Brexiteers – read the 'Trump Trade Doctrine' and weep. A trade deal with Trump will harm Britain

Last September an economist called Peter Navarro and a billionaire private equity tycoon called Wilbur Ross published a document which attempted to justify the ways of the Republican presidential candidate Donald Trump to the world.

The pair also unveiled something they called “the Trump Trade Doctrine”.

The document made few waves at the time, mainly because few believed Trump would actually win the election.

But things have moved on somewhat since then.

Trump is in the White House, Navarro has now been appointed to head the President’s official National Trade Council and Wilbur Ross is set to be Commerce Secretary.

Given how things have unfolded, that document from last September deserves a little more scrutiny, not least from Brexiteers whose hearts are fluttering over Trumpian promises of a quick post-Brexit trade deal with the US.

From an economic perspective the Navarro/Ross paper is a joke; a catalogue of confusion and basic conceptual errors bound together by a conspiracy theory. “Magical thinking” is the description from Marcus Noland of the Peterson Institute for International Economics.

The document cites estimates that the “cost” of domestic US regulations is $2trillion, 10 per cent of US GDP. But this is disingenuous, not only because the figure is grossly inflated, but because it completely ignores the economic benefits of regulations.

The requirement to fit seat belts in cars costs money, but it also saves lives. Anti-pollution regulations push up businesses’ costs, but they also result in cleaner air. One can – and must – put a monetary value on these benefits. The US Office of Management and Budget has estimated that each dollar of regulation brings benefits several times the value of the costs.

Navarro and Ross say Trump will cut this regulation bill by $200bn without saying which regulations will be axed – or what benefits will be destroyed in the process.

But it’s on trade where the fallacies really flow.

Navarro and Ross assert that Value Added Tax imposed by America’s overseas trading partners (including Britain) on US imports amounts to a “backdoor tariff”.

This is simply nonsense given that the VAT is chargeable on all domestic sales – whether the product is imported or domestically produced. This is a tax on domestic consumption, not imports. There is no discrimination here.

The document talks as if “bad” trade deals like the North American Free Trade Agreement (Nafta) of 1994 and China’s full accession to World Trade Organisation membership in 2001 are responsible for the collapse in American manufacturing employment.

This is literally incredible. US manufacturing employment has been falling since the 1950s, long before these deals were struck. And over this period US manufacturing output has been rising, revealing that this is mainly a story of automation and rising productivity, rather than good American jobs being off-shored.

Some individual communities in America have undoubtedly suffered as result of shifting global trade patterns and China really did undervalue its currency for many years to boost its domestic manufacturing sector.

But the idea that multinational corporations colluded with foreign governments to poach high-paying US jobs is a paranoid fantasy, as is the idea that Trump ripping up trade deals will bring back low-productivity manufacturing jobs to America.

But perhaps the most disturbing element of the prospectus is that Navarro and Ross come across as unabashed “mercantilists”.

They appear to believe trade surpluses are an indication of national economic health and trade deficits are a symptom of a disease, a fundamental misconception that the father of economics Adam Smith sought to banish 240 years ago.

Which brings us to the “Trump Trade Doctrine”.

Here’s how Navarro and Ross describe it: “Any deal [that Trump makes] must increase the GDP growth rate, decrease the trade deficit, and strengthen the US manufacturing base.”

Increasing the GDP growth rate is innocuous; that’s what increasing trade does for a country, mainly through applying more competitive pressure to its domestic industry.

But decreasing the US trade deficit? That’s where alarm bells should ring. According to our own Office for National Statistics the UK ran a £40bn trade surplus with the US in 2015. Our surplus is, of course, America’s deficit.

That implies that Trump will not sign a trade deal with Britain unless the terms are so stacked in favour of US exporters that its bilateral deficit with us will fall. This means that the Trump White House will expect to export more to us than we export to them. So any UK firms exporting to the US should be scared, not heartened, by talk of a deal (manufacturers in particular given the third leg of the doctrine).

The ONS figures may not be right. For various technical statistical reasons, they may overstate UK exports and US imports. Other figures suggest trade flows between the UK and the US are roughly equal.

Yet, even if they are, why would the White House’s mercantilists not want to turn that balance into a hefty US trade surplus with Britain, to erode their own overall deficit? “America first” is not an ambiguous slogan. This is where zero sum attitudes to trade lead. Their gain is our loss.

One hope expressed when Trump won the US election was that when he entered the White House he would be forced to listen to people who actually know what they’re talking about.

But if this is the calibre of “expert” that Trump is now receiving this might even be even worse than him listening to his gut.

