Paying the price for good health

The Institute for Fiscal Studies released its annual Green Budget publication earlier this week (here). It is intended as a comprehensive assessment of the challenges facing the UK government as it prepares to unveil its official budget (scheduled this year for 8 March). It is certainly comprehensive – the report extends to 312 pages. However, one thing particularly jumped out at me: In the chapter on health and social spending, the authors showed that over the period 1955-56 to 2015-16, real health spending in the UK grew at an average rate of 4.1% per year whereas over the period 2009-10 to 2014-15, real spending increased by just 1.1% per annum (see chart).

We should keep this in perspective: Under the previous Labour government, real spending increased at a rate of 5.9% per year, so some degree of slowdown was required. Indeed, this huge surge in outlays was designed to raise health spending as a proportion of national income towards the average levels of health spending in other western European countries – a target which was not achieved. On a per capita basis real health spending has remained roughly unchanged since 2010 although the ageing of the population, which raises the share of elderly people, means that the per capita numbers are slightly misleading.

Nonetheless, the government can claim that it has abided by its manifesto commitment to protect the National Health Service from the cuts in other public services. But at a time when the strain on the NHS is greater than ever before, the government (irrespective of political persuasion) is going to have to face up to some uncomfortable truths on the provision of health care. Part of the problem stems from the fact that although health spending has been spared the worst of the cuts, the social welfare bill has been slashed, having fallen by 1% in real terms since 2009-10. Faced with a lack of options, people are being forced to turn to the NHS for help which it is not designed to provide, which in turn impairs its ability to meet its other targets.

Professor Sir Bruce Keogh, medical director of NHS England, highlighted in a newspaper interview two years ago (here) that the lack of local services such as district nurses, beds in community hospitals and mental health support were key factors behind the rising strain on front line health services. It is not as though the government is unaware of the problem. The Times reported in December that Chancellor Philip Hammond wanted to raise the funds allocated to social welfare provision but was overruled by the prime minister. It further suggested that the issues facing social welfare are “a political problem exacerbated by political cynicism,” following the stymying of cross-party efforts to find a solution to the problem by former Chancellor George Osborne before the 2010 election.

On the basis that the NHS in England expects to face a cash shortfall of up to £30bn by 2020, what can be done to plug the hole? Unpalatable though it may sound, a simple option would be to raise taxes. A rise of 1% in the basic rate of income tax would provide £4.5bn of additional revenue by 2019-20, according to the Treasury’s ready reckoner. Bearing in mind that the basic rate today, at 20%, is the lowest in decades (40 years ago it stood at 30% and it was last cut in 2008 from 22%), this is not the worst option. A 2% rise in the higher rate of tax would yield a further £2.0bn. The government could also raise national insurance contributions which are, after all, designed to fund social welfare provision. A 1% rise in employee contributions would raise almost £4.3bn and a similar increase in employer contributions would generate £5.1bn. But the real kicker is the government’s planned cuts in corporation tax rates. Each 1% reduction in the standard rate costs £2.4bn in revenue, and with the government planning to cut the standard rate from 20% today to 17% by 2020, this will cost £7.2bn in revenue. If corporate taxes are left unchanged and the other tax hikes are implemented, this would get us two-thirds of the way towards covering the health spending shortfall.

These are, of course, static calculations. Employers will create fewer jobs if payroll taxes rise which will result in less revenue than these numbers suggest. However, they illustrate that UK governments will at some point have to begin squaring the circle.  The 30 year period during which governments have cut taxes whilst promising world class public services are over.

Nobody likes to pay higher taxes of course (least of all me). Thus the other unspoken possibility is to introduce some form of charges in order to encourage rationing. One option might be to introduce an initial charge for doctor’s visits with subsequent visits incurring no such penalty. The British Medical Association reckons that there are around 340 million consultations per year; over 90% of this contact is with local general practitioners and the average member of the public sees a GP six times a year. Running through the maths, GPs see 51 million different people per year. Imagine that the first GP consultation per year was charged at £10 with subsequent ones free (with suitable exemptions for the very young and the very poor) – which is the equivalent of three pints of beer per year or 12 pints of milk – this would yield £0.5bn per year in user charges.

