We had the October budget, thankfully with most of the worst ideas, such as raising capital gains tax, not present. However, I’m a bit wary of calling this budget a success for Burnham. In the short term, it’s probably a good political move, especially if he does call an election. By not making any drastic changes, Burnham and Healey avoid losing precious political capital. But they are locking themselves into a long-term bind and dependence on benign macro events.
I think Burnham will call an election; otherwise what’s the point of standing for Prime Minister but holding to the 2024 manifesto. If that happens, we should then see the ‘real’ budget emerge. Furthermore, we keep seeing this talk of his “10 year plan” consistently talked up and yet it fails to materialise – does he know what he wants and how to go about it?
This week we have links about the chaos in France, an article about British institutions and mass immigration, and a thought-provoking piece on AI and how it resembles the anxiety around early capitalism.
- Tomas Pueyo investigates why France has been experiencing riots recently and looks through some of the reasons given.
- To begin with, the protests began over education. Specifically, according to Pueyo: funding, discrimination, and justice (or police brutality). He then delves into each in turn.
So whatever the cause of this unrest, it can’t be the total spend on education: Other countries are spending much less, but these countries aren’t up in flames.
Similarly, despite the numbers above, France doesn’t stand out dramatically in class sizes, teacher absenteeism, teacher shortages (0.4%), attrition (1.9% vs 6.4%)
- There are some good charts here, including that France and the UK spend roughly the same % of GDP on education, and this has been fairly consistent in French history. He then argues that the funding may not be going where it should be, and looks into pensions.
Indeed, French pensioners are among the most highly paid in the world. They make 90% of the average worker—similar to public school teachers. But public school teachers are paid more than the average worker, so the result is that the average retired teacher makes more money than the average pensioner, or even the average French worker!
- Some further facts – teachers in France retire at 62, when the average French person retires at 64, which is pretty astonishing given the French life expectancy is about 83 years. Taking away pensions from education spending brings education down from 5% to 4.3%, according to Pueyo, closer to the EU25 average.
- There are other issues, including free handouts for meals and other subsidies. Ultimately, Pueyo doesn’t think there’s a real problem – France needs to raise the retirement age, and this sorts itself out. Obviously, however, the French will not accept this.
- Pueyo then turns to discrimination as something fuelling the protests and riots:
42% of French students report that classmates do not listen to the teacher, compared with 30% across the OECD. French teachers spend 20% more time maintaining order, they are 10% less satisfied with their jobs, lose 10% more of their time to student interruptions. French public schools see 4x more serious incidents than private schools.8 20% of teachers are apprehensive about going to school every day, 47% don’t think school rules are respected. Just last week, unrelated to the riots, a 14 year old shot a principal and a teacher.
- I had no idea about the difference in French schools compared to the rest of the OECD, nor about a shooting in a French school. Pueyo looks into the data about immigrant students:
There is a serious problem around 1st and subsequent generation immigrants in Europe in general, and France in particular. It starts with a lower human capital from some specific countries and ethnicities, which makes them commit more crime and contribute less economically, but kicks off a vicious cycle of underperformance, racism, violence, discrimination, more crime…
For the Left, the entire problem is discrimination and lack of opportunities, and it’s true, but not all the truth: These minorities are overrepresented in all crime and economic statistics across all of Europe, and how immigrants from other countries (even poorer, like Vietnam decades ago) don’t have this problem
- Pueyo notes that Chinese and Vietnamese immigrants, who were as poor as North African and other immigrants, performed much better in education, and increasingly economically as well. Part of this is that the French immigration system seems to select those who are overrepresented in crime and poor economic outcomes, but then the state / French society is unable to integrate them. This has been present for some time, but undoubtedly has accelerated in recent decades.
- Pueyo looks into the violence, and how much of this was down to the police vs protestors vs infiltrators into the protestors movements:
Until October 14th, the list of injured included 937 policemen, 250 students, and 150 education professionals. That means over 70% of those injured are policemen.