Guided by the likes of Navarro and Ross, Trump can be confidently expected to make decisions that will harm the livelihoods of all Americans, not least those “forgotten men and women” who he claims as his constituency.

And dollars to doughnuts, as they say in America, he will also make decisions that end up harming the economic interests of Brexit Britain.

INTERVIEW: Steve Nickell

Stephen Nickell is “slightly miffed” at Mervyn King.

It’s nothing to do with the former Bank of England Governor’s quixotic views on Brexit. It’s nothing to do with any disagreement the two men might have had when they both served on the Bank’s Monetary Policy Committee in the years before the 2008 financial crisis. It’s nothing to do with King’s supportive noises towards George Osborne’s austerity policies.

This grudge is more ancient than any of that stuff.

As young academics, both Nickell and King signed the letter from 364 economists to The Times in March 1981 warning that the Thatcher government’s austerity budget would make the recession, then raging, still worse. The letter is widely cited by Thatcherites as a historic blunder by the profession due to the fact the British economy exited recession shortly after it was printed.

Nickell has repeatedly publicly defended the letter from the ridicule it has attracted from gloating right-wingers, pointing out that despite the return to growth the UK economy continued to expand well below its previous trend and unemployment continued to rise.

This, he argues, bears out the warning in the letter that Thatcher’s deflationary policies would do unnecessary harm.

“I wanted to point out that a recession getting worse doesn’t mean negative growth, it means growth has to be below trend,” he says.

It’s an entirely sound economic argument: all competent economists consider the counterfactual.

But Nickell feels a bit like the boy who stood on the burning deck whence all but he had fled in making the counter-case to the idea that the 364 economists got it horrifically wrong thirty six years ago.

“I always feel slightly miffed because Mervyn King was also a signatory – but he never likes to bring it up!” he laughs.

Nickell stepped down from the three person committee at the summit of the Office for Budget Responsibility last month, after six years serving on the watchdog-cum-forecaster established by George Osborne.

The role of Nickell, a distinguished academic economist and experienced policymaker, was to add some gold-plated economic credibility to the new institution.

He played the wise consigliere to its younger chair, Robert Chote. And he looks back on his time there with fondness. “We had a lot of fun,” he says in his first interview since leaving the OBR. “It’s nice to be involved in something where you have a clear cut job.”

But the job comes with limitations too.

It obviously meant Nickell couldn’t express his personal views on Government fiscal policy as he had in 1981.

Yet he must have had views.

I suggest to him that his own criticism of that Thatcher budget could equally be applied, just as reasonably, to Osborne’s 2010 austerity budget.

Yes, the economy grew – which Osborne seized on as vindication of his cuts – but wouldn’t it have grown more without them?

Which is, of course, what Labour under Ed Balls – and any number of Keynesian economists – argued.

But Nickell dodges the suggestion that he was secretly gnashing his teeth at the OBR’s (former) Victoria Street headquarters.

“We didn’t go about thinking too much about what the Government should do. Basically because we’re not supposed to think what the Government should do. And secondly.... [there are] many, many people whose job it is to complain about that,” he says.

Some critics argued that the OBR underestimated the size of the UK’s “fiscal multipliers” – the negative impact of each unit of public austerity on the overall growth rate – and that explained why its growth forecasts in 2011 and 2012 were so off the mark.

The International Monetary Fund made waves a few years ago when it conceded that it had badly underestimated its own multipliers in relation to austerity in places such as Greece and Spain.

But Nickell says the IMF never really made its mind up in relation to the UK.

“The IMF had four different measures of multipliers, depending on which branch [you talked to].... The Great Britain team had multipliers very similar to ours. Olivier [Blanchard – the former chief economist of the IMF] wanted to have much bigger multipliers.”

And Nickell stresses that he is still “perfectly happy” with the OBR’s original judgements on this front.

Nickell’s also bullish about the OBR’s Brexit impact forecasts from November’s Autumn Statement, the last round of major projections in which he had a hand.

Brexiteers decried the implied cumulative £59bn hit to the public finances as a result of Brexit highlighted by the OBR’s calculations as far too pessimistic.

“We did get criticised by some people,” says Nickell.  “On the other hand other people said we were rather too optimistic. What can you do?”

He takes come comfort that the Treasury Select Committee didn’t rubbish the OBR’s conclusions.

“Even Jacob Rees-Mogg was not overly hostile”, he says, referring to the most combative Brexiteer on the TSC.

But Nickell argues that the most serious threat hanging over the British economy is not so much Brexit as productivity growth, which has been “abysmally low” since the financial crisis.