Whilst this is not a huge amount in the grand scheme of things, it might be the direction in which we are forced to travel. As we all know, demand for health care is near-infinite, and unfortunately we need to find ways to fund this demand as our population ages and the pressure on the system mounts. But are our governments brave enough to face up this unpalatable truth? It certainly won’t win votes but it might help to preserve the health services.

The haze of regulation

Having posted previously on the subject of incentives (here), and how important it is to ensure they are set correctly in order to avoid unintended consequences, the recent spate of warnings regarding pollution levels in London over the winter months brought the issue to mind once again. There are many contributory factors to high pollution levels in urban areas with climatic conditions exacerbating the problems caused by central heating systems and wood burners (one of the recent scapegoats). But one of the factors rising up the worry list in London is the problem caused by emissions from diesel engines (see chart).

Ironically, it is not long ago since diesel engines were hailed as the great new clean technology which would save us from the choking carbon dioxide emissions of petrol engines. Beginning in the early-1980s, UK excise duties on diesel were set lower than those on petrol, though since the late-1990s they have remained the same as those on unleaded fuel. From a fuel consumption perspective diesel engines are more efficient than their petrol equivalents, so even if the duty per litre is the same, the tax paid per mile (or kilometre) travelled is lower for diesel than for petrol. Successive governments were happy to encourage the switch to diesel engines because – we were told – they emit less carbon dioxide than petrol, and this switch was seen as one of the arrows in the quiver designed to reduce CO₂ emissions in line with international agreements. Unfortunately, diesel engines emit more nitrogen oxides and small particulate matter, which is even worse for human health than CO₂. Moreover, the evidence appears to suggest that their average CO₂ emissions are no better than petrol engines.

The chemistry associated with the burning of diesel is not new. So how is it that governments across Europe have encouraged this trend? According to the academics Cames and Helmers (here) one argument is that “the European oil industry co-initiated the shift to diesel cars in the 1980s and 1990s in order to find outlets for middle distillates” which had collapsed as natural gas displaced heating oil as a fuel used in electricity generation. In addition, the increased use of nuclear power for generating purposes further increased the downward pressure on distillate demand.  Whatever the reason, across most European countries, diesel cars received favourable tax treatment at the expense of petrol-engined cars. If governments were indeed using the switch as a cover to promote the need to reduce CO₂ emissions it was at best misleading, and if the claims advanced by Cames and Helmers are true, it points to collusion between the interests of the oil industry and government.

This goes back to the point I made recently (here) about how there is evidence to suggest that interest groups can have undue influence over government policy which may not always be in the best interests of voters. Perhaps the most egregious example of this is the policy towards obesity in the western world. It has become accepted wisdom that the problem is caused by too much fat in the diet. However, as long ago as 1972, a scientist called John Yudkin wrote a book claiming that there is a clear correlation between the rise in heart disease and a rise in the consumption of sugar, and questioned whether there was any causal link between fat and heart disease. But the food industry struck back, led by a scientist called Ancel Keys who – aided and abetted by the sugar industry – proceeded to discredit Yudkin’s work. However, the work spearheaded in recent years by prominent scientists such as Robert Lustig, suggest that Yudkin had been right all along.

This was not a simple academic spat: It was an issue of fundamental scientific importance with implications for human health. It also highlights the problem that if a particular interest group funds research which is unequivocally accepted by government, and is used as the basis for public policy, there is an incentive to distort the research to ensure the desired outcome. I am not endorsing the claims of Cames and Helmers with regard to the influence of the oil industry. But the very fact that it has been hinted at indicates that the line between genuine scientific research and that conducted for ulterior motives is at best blurred.

As it happens, European countries have a pretty good track record in preventing dodgy research from slipping through the net – think of the good work done by the drug regulatory authorities. However, it is crucial that these high standards are maintained, which is something else for the UK government to think about as it embarks upon Brexit. And as the diesel and sugar episodes remind us, it is also important to think about the longer-term effects of today's policy choices. Failure to think long-term can - quite literally - be fatal.

