cent higher, and London is no less than 77 per cent ahead.

It has not always been like this. In the early decades of the Industrial Revolution, the valley towns were probably the richest in the world.

Merthyr Tydfil, now a byword for poverty even by the standards of Wales, led the way. It was the first genuinely industrialised town in the history of humanity. In 1831, 96 per cent of its labour force worked in manufacturing and mining.

Many forces are at work in the story of Wales’ decline, but in modern times, it has often not exactly helped itself. The key to a successful economy is a skilled labour force, but in 2001, the Welsh government scrapped the publication of league tables for the performance of schools. This both deprived parents of information, and reduced the incentive for poor schools to improve.

The outcome was predictable. A Bristol University study estimated that it led to a fall of 1.92 GCSE grades per pupil. In 2015, the Welsh Assembly reversed the decision, but a lot of damage had been done to the human capital of Wales. For over a decade, students were less well educated than they could have been.

This lack of a skilled talent base inevitably holds back enterprise. This, along with other counter-productive decisions, may be why Wales is increasingly dependent on public sector jobs. Overall, Wales raises £14bn a year less in taxes than it spends on public services.

Might Wales be able to turn its fortunes around if it were forced to consider its economic decisions more carefully? After all, the policy of subsidising underperforming regions has been tried for decades. It has made no difference.

So instead of paying reparations, perhaps we should consider withdrawing subsides, as New Zealand did with great effect. By removing the handouts which are distorting Welsh decision-making and causing a vicious cycle of subsidy demands, we can give Wales the chance to restore the enterprise which used to flourish in the nation.

As published in City AM Wednesday 9th October 2019
Image: Welsh Assembly by Anne Siegel via Wikimedia Commons licensed under CC by 2.0
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