“We continue to forecast an improvement in productivity growth sometime in the next four of five years – but it’s a bit of an act of faith that it will revert to its average level of the past 50 or 100 years,” he says.

“What we do know is that if productivity growth doesn’t improve things don’t look good – either for the public finances or for the British people.”

​Nickell doesn’t have much truck with the fashionable idea that there’s a major “crisis” in economic modelling, something recently suggested by the Bank of England chief economist Andrew Haldane.

“I was very disappointed when I heard Andrew Haldane say he thought people behaved ‘irrationally’, ” he says.

“My thinking about these things is that by and large people don’t behave randomly and there are reasons why they do things. They may be thought of as irrational in some sense – left to their own devices people don’t save enough for their retirement because retirement is a long way away and people would rather have jam today rather than jam tomorrow. It seems to me much better to focus on these biases. People have always been like this. It shouldn’t be hard to model.”

There is likely to be more modelling to come. Nickell, 72, is an honorary fellow of Nuffield College, and even has a permanent office and car parking space there as a former warden.

“Not retired,” he stresses as he leaves.

If anyone is looking for some gold-plated economic expertise, they know who to call.

This article appeared in The Independent on 25/1/17

If they really want British businesses to thrive, our MPs should block Brexit

“I’m from the government and I’m here to help.”

Ronald Reagan said these were the nine most terrifying words in the English language.

It was a joke, but for a quarter of a century British ministers took Reagan’s quip seriously.

Successive Conservative administrations subscribed to the philosophy that the Government’s economic responsibility was limited to controlling public spending and cutting taxes.

For Labour, the only real difference was that it favoured more redistribution.

Blues and reds both agreed that when it came to business the job of government was to get out of the way. This was said to be the painful lesson of the interventionist 1970s and fiascos like the nationalisation of British Leyland.

Yet with yesterday’s Green Paper – “Building our Industrial Strategy” – it feels like those ideological blinkers have finally been lifted.

The British aversion to innovation was always a misreading of history; the errors of 1970s intervention were in lavishing help on particular firms and throwing good money after bad.

Smart state support for important sectors – aerospace, life sciences, automotive, creative industries – in the form of co-funding for research centres rather than individual companies, as outlined in the proposals, really ought to be uncontroversial.

It’s a genuine relief that they recognise the success of such intelligently targeted interventions in South Korea, Germany and, yes, Reagan’s US.

Indeed, for all the fanfare around this document, a sectoral support strategy is actually a continuation of the Coalition approach (which itself picked up on the sensible things Peter Mandelson was doing in the final years of the last Labour government).

The wider orientation is sound too.

The Government is right to focus on beefing up the support for university spin-off technologies, leveraging our large university science base. It’s pretty clear that not enough has been done here – and it’s welcome that the Green Paper faces up to this rather than trying to gloss over it.

The Green Paper is also right to identify relatively weak levels of numeracy and literacy among young people as a critical problem holding back UK productivity.

The emphasis on skills, rather than the numbers going through university, is overdue.

The Government is also correct to recognise our historic public under-investment in transport and energy infrastructure.

The general tone of the document is one of humility and a willingness to learn from the example of other countries rather than the sort of brainless Union Flag-waving we’ve had far too much of in recent months.

The problem is not, despite what the free market fundamentalists say, a lurch back to the 1970s but that ministers aren’t going far enough.

An industrial strategy on the cheap is a false economy.

The Autumn Statement’s public infrastructure boost was pretty meagre.

These proposals pay lip-service to the growing need to give people the opportunity to train and retrain throughout their working lives. Yet a big part of the problem here is funding.

Largely thanks to the Treasury’s prejudices, adult education has never been funded properly and there is no sign of a fundamental change on that.

Bank lending for promising small firms remains a critical problem. A government truly determined to address this would be looking at breaking up RBS into a network of German-style state-owned business banks.

But it’s not just about money.

There would be a stronger approach to corporate governance.

We need a sea change in corporate attitudes to investment and worker training from large firms. Putting workers on the boards of public companies could have been a catalyst for such a shift if Theresa May hadn’t backed down.

Competition policy is not mentioned in the document.

The Government ought to mandate the split of Openreach – the regulated BT division that is under-investing in our broadband infrastructure – from its parent company without delay.

And it is hard to take a government that complains about the UK’s productivity gap seriously if it refuses to intervene to sort out the productivity-destroying disaster that is Southern Rail.

There are other lacunae.

There is little emphasis on the massive productivity gap between firms and within regions, something the Bank of England chief economist Andy Haldane recently highlighted.