Not your father's world

This is a post which I considered very carefully before deciding to publish. I certainly do not “do” conspiracy theories – they have often struck me as the paranoid delusions of people who cannot accept that the world works differently to how they would like. I struggle with the idea that the world is run by a secret cabal of men (for that is how they are normally portrayed in James Bond films) sitting in some glamorous location making decisions which affect the lives of the little people. Nor do I buy the idea that the likes of the Bilderberg Group are trying to subvert the democratic process in the western world. But I was recently brought up short by a couple of articles by people who I have long regarded as sane commentators. 

The first was by George Monbiot, an environmentalist and political activist. I have to confess that I have not always been a fan of his work, believing for many years that he hugely exaggerated his stance on many positions. But I was impressed with his intellectual honesty in reversing his position on nuclear power and I now take him much more seriously, even if I don’t always agree with what he writes. However, the article, published in The Guardian (here) took a cogent look at how so-called "dark money" – used to fund organisations involved in political advocacy without disclosing where it comes from – has a huge impact on the way in which government policy is shaped.

In particular, he focused on the activities of one Dr Liam Fox MP, who is a prominent supporter of Brexit and currently Secretary of State for International Trade. In 1997, Fox founded Atlantic Bridge, described as an educational organisation designed "to bring people together who have common interests [and] ... defend these interests from European integrationists who would like to pull Britain away from its relationship with the United States.” In 2007, a sister organisation was set up in the US with affiliations to the American Legislative Exchange Council (ALEC), described by Monbiot as "perhaps the most controversial corporate-funded thinktank in the US" and which has extremely close ties to the Trump administration (see Monbiot’s article for the detail). After registering as a charity in 2003, the UK arm of Atlantic Bridge was dissolved in 2011 after the Charity Commission concluded that it was "not evident that [it] had advanced education" and "may lead members of the public to call into question its independence from party politics.”

Monbiot convincingly makes the case that Fox has consistently blurred the lines between the public interest and his own personal interests. However, by being tasked with the job of securing trade deals with other countries, Fox is ideally placed to lead the way in securing a UK trade deal with the US.  But as has been pointed out numerous times before, any trade deal will be on terms which put US interests ahead of those of Britain. As Monbiot put it, “European laws protecting the public interest were portrayed by Conservative Eurosceptics as intolerable intrusions on corporate freedom. Taking back control from Europe means closer integration with the US. The transatlantic special relationship is a special relationship between political and corporate power. That power is cemented by the networks Liam Fox helped to develop.”

You may or may not agree with this view, but whilst it is plausible, Monbiot has “form” and we know where he stands on the political spectrum. But the blog post by Tony Yates, professor of economics at Birmingham University and which made some similar points, comes from someone who in my experience does not consistently advocate a particular political stance (here) Yates points out that many of the grievances which led to the Brexit result "have been stoked and crafted ruthlessly. The vortex is stoked and our descent into it is piloted in the name of the ‘will of the people’.  But in fact the journey is in the service of the populist-controllers who have managed to sell the people the bad policies.  What do they get out of it?  Publicity, gratification, media careers, control over policies that affect the net worth of companies they and their associates are connected with."

Precisely because I regard Yates as a rational commentator is the reason why his argument hits with such force. Regular readers will know that I have consistently questioned how the policies of Trump – or the UK government with regard to Brexit – serve the economic interests of their respective electorates. If both the US and UK governments are pursuing policies designed to benefit a small group of individuals, we are in more trouble than I thought. I will leave it to the political scientists to assess the impact on the democratic process. More worrying from an economic perspective is that the international institutions upon which our security and prosperity have been built for 70 years are under threat. I have noted previously (here) that the parallels with the 1930s are more worrying than people care to admit, and historians will tell you that despots come to power riding a wave of popular support to impose policies which impoverish their countries. Whilst Trump may not be a despot, and Theresa May is certainly not, they both lead governments whose policies are economically harmful. 

