The last days of empire?

Most of us are not privileged to witness major historical events at close hand. Even if we did, we would be unlikely to fully understand their significance. Imagine being present at the signing of the Magna Carta in 1215, little knowing that it would represent one of the first attempts to codify individual freedoms that would echo down the centuries. Nor would many people have seen the Ninety-five Theses supposedly pinned to the door of All Saints' Church in Wittenberg by Martin Luther in 1517, but we are all familiar with the resultant splits within the Catholic Church which were arguably a first step on the road to the Age of Enlightenment.

I raise these points because it is impossible to know whether what we are experiencing today reflects a fundamental shift in the way our societies and economies will operate in future or whether it is minor diversion on a path we have been following for the past 75 years. One of the motivating factors for thinking about this was an excellent article on the Mother Jones website by the historian Patrick Wyman who looked at the decline of empire. As Wyman put it, “the fall of an empire …looks more like a cascading series of minor, individually unimportant failures than a dramatic ending that appears out of the blue.” He also makes the point that whilst all societies face challenges and setbacks, what determines the survival of the status quo is the quality of the institutions which are able to define a response. At issue in large parts of the west today is whether the institutional framework is sufficiently robust to face up to the challenges of the 21^st century.

Just weeks away from the US election the world looks on to see whether the Donald Trump experiment will be brought to a halt or whether the process of institutional erosion will be given free rein to continue. In Wyman’s view, the future popular narrative of the relative demise of the US will pin the blame on Trump, “but it’s far more likely that the real meat of the issue will be found in a tax code full of sweetheart deals for the ultra-wealthy, the slashed budgets of county public health offices, the lead-contaminated water supplies. And that’s to say nothing of the decades of pointless, self-perpetuating, and almost undiscussed imperial wars that produce no victories but plenty of expenditures in blood and treasure, and a great deal of justified ill will.” This may not be the version of the US that you recognise or accept. But the wider point is that a country as institutionally strong as the US does not suddenly go from being the only superpower to sharing the stage with others in just four years. Other factors are at play. 

Why the economics matters 

The Nobel Prize winning economist Joseph Stiglitz points to “the growing concentration of market power, which allows dominant firms to exploit their customers and squeeze their employees.” This in turn has allowed shareholders and company managers to expropriate a bigger slice of the pie, leading to widening inequality and further fuelling the sense of resentment which led to Trump being elected in the first place. In Stiglitz’s view a small number of firms dominate key sectors of the US economy, which has allowed them to attain disproportionate political influence “and as the system has become more rigged in business’s favor, it has become much harder for ordinary citizens to seek redress for mistreatment or abuse.” 

To compound these problems, evidence compiled by the World Economic Forum suggests that US social mobility has slowed and maybe even gone into reverse. For generations, workers tended to earn more than their parents. However, the evidence suggests that those born in the 1980s whose parents were in the middle of the income distribution only have a 45% chance of earning more than their parents compared to 59% for those born in the 1970s and 95% for those born in the 1940s (chart below). This is not what the American Dream is made of.

One of the factors underpinning this result is the sluggish pace of wage growth. Real hourly earnings, for example, have increased by only 11.7% since the mid-1960s despite a significant increase in productivity. Moreover there has been particularly rapid growth in the price of services such as health and education. Consumers thus have to devote a much higher slice of their disposable income to educate themselves and maintain their health than they did 50 years ago. The income distribution has also become increasingly skewed in favour of the well-off. According to data from the Pew Research Center households towards the upper end of the income distribution have increased their share of wage income over the past 50 years, from 28% to 48%, at the expense of those in the middle, whose share fell from 62% in 1970 to 43% by 2018 (chart below).

This matters because it is this sense of dissatisfaction that Trump tapped into in 2016. But what is driving it? It may partly be due to the decline in trade union membership since the 1980s which has prevented organised labour from acting as a counterweight to rent seeking company owners. The application of new technology further adds to the pressure by pushing down on the wages of the less well educated segment of the labour force. Of course, these issues are not merely confined to the US – this sense of dissatisfaction was a driving force behind the Brexit referendum result in the UK – but they are more extreme on the other side of the Atlantic. The extent to which politicians are willing to tackle these problems will play a big role in determining how Anglo Saxon society and its economy will look in future and whether it will still be held an example for others to follow. 

And why the response of politicians matters even more 

According to Stiglitz “US corporate executives made sure that the vast majority of the benefits from the [2017] tax cut went