Why don’t the laggards learn from the best? And how can the state facilitate that learning?

It would be fatuous to suggest that there is a simple answer to this but the gains from making progress on this front could be vast.

Nor does the document engage with the biggest single threat to businesses and national productivity since perhaps the Second World War: Britain leaving the European Union.

On the menu of reasonable ideas to boost Britain’s productivity and rebalance the economy, Brexit is nowhere to be found.

There is not a single proposal –with the debatable exception of reforming public procurement rules –that could not have been actioned at any time over the past four decades during which Britain has been a member of the European Union.

Indeed, Brexit threatens to pull the Government towards the worst sort of counterproductive industrial strategy.

Desperate corporatist deals, like the one the Prime Minister struck with Nissan to keep the Japanese firm in Sunderland, really do hint at an unwelcome return to the failures of the 1970s – especially if other large companies start demanding their own special agreements.

Then there are incoming curbs on immigration and the general pandering to xenophobic sentiment which threatens serious harm to our cosmopolitan university sector.

We also face the possibility of a panicked Government doubling down on the regressive policies of the past three decades: deregulation of the banks to compensate for their loss of their single market passport; drastic cuts in corporation tax to offset the pain of new customs checks for exporters.

None of this will help industry, or productivity, or regional rebalancing.

The terrible truth is that the first line of any truly rational industrial strategy would echo the 2015 Conservative manifesto: “We say yes to the single market”.

Economists need to pay more attention to extraordinary delusions and the madness of crowds

"There are idiots, look around." That was the famously tactless response, in the 1980s, from the veteran economist Larry Summers to the efficient markets hypothesis - the assumption of many financial models that people always make decisions guided by rationality and with perfect information.

Tactless Summers may have been but was he wrong? Irrational crazes are as old as human history. Charles Mackay wrote a book called Extraordinary and Popular Delusions and the Madness of Crowds as far back as 1841.

And we have plenty of modern quantitative evidence that bears out the thesis of mass misconception and confusion. A poll by the Royal Statistical Society in 2013 found that the British public think £24 in every £100 of benefits is claimed fraudulently. The true figure is 70p. Around 30 per cent of the population are perceived to be recent immigrants. The true figure is 13 per cent.

Violence is on the rise, 50 per cent believe, when in fact it has been falling for 20 years. A quarter of people think foreign aid is one of the top three largest items of Government spending when in fact it is less than 3 per cent of the total. And it's not just Britain where serious misconceptions about the world hold sway.

According to Ipsos Mori, in France the average person believes 31 per cent of the population is Muslim. The reality is 7.5 per cent. 

And those are arguably mistakes. Even scarier are the popular conspiracy theories.

A quarter of Americans say they think the US government helped to plan the 9/11 attacks. Around 45 per cent think "millions" of illegal votes were cast in November's presidential election. The picture of the ivory tower academic economist who assumes perfect rationality and perfect information is something of a caricature, as Summer's well-known quip itself demonstrates.

Yet there has been a tendency among some economists to continue to assume - sometimes for the sake of convenient modelling, sometimes owing to ideology - that people are well-informed about the world around them. 

And Robert Shiller, the Nobel laureate, delivered an important lecture to the American Economic Association earlier this month urging fellow economists to start taking popular delusions much more seriously.

Shiller stressed the economic relevance of powerful "narratives"- plausible but frequently false stories which can suddenly take a hold of the imagination of a large part of the public (and more easily and rapidly than ever in this digital age of ubiquitous social media). He suggested these narratives can drive behaviour, rather than merely being shaped by it, even perhaps causing economic slumps.

"We have to consider the possibility that sometimes the dominant reason why a recession is severe is related to the prevalence and vividness of certain stories," he suggested.

Shiller feels economists should engage in major quantitative studies of developing popular narratives through textual analysis of internet searches, online mentions, Twitter trends and by mining other sources of "big data".

Shiller's challenge is an unsettling one for many economists. This research agenda will doubtless give some (though certainly not all) a feeling of being unmoored from their cherished rules of thumb about the rationality of the so-called "representative agent". And as Shiller himself acknowledges it is fiendishly hard to disentangle cause and effect when analysing narratives.

Is a popular narrative driving economic fundamentals? Or are the economic fundamentals driving the popular narrative? Did people vote for Brexit because of the power of Vote Leave's "take back control" narrative and because they became convinced Turkey was about to join the European Union? Did Americans vote for Trump because of the force of the "Make America Great Again" slogan and conspiracy theories about Hillary Clinton's emails? Or was it because they were economically and socially "left behind"? Narrative economics will never conclusively prove something like this. And it's hard to see mathematically elegant "microfounded" models emerging from it.