Perhaps we are all being a little bit jumpy in the wake of the political upheavals of the last year and wiser heads will soon prevail, such that by the end of the year we will all wonder what the fuss was about. Or maybe, as Yates wrote, the failures of current policies "can be sold as a success, whose ill effects are blamed on simply not punishing the imaginary villains enough.  And the next round follows." This is not my father’s world. It’s my grandfather’s.

Trading places

I spent this evening at a seminar organised by the National Institute of Economic and Social Economic Research (NIESR) at which they outlined their latest economic view and some of the associated research topics. One of the presentations, by Monique Ebell, looked at NIESR's ongoing research into Free Trade Agreements and how the UK is likely to fare post-Brexit.

The worrying conclusion was that leaving the European Single Market (ESM) is going to impose significant costs, irrespective of whatever deal the UK signs with other countries. This is due to the fact that the ESM is a deep and comprehensive trade agreement which is designed to reduce non-tariff barriers, whereas conventional FTAs do little to tackle this problem. And because they are generally aimed at trade in goods, they do little to stimulate services trade which is an important issue for the UK.

NIESR used conventional gravity models to estimate the impact of post-Brexit trade flows. Such models approximate bilateral trade flows between two countries by employing the ‘gravity equation’, derived from Newton’s theory of gravitation. The idea is that just as planets are attracted to each other in proportion to their sizes and proximity, so too are countries. Relative size is determined by GDP, and economic proximity is determined by trade costs – the more economically ‘distant’ the greater the trade costs. Gravity models suggest that relative economic size attracts countries to trade with each other while greater distances weaken the attractiveness.

The empirical results suggest that if the UK were to leave the ESM and impose WTO rules, as Theresa May has threatened, this would lead to a long-term reduction of around 60% in UK trade with the EU compared to what would otherwise take place. Swapping ESM rules for an FTA used by the EU in trade with third party countries would produce a smaller, but still significant, reduction of 45% in UK-EU trade. There would be a modest offset if the UK could replace WTO rules with some form of FTA with the BRICS or Anglophone countries, but it would in no way be enough to fully compensate for the losses.

As it currently stands, leaving the ESM will make the UK significantly less well off. Indeed, NIESR's calculations indicate that swapping the current EU trading arrangements for WTO rules will cut GDP by around 2.3% over the longer term (5-10 years). This is rather smaller than the numbers suggested by the Treasury prior to the referendum, but it is likely there would be significant second round effects which I reckon could produce a long-term decline somewhere in the region of 5%.

We should, of course, be careful of the spurious precision attached to such estimates. But they support the view that leaving the safety of the ESM, which is one of the most integrated international trading markets in the world, will leave the UK poorer than it needs to be. And it is for this reason I continue to believe that the gamble taken by David Cameron in holding the referendum in the first place, and the comments made by Theresa May in her speech two weeks ago, represent steps which are not in the UK's national interest.

If conventional FTAs suggest that the gains from trade with third countries will be outweighed by the losses resulting from a loss of access to the ESM, might it be possible to devise ways to narrow the losses? Obviously, one way would be to replicate the features of the ESM which make it so successful, by reducing non-tariff barriers. But this would involve efforts to improve economic integration in any new trade deals, which in turn would require greater regulatory harmonisation, though this is precisely one of the things which the electorate (narrowly) rejected last June.

Ironically, on a day when the proportion of MPs voting in favour of the Article 50 bill (81.4%) was greater than the proportion of the electorate voting for Brexit (51.9%), the government has still given us no indication that it understands the risks which it is taking with the UK's economic future. Moreover, the fact that the EU is expected to present the UK with a significant exit bill, likely to be in the region of £40-60 bn, suggests that it will take at least five years to recover from the initial financial hit (so much for saving money by leaving, eh Nigel?). Thus, even if Brexit does not cause the damage that is feared, in order to come out ahead the new arrangements would require the UK to get a bigger growth boost than the current arrangements can deliver. Let's just say I am not hopeful.

On the Seventh Day ...