I think it’s important to have a measured reaction. The police can’t use overwhelming force against pacific demonstrations, but there are not all pacific demonstrations. But after looking at all this footage, I think it’s possible that the police is not violent enough: Demonstrators don’t appear scared of them, rioters attack people, buildings, and the police with impunity, they loot and destroy… That’s at least what the police union Alliance thinks, as it will sue the French state for risking lives due to unclear and contradictory guidance on how to react to the violence.
- To some extent this shouldn’t be surprising – whenever the state loses monopoly on violence, we see violence beget violence, like in London in 2011. Obviously French political culture does have more of an emphasis on protest than elsewhere, but it does seem that French police were unable to enforce order.
- Furthermore, he notes that the courts have been playing a significant role in this:
What does surprise me is that there are a lot of recidivists here receiving very lenient sentences. Studies show that the vast majority of crime is committed by recidivists, and that it’s hard to get them to stop, so you simply want them off the streets for as long as possible.
Also, why aren’t illegal aliens who commit additional crimes expelled?
- This isn’t only in France – we see this plenty in the UK as well. We seemingly do not recognise the 80/20 rule – namely, that 80% of the crime is done by 20%, and that there is no point trying to rationalise this behaviour. Individuals are who they are, and if they have constantly committed criminal acts, the state must remove them. Finally, criminals committed by illegal aliens who are allowed to remain is just begging Le Pen into power – if you are truly dedicated to the liberal order, or consider her party that of the far-right, you’d be best trying to actually deal with these underlying issues.
https://sfhwebb.substack.com/p/a-period-of-silence-on-your-part?r=22u0c&utm_medium=ios
- Stephen Webb goes into detail about the Treasury, and how their unchallenged assumptions fundamentally shape the British economy.
- Webb focusses on immigration and notes the following:
The OBR assumes a new migrant pays the same tax as an average UK adult, perhaps £19,500 a year. Most can’t claim benefits for five years, and none will draw a state pension within the forecast period. So an extra 350,000 net migrants cut borrowing by about £7.4 billion by 2028-29. Over five years, extra people look like free money.
There are two critical assumptions here. First, the short time horizon. A five year period will see government collect taxes paid by a young worker, while ignoring everything that follows: settlement, family reunion, the NHS in old age, the pension.
The second is even more bizarre. The OBR is instructed to take the Treasury’s departmental spending limits as given, fixed in cash and not adjusted for population. In theory, even if millions of new people arrive, the Treasury assumption is that the NHS budget will remain flat, meaning inevitably worse service per capita for everyone else. In the Institute for Fiscal Studies’ deadpan phrase, the forecast assumes the government “will allow service quality to change rather than budgets to change” (IFS Green Budget, September 2026). Hold spending per head constant and a third of the ‘gain’ disappears: borrowing falls by about £13 billion rather than £20 billion in the OBR’s high-migration scenario. The OBR’s own box notes that real public service spending per person has fallen since October 2021.
- Interestingly this leads to quite pernicious effects for budgeting in the UK, as technically, by reducing immigration, Labour are cutting the fiscal headroom in the next 5 years. This naturally makes their spending plans even more dicey – but as we can see above this is just artificially gamed anyway.
- Naturally, the best way would be to do a detail lifetime earnings and financial costs of immigrants by jobs, sectors, ethnicities, country of origins etc so you would know the likely fiscal impact, as we have seen in Denmark. But given it’s such a political dividing line, even within the Labour Party, I doubt this will happen anytime soon.
But ‘Treasury Orthodoxy’ in microeconomics is a thing, and putting the department publicly in its place would send a powerful message to the public that they are now being listened to
The Treasury has a big enough job getting the public finances back under control, which is what it exists to do. Since Gordon Brown, it has grown used to the idea that it also knows best about welfare, industry, public services and, latterly, the size and composition of the population. A public clipping of its wings on immigration would do more to rebalance the argument in Whitehall than any amount of tinkering with departmental responsibilities.