Yet such research may well be able to hint at the right answer. And in this era of online Islamist brainwashing, Trumpian lies and propaganda, the capture of the Labour party by hard-left Corbynites, mindless health scares, fake news, Fox News, the Daily Mail, Twitter bubbles - in this digital epoch of popular delusions and the madness of crowds - the sense that something serious is going on is hard to shake.

Shiller's challenge to economists feels like a timely one."

This article appeared in The Independent on 22/01/17

Thatcherites hailing our exit from the single market need a history lesson

Imagine going to a funeral where it turns out that most of those present never actually knew the deceased, although they were convinced they did. The thought comes to mind listening to the obsequies for Britain's membership of the single market delivered by Theresa May yesterday.

Thatcher-worshiping Brexiteers from the Tory right are flushed with excitement at the prospect of finally "taking back control" of the British economy from meddling Brussels bureaucrats - something they are convinced leaving the single market will now permit.

Many journalists, on the other hand, highlight the single market's tariff-abolishing benefits. Meanwhile, Theresa May says Britain will retain a high level of "access" to the single market after we've left. Labour's shadow Brexit Secretary Sir Keir Starmer sternly demands it.

Yet all these reactions reflect fundamental misconceptions about what the single market actually is - and a lack of understanding of why leaving it is likely to be so harmful to the British economy.

The place to start is with some history. The single market was a significant achievement of Margaret Thatcher's government in the 1980s - something that the sponge of amnesia has apparently wiped from the minds of her former acolytes such as Iain Duncan Smith and John Redwood.

The single market was designed, with considerable influence and impetus from London, to prise open European markets to British exporters, to level the playing field for UK firms across the Continent.

"A single market without barriers - visible or invisible - giving you direct and unhindered access to the purchasing power of over 300 million of the world's wealthiest and most prosperous people," was how Thatcher herself described the single market at Lancaster House in 1988 to an audience of business leaders.

What a bitter irony that, 28 years on, Theresa May has used the same mansion in St James's as the venue to announce that Britain is walking out.

And for what? The harmonising product regulations that Brexiteers (ever since Boris Johnson first pitched up in Brussels as a bowdlerising reporter for The Daily Telegraph) ridicule and condemn as anti-democratic EU micromanagement are, in fact, designed to prevent free market-distorting discrimination by European governments.

Why is there a European directive on "jam", defining what fruits may, and may not, be used in the condiment's manufacture? To ensure that anything classified as jam can thereby be sold anywhere within the single market without the risk of some jumped-up local official - anywhere from Bucharest to Belfast - banning it from the supermarket shelves on the grounds that it doesn't conform to local labelling or health and safety rules.

The new trade department recently tweeted about Britain's "innovative jams". That EU jam directive is a designed to help those innovative jam-makers sell their wares into a market of 500 million people (it's grown since 1988) on our doorstep. Multiply that jam example by the size of our entire goods export sector to get a sense of the size of the benefits.

What about control? We submitted to the supremacy of the European Court of Justice because we needed a referee on trade and regulatory disputes within the single market. Was that a "loss of control"? In one respect, yes. But this was symmetric submission. Other nations agreed to abide by the ECJ rulings as well, preventing them from discriminating against British companies. In that sense we gained economic control on behalf of our exporters: control that we will now lose.

And tariffs? The single market was not really about tariffs - financial levies on imports. Any common or garden free trade agreement can abolish those. The single market was primarily about non-tariff barriers, such as local regulations and licensing rules that prevent, for instance, a British architect establishing an office in Milan because she or he does not have a local qualification. Or, conversely, that hinder a dentist who qualified in Slovakia operating in the UK.

"Insidious ... differing national standards, various restrictions on the provision of services, exclusion of foreign firms from public contracts," as Thatcher put it at Lancaster House.

And that is where the "access" argument made by Theresa May and Labour betrays a catastrophic muddle.

You're either a member of this single market or you're not. You have influence on the rules as a member - or you take the rules. You push for the extension and completion of the market to favour sectors you are strong in - such as services in Britain's case - or the rest of the members concentrate on their own interests in its ongoing development.

The best you can hope for short of full membership is being in the European Economic Area, like Norway.

This means you benefit from the dismantling of non-tariff barriers, but don't get to set the rules. If that sounds like a pointless deal, consider the fact that Norway values it sufficiently to pay annually into the EU budget in return. But in any case, Theresa May has now ruled even this out. The limit of her ambition, revealed yesterday, is a tariff-free trade deal with Europe.