… Donald created chaos. In recent days, the Trump Administration has imposed an immigration ban which is generating controversy around the world, whilst today the head of the National Trade Council, Peter Navarro, publicly accused Germany of using a “grossly undervalued” euro to “exploit” the US and its EU partners. Both these issues call into question the underlying principles of the international economic and financial framework. Whilst recent events reveal that the new Administration is not going to play by the old rules, and we are going to have to live with it, they also display a degree of callowness regarding how the world works.

On a wider view, businesses and investors do not like what they have seen and heard. It is potentially the first step towards a more protectionist world which will damage the US as much as its trading partners. Of more concern is that the global financial system has historically worked best when the global superpower acts in its benevolent self-interest by maintaining access to its markets, allowing unrestricted access to its financial markets and generating higher global incomes which benefit everyone – corporate America included. Any sense that the system is to be gamed in favour of the US will not end well for anyone.

Navarro’s comments in particular were worrying on many levels, not the least of which because he is wrong. It is true that Germany is running an excessively large external surplus which, as I have pointed out in a previous post (here), does put undue strain on the workings of EMU. But ironically, a higher surplus ought to put upward pressure on the currency, rather than weaken it. After all, it is not as if the whole of Germany’s surplus is solely generated at the expense of other EMU members. Moreover, the perceived weakness of the euro is due more to ECB asset purchases than to any deliberate action on Germany’s part, something which has been strongly opposed by the German contingent at the ECB (notably Bundesbank President Weidmann, who has been a vociferous critic of QE).

An excellent article in The Economist a couple of weeks ago noted that “there are reasons to be worried about the head of Donald Trump’s new National Trade Council” (here). In particular, The Economist notes that Navarro’s view that unbalanced trade is responsible for a slowdown in US growth since 2000 is simply “dodgy economics.” It goes on to suggest that Navarro “seems to think that once they [China] comply with global trade rules, the trade deficit will close and manufacturing jobs will return to America’s shores … This is a fantasy. When manufacturing production moves overseas and then returns, productivity has usually risen in the interim; so far fewer jobs come back than left.”

Navarro’s views on the EU are equally wrong-headed. He said in a recent FT interview that “The unequal treatment of the US income tax system under biased WTO rules is a grossly unfair subsidy to foreigners exporting to the US and a backdoor tariff on American exports to the world that kills American jobs and drives American factories offshore.” Whatever else it might be doing, Europe is not stealing US manufacturing jobs. It might be getting more of its share of US corporate taxes than the government would like but there is a simple solution to that – cut the corporate tax rate, which is amongst the highest in the industrialised world.

But perhaps what is most worrying of all – and it was highlighted by a number of below the line commentators on the FT website, who are a pretty savvy bunch – is that the US government appears to be trying to drive a wedge between EU nations by highlighting the fact that Germany is “exploiting” other European partners. Certainly, it seems to have a preference for negotiating bilateral deals with the intention of (as one commentator put it) “the destruction of the EU, by peeling one nation at the time from the EU, till the whole thing collapses.” That might be a bit over the top but it is a common theme.

Even more worrying from a UK perspective, as the inestimable Gideon Rachman noted in the FT yesterday, is that “the election of Mr Trump has transformed Brexit from a risky decision into a straightforward disaster (here).” I have long believed that the main risk Trump poses to the UK is that many of his policies may well not be in the UK’s national interest. As Rachman put it, “If Britain had voted to stay inside the EU, the obvious response to the arrival of a pro-Russia protectionist in the Oval Office would be to draw closer to its European allies. Britain could defend free-trade far more effectively with the EU’s bulk behind it …  As it is, Britain has been thrown into the arms of an American president that the UK’s foreign secretary has called a madman”.

When a man who wants to build a wall on the southern US border to keep out Mexicans; who wants to ban immigrants from one of the most tolerant and open societies in the world and who threatened to jail his political opponent, thinks Brexit is a good idea we really need to think again! As the Ancient Greek storyteller Aesop wrote, “A doubtful friend is worse than a certain enemy. Let a man be one thing or the other, and we then know how to meet him.”