- As Webb notes, historically it hasn’t gone well when the Treasury department was broken up. Furthermore, we do need the Treasury’s scepticism over spending, particularly given our ever growing welfare state and lack of economic growth. What we do need is to empower the ONS to research costs and benefits – and present these to the public without fear of backlash.
https://open.substack.com/pub/contraptions/p/cognitive-mercantilism?r=22u0c&utm_medium=ios
- Lastly a quite different, but very timely piece on AI by Venkatesh Rao, and how the panic around AI is similar to the panic around early capitalism.
the mercantilist worldview that preceded capitalism rested on roughly four interlocking beliefs.
First, wealth was fundamentally scarce and finite. It consisted primarily of land, the agricultural produce of that land, and the precious metals it contained, accumulated through mining, trade and conquest
Second, ordinary people could not be trusted with much freedom
Third, economic thinking was overwhelmingly oriented toward supply and its control. Wealth came from controlling productive resources and commanding high prices for their output.
Fourth, there was little reason to imagine most people doing anything other than agricultural labor. If something like 80% of the population was engaged in inefficient subsistence farming, that was simply the natural order of things
- You can see immediately the comparisons to the AI revolution at the moment, which Rao does later make. For me, his second and fourth points are the most pertinent and interesting – we see this right now with the Anthropic IPO, and the public pronouncements about how AI safetyism is everything. But surprise surprise, the only ones to be trusted are Anthropic themselves, and nobody else.
- The last point is the most interesting and obviously we take it for granted now, but look at our present day. 80% of us are working in office jobs / service jobs, and that has been broadly stable for decades. The idea that this will go is understandably quite terrifying, as we don’t have a model for what comes next. This is where Rao gets really interesting:
I don’t know how to farm. I can barely keep a houseplant alive. Yet I can obtain an astonishing variety of foods, in quantities that would have seemed fantastical to an early modern peasant. My inability to produce food is economically almost irrelevant. What matters is that I can consume it, enjoy it, develop tastes for it, and devote my energies to other things.
The analogous possibility with AI is that most people will no longer need to be significant producers of intelligence in order to become significant consumers of it.
- This frames the next section of Rao’s argument, namely that humans constantly show an ability to unlock new desires, and work towards these new desires. Interestingly, the number of days worked went up before the Industrial Revolution took place, as workers wanted to acquire new goods and services.
We are moving toward a world in which an ordinary person can command quantities and varieties of intelligence that would previously have required teams of highly trained specialists. Just as I can enjoy food without knowing how to farm, I can increasingly enjoy the products of intelligence without knowing how to produce them myself.
The crucial economic question then becomes not how much intelligence people can produce, but how much intelligence they can find uses for.
- Intelligence being a commodity is such a material game changer that it seems likely to take years to be fully realised. Right now we are in that early phase of people using AI to automate parts of their lives that they can conceive of. For instance, programming, excel, reading documents and pulling together recommendations. What happens next when intelligence is unlocked?
- I should emphasise here that the rise of early capitalism and the Industrial Revolution were transformational to mankind – obviously. They also did require (or perhaps more accurately to say helped create) terrible wars, social upheaval, the collapse of nations and empires before we ended up in this equilibrium. Undoubtedly there is a risk that AI can do the same to us, and indeed will to some extent. I am still optimistic though – this is being spread democratically (in that nearly anyone and everyone can use it, without gatekeeping), we have demonstrated an ability to adapt accordingly, and we are far less violent than we were centuries ago.
the most important consequence of the AI revolution may not be that intelligence production becomes more efficient. It may be that most minds, human and eventually artificial, are liberated from the necessity of producing intelligence merely to survive, and become free to discover what they actually want to do with it.
- What an inspiring and optimistic view of the future, and I wonder what society will emerge.