Yet economists' consensus forecasts of long-term damage to UK trade are not based on the scenario that we fail to get a free trade deal with Europe. They are based on the scenario that we are out of the single market; that our dominant services sector will not benefit from future progress in completing it. All our experience suggests this means we will export less to Europe and import less too, which means less productivity growth for the UK economy, which means lower living standards than otherwise for us all.

"Don't it always seem to go - that you don't know what you've got till it's gone," sang Joni Mitchell in her song "Big Yellow Taxi". Perhaps we will realise what the single market is only when we've left it.

Brexiteers insist they will create a paradise of new free trade deals for Britain with the likes of America and China in the wake of Brexit which will more than compensate us for the economic damage from the loss of our membership of Thatcher's single market. But what else was it that Joni sang? That's right: "They paved paradise and put up a parking lot."

This article appeared in The Independent on 17/01/17

Why Nutella doesn't actually give you cancer, and how to spot a health scare

What makes a good health scare? There are three essential ingredients. First, there has to be something mundane that lots of ordinary people do, and preferably enjoy doing. Second, there has to be a nasty disease, or a frightening health condition.

Third, the word "causes" must appear.

A big scare last week concerned Nutella, with reports that the processed palm oil used in the production of the hazelnut spread might cause cancer; the week before it was busy roads causing dementia; in 2015, readers might recall the scare was bacon consumption leading to bowel cancer.

The problem with such stories is not the underlying science, but that the fact that they generally do a terrible job of conveying a clear sense of the scale of the risk to the typical reader. The palm oil research is at too early a stage for any kind of quantitative headline about risks to health, but we had very specific sounding risk scale claims in relation to the dementia story. Media organisations drew attention to the finding from a Canadian study that the risk of developing dementia could be up to 12 per cent higher for those living within 50 metres of a major road.

This is known as a relative risk. Yet none of the truckload of reports referred to the absolute risk - this is the risk to anyone of contracting the disease in question over their whole lifetime, and it is essential to making sense of such stories. Making a judgement about risk without knowing the absolute risk figure is like setting out on a long and dangerous sea voyage without a compass.

The absolute risk of dementia is certainly calculable. The Canadian study observed 2.2 million people aged 55-85 over a decade. And it found that 244,000 of this sample developed dementia in that time. That implies the absolute risk of developing dementia for people over their lifetime is around 11 per cent regardless of where they live (which is in line with other studies). 

So, of 100 people, 11 will typically be afflicted. If living within 50 metres of a busy road increases the risk of dementia by up to 12 per cent, that elevates the 11 per cent absolute risk to around 12 per cent - so, of 100 people living near a busy road, around 12 will be afflicted rather than 11. 

That's one more dementia case per hundred people who live near busy roads all their lives (possibly) attributable to air pollution. Which is not negligible, but probably sounds rather less dramatic to most people than a "12 per cent increase in risk".

It's important to spell this out because when people hear a relative risk figure they often, mistakenly but understandably, think they're hearing the absolute lifetime risk. This was apparent during the 2015 bacon scare, when reports of an 18 per cent increase in the risk of contracting bowel cancer from consuming two rashers of bacon a day were widely interpreted as suggesting an almost one in five chance of getting it. 

In fact, the lifetime risk for regular bacon eaters of developing bowel cancer is seven per cent, up from six per cent for those who don't eat it. Those are surely much more useful statistics to the vast majority of readers than the 18 per cent increase in relative risk in all the headlines. But this isn't the only piece of context needed to make sense of such stories.

As Jen Rogers of the Royal Statistical Society has pointed out, there are bigger risk factors for dementia than living near a busy road. Smoking, for instance, is reckoned to increase the dementia risk from 11 per cent to 14 per cent and obesity to 17.5 per cent. Old people would be better advised to worry more about these harmful lifestyle factors than where they live.

Similarly, rational people who are worried about cancer should concentrate more on giving up smoking than fretting about their bacon sandwich consumption. The absolute lifetime risk of lung cancer for a man who never smoked is estimated to be about 1.5 per cent. For lifetime smokers it is 17 per cent. That's a 1,100 per cent increase in risk by the way.

It's important for people to be able to rank the risks they face. Whatever the palm oil research ultimately concludes, it seems unlikely Nutella will be shown to be as risky as cigarettes. This information - the size of other relevant hazards - is the map for your sea voyage through the oceans of risk assessment.

So there are three basic questions you should ask when you read the next "x gives you y" health story.

What is the absolute lifetime risk? What is the absolute risk when adjusted for the risk from the activity in question? And what are the relative risks from other relevant harmful activities? That is the information you need to decide whether or not to be alarmed.