Don't forget about Grexit

It is somewhat ironic that the phrase Brexit is heard far more frequently these days than Grexit, despite the fact that the latter was long viewed as the more likely event to happen. Although the Greek issue has not been anywhere near the top of investors’ agenda over the last eighteen months, the problems have not gone away. We were reminded of this recently when an IMF report was leaked to the Financial Times, which concluded that without relief, Greece faces an “explosive” surge in its debt burden which will raise the debt-to-GDP ratio from somewhere around 180% today to over 250% by 2060.

It is evident that the current policy mix is simply not working. Imposing more austerity on Greece in the hope that it will be able start repaying its debts anytime soon, is nothing more than delusional. Already the economy is suffering from what can only be described as a depression with economic output around 30% below levels recorded at the start of 2008. And the more output is depressed, the less likely it is that the economy will be able to generate the revenue to ease the fiscal situation. This is, of course, not news. Most economists see no way out of the debt trap into which Greece has sunk. But the EU continues to believe that more of the same medicine needs to be applied, which of course is nonsense.

Such is the IMF’s disquiet over the situation that there is a real threat it will not participate in the next round of the Greek bailout package, as it believes this is simply to throw good money after bad. But if it were not to participate this would put Germany in an awkward position because it has insisted on IMF participation, largely because it does not trust its fellow EU partners to sustain the pressure on Greece to reform. Moreover, with crucial elections scheduled this year in the Netherlands, France and Germany, the window of opportunity to agree the next stage of the bailout package appears to be closing without the IMF’s support.

We have been through this Greek tragedy on a number of occasions, with the fraught summers of 2012 and 2015 still very fresh in the memory. The good news is that at least the Greek economy is not contracting further and it is posting a primary surplus (i.e. excluding debt interest payments). But this has only been achieved at great cost to the economy and people of Greece, and it cannot be sustained on the multi-year horizon that the EU desires. There are some things that the Greek government could do, of course. For one thing, it could ensure that citizens pay the taxes which they owe, which amongst other things would involve a clampdown on the shadow economy which some academic estimates suggest equates to 25% of official GDP estimates – the highest in the EU. The IMF adds that Greece also needs pension reform and should impose a safety net to help those most affected by the recent crisis.

But this is in many ways to miss the point: All this should have been done years ago. Indeed, my own estimates, produced in a 2014 paper, reckoned that even if the government had taxed only 25% of shadow activity starting in 1999, this would have been sufficient to reduce the debt burden by 40% of GDP and would have put the economy in a much better starting point when the crisis finally struck.

However, we are where we are, and the issue now is where do we go from here? For the last five years I have advocated substantial debt relief. Without it, the problems Greece has faced will not only recur but they will get worse. It is questionable whether other EMU partners will allow such relief. But rather than writing off debt completely, as is often suggested, perhaps one thing that could be considered is the establishment of a sinking fund. This would allow Greece to transfer a substantial proportion of its debt to an off-balance sheet fund which has no designated repayment date. In this way, Greece can focus on the remaining debt (whether it be half, or two-thirds) and not have to worry about the rest. It can set aside modest amounts, as and when finances allow, in order that over a multi-decade (or even multi-century) horizon, the debt burden is gradually run down. After all, it is a strategy which worked for the UK in the eighteenth century.

Alas, few investors will buy undated Greek consols, so the fund would have to be guaranteed by a body such as the ECB. But this would lay it open to the charge of monetary debt financing which is expressly prohibited by the Maastricht Treaty. Alternatively the IMF could step in, but given disquiet about its current role, that seems unlikely. But something must be done – and soon. If German public opinion further turns against granting aid to Greece, Grexit will once more become a reality.

Indeed, with Brexit now being set in motion, perhaps EMU members will be less willing to provide the support to maintain the integrity of monetary union than they were even two years ago. For all its tricky relationship with the EU, the UK is after all a net contributor to the budget and questions will be raised about why support is being provided to those which do not bring as much to the party. But if EMU countries wish to preserve their currency union, they will have to start thinking outside of the box or it will go the way of all such unions.