This article appeared in The Independent on 15/01/17

Labour is acquiescing in Theresa May’s hard Brexit

Labour’s dam has broken.

For several weeks now, the party’s shadow Brexit Secretary Sir Keir Starmer has been saying that freedom of movement for European workers into the UK cannot – and should not – continue. Various Labour MPs have been lobbying along the same lines.

And now the party leader Jeremy Corbyn, who previously said he would “defend” EU free movement, has fallen into line.

“Labour is not wedded to freedom of movement for EU citizens as a point of principle,” he will say in a speech today in Peterborough. “Changes to the way migration rules operate from the EU will be part of the negotiations.”

Whatever your view on immigration and pan-European freedoms, let’s be abundantly clear what this all means. It means Labour is now acquiescing in Theresa May’s hard Brexit.

The main opposition party – a party which styles itself as a protector of the interests of ordinary working men and women – is giving the green light for the Prime Minister to pull the UK not only out of the European Union but entirely out of the single market for goods, services, workers and capital.

This is a destination that the overwhelming consensus of expert economic opinion holds will inflict severe damage on the economy and hurt the living standards of ordinary working men and women relative to a scenario in which Britain stays in the single market as, for instance, a member of the European Economic Area.

But how can we be categorical about all this? Corbyn is also stressing today that he wants “full access to the European single market” and criticising the Government for jeopardising the economy through not having a plan. Starmer slams May for dragging Britain towards a hard Brexit.

Doesn’t that show that Labour’s position is not so clear-cut as this conclusion suggests?

Isn’t there still hope?

There are three reasons why the answer is no: European political realities, weasel words and archaic ideological fantasies.

If Britain wants to remain a part of the single market, a watering-down of freedom of movement – “managed migration” as Corbyn puts it – is simply not on offer.

The German Chancellor Angela Merkel made that clear for the hundredth time in a speech in Cologne yesterday. All those who are expert in European diplomacy insist this is not a bluff or a bargaining position, but a genuine red line.

And indeed it stands to reason. Why would the 27 other nations of the EU allow Britain to enjoy all the benefits of the single market while allowing Britain to opt out of the free movement of people?

They don’t allow Norway or Liechtenstein – who are part of the single market but not members of the EU – this privilege. Both have to accept free movement in return.

Even Switzerland – which is not part of the single market but has a comprehensive web of deep free trade deals with the EU – has to accept free movement as a quid pro quo.

It’s possible to assert that Europe’s leaders will ultimately be prepared to pull down one of the fundamental pillars of the single market to suit Britain.

But it’s also possible to assert that the moon really is made of Swiss cheese. Asserting something doesn’t make it true.

By making a red line of EU immigration control, Corbyn is aping the position of Theresa May.

And sterling is falling because traders are increasing their bets that we are heading for a hard Brexit thanks to May’s insistence on immigration control.

And then there are Labour’s weasel words. Any mention of “access” to the single market should be banned. As has been widely noted, every country on earth has “access” to the single market, in that trade can and does take place between Europe and the outside world. The question is what are the terms of that access.

By claiming that he wants “full access” to the single market, Corbyn is giving the impression he wants Britain to remain a part of the single market, in the manner of the non-EU member Norway.

But in reality, that formulation gives him leeway to settle for something as weak as a Canadian-style tariff-abolishing trade deal with the EU.

Starmer is engaged in a similar legerdemain. The former director of public prosecutions is an intelligent man and will be well aware that his position on free movement means he would have to be prepared to see Britain leave the single market.

So by railing against a hard Brexit, he is implicitly redefining hard Brexit to exclude single market exit, leaving it as merely the conclusion of an unsatisfactory free trade deal.

To put it bluntly, whenever Labour says hard Brexit, bear in mind that they now do not regard single market exit as hard.

Finally, the ideology: Corbyn is arguing today that leaving the EU will liberate Britain to intervene in struggling domestic industries such as steel, something that is currently restricted by state aid rules. His team has argued in the past that exiting the single market will remove an obstacle to Britain becoming a fairer and more socially democratic state.

But this is a nonsense argument, as the existence of occasionally interventionist social democracies in France and Germany demonstrates; the EU does not prevent those states being fairer in many ways than the UK.

This spurious line of argument from Corbyn suggests he still holds the Bennite view from the 1970s that the EU is a form of capitalist conspiracy. In other words, his position today is being influenced by a fossilised left-wing ideology.

But let’s cut to the fundamental point: if you feel that Britain remaining part of the single market after 2019 is in your economic interest, do not look to Jeremy Corbyn’s Labour Party to be your champion.

This article was published in The Independent 10/01/17

Taxpayer funded social care for asset-rich pensioners is a bad joke

It’s time to connect the dots, or rather connect the news stories.

The Institute for Fiscal Studies informs us we are entering the age of inheritance. The number and value of individual bequests is set to dramatically increase in the coming decades, largely thanks to soaring house values. The share of elderly households who expect to leave at least £150,000 in inheritance to their lucky offspring is 44 per cent, up from just 24 per cent a decade ago.

Meanwhile, we are also entering the age of inflated elderly care costs. Demand for care – help for frail older people with basic tasks such as washing and dressing – is rising as the population ages. In England the system is already in a well-publicised financial crisis.

The new higher minimum wage is pushing up costs for private providers and councils, who pay for the care, are strapped for cash due to major cuts in central government grants since 2010. Hundreds of thousands of elderly people are not getting the care they need as councils restrict access to provision to save money.

The pressure on the system will only grow. The Office for Budget Responsibility has projected the public costs for the social care system to almost double from 1.2 per cent of GDP (around £20bn a year in today’s money) to 2.3 per cent by the middle of the century thanks to demographic pressures.

So how to pay for this ballooning social care bill? At the moment councils have a means test, which ensures a substantial private contribution. Pensioners with more than £23,250 in assets, including the value of their house, must fork out for their own care. And the Government has established a scheme whereby councils will pay for an individual’s care up front but recover the money from the proceeds of selling their house when they die.

The means test is unpopular, as such tests tend to be. Polling suggests that a majority of the elderly think the state should fund social care in the same way that it funds health care. Influential newspapers scream that it’s an outrage that some elderly people have to sell their homes to pay for their care – even if the property is only sold after they die. The elderly charity sector is demanding more central resources to fund the system. The Kings Fund think tank and the Labour Party want social care folded into the NHS and made free at the point of use.

That would certainly make things simpler. But let’s be clear what this implies financially and socially. It would constitute progressively larger transfer of resources from all taxpayers to pay for elderly care. Moreover, scrapping the means test without any corresponding increase in property or inheritance taxes would leave the elderly with significantly more property wealth to pass on to descendants, with the largest bequests going to the already well off. In other words Robin Hood in reverse: the poor handing over money to the rich.

The Government is resisting folding social care into the NHS, despite the lobbying. Yet regressive reform is nonetheless on the way. A report for the Coalition by Andrew Dilnot in 2011 recommended a £35,000 cap on total out-of-pocket payments for individual care recipients and an increase in the means test threshold to £100,000. The Government settled for a £72,000 cap instead, to be introduced in 2020 and a major increase in the upper means test threshold.

This is all predicted to cost around £6bn to the public purse over five years. And remember: those billions of pounds would otherwise have been extracted from the property assets of pensioners.

The unfairness should be obvious. The incomes of the over 65s have held up well since the financial crisis, largely thanks to government protection of the value of the state pension. This age cohort is now less likely to be in poverty than the working age population. They have also been the big winners of the UK’s generational property lottery. In sharp contrast the incomes of the young have been crushed this decade and most are priced out of the property market.

Yet now, adding insult to injury, the dismal politics of the social care fiasco is herding politicians into a position where they will be requiring younger taxpayers to pay more in tax to fund the care of the asset-rich elderly.

It’s important to stress that it’s not the pensioners themselves who will primarily reap the rewards but their children. This will substantially benefit those expecting to receive hundreds of thousands of pounds in bequests from their elderly parents.

Let’s imagine an old person is one of the 10th of over 65s whose care needs will add up to £100,000. Imagine they also have a £250,000 house. Under the old system they would have paid £100,000 out of their property assets, leaving £150,000 of house to their children. Under the new system they will pay a maximum of £72,000 and be able to bequeath £178,000 of house to their children. That’s a £28,000 boost to the inheritance of the children, ultimately courtesy of the taxpayer.

No one disputes that the social care system urgently needs to be reformed. The system is indeed grossly underfunded – plainly a false economy since this is creating expensive havoc in the NHS as the elderly cannot be discharged from hospitals in good time because they often have inadequate domestic care in place.

Yet the idea that the solution to the crisis is to scrap means testing and to load more costs on to taxpayers in order to protect the inflated housing inheritances of the already well-off ought to be laughable at a time when we’re all supposed to be anxious about rising wealth inequality. Instead, we find it to be something close to the conventional wisdom. Why? Blame a failure to join up the dots.

This article was published in The Independent on 8/01/17