Rules are rules

All social and economic systems are based on rules. Some are necessary, some merely irksome, but they are all designed with a purpose in mind. All advanced societies live by a code designed to preserve social order, which is a prerequisite for economic advancement. Anarchic systems tend not to last long.

I was struck by this thought yesterday, following the UK Supreme Court’s ruling that parliament must be allowed to vote before the Article 50 legislation triggering Brexit is enacted. There are those who may disagree with the court’s ruling. Others may question whether it was necessary that the whole episode should have required legal involvement in the first place. After all, it would have been simple enough for the government to have acquiesced to demands for a vote, whilst preparing a pared down bill which parliament would find very difficult to reject – something that the government will now have to do anyway. But it is important to recognise that under English law, the courts exist to enact the law which is designed in parliament. The judgment handed down yesterday made it clear that the Supreme Court has no wish (or indeed, power) to rule on whether Brexit is a good or bad thing for the UK. It merely ruled that legislation put in place by parliament can only be repealed by parliament.

It was thus extraordinary to hear Iain Duncan Smith, a prominent eurosceptic MP – indeed a former leader of the Conservative Party – say in a radio interview: “There’s also the issue about who is supreme – Parliament or a self-appointed court ... I’m disappointed they've tried to tell Parliament how to run its business. They've stepped into new territory where they've actually told Parliament not just that they should do something but actually what they should do. I think that leads further down the road to real constitutional issues about who is supreme in this role.”

Rarely, if ever, have I heard a more crass statement from a British politician. It demonstrates a lack of understanding of how the UK judicial process works, which in itself is worrying from a lawmaker. As the writer of The Secret Barrister blog noted on Twitter “There's no issue about who is supreme between Parliament and Supreme Court. It’s Parliament. The Court expressly did not tell Parliament how to run its business. It clarified what it could not do unilaterally. The Supreme Court is not self-appointed. It was established by Parliament by section 23 of the Constitutional Reform Act 2005.” My own reaction was to question in what way a parliament, that his government wanted to be kept out of the process in the first place, was being told how to act? And the irony must have escaped him that somehow allowing parliament to demonstrate its sovereignty was a means of taking control that surely his Brexit campaign had been about all along?

But this goes to the heart of a deeper economic, and indeed social, problem. There is often a fundamental misunderstanding of the rules which are in place; why they are in place and the consequences of not adhering to them. To give a simple economic example, many people know that the Maastricht Treaty of 1992 specified that members of the single currency should ensure that their public deficit on an annual basis be kept below 3% of GDP. Fewer people know that this apparently arbitrary figure is based on the desire to stabilise the long-term debt-to-GDP ratio at 60% under the assumption that nominal GDP grows at a rate of 5% per annum (60% x 5% = 3%). Fewer still realise that if GDP growth slows, governments have to run an even tighter fiscal stance to stabilise the long-run debt ratio at 60%. Thus if growth were to permanently slow to 4%, this would require maintaining a deficit ratio of 2.4% (60% x 4% = 2.4%). Alternatively, governments will be required to run higher debt limits (a 3% deficit limit and 4% growth would allow governments to stabilise debt ratios only at 75% of GDP). Either way, the 3% deficit threshold has become an article of faith to be adhered to at all times, even though it is no longer appropriate in the current low growth environment.

As it happens, the consequences of failing to adhere to the fiscal targets are not particularly dramatic. But the fact that they are believed to be so has prompted EMU countries to embark upon a damaging round of fiscal austerity. The consequences of IDS’s failing to understand the nature of the English legal system are manifestly more worrying. Like a series of Chinese whispers, they are repeated until they become an article of faith which begins to undermine the basis of the legal framework and erodes trust in experts and institutions. This is how post truth societies emerge and gives rise to the series of untruths (or alternative facts) upon which the case for Brexit was made.

They say that rules exist for the obedience of fools and the guidance of wise men. But both fools and wise men need to know why the rules are there in the first place, or we all end up looking like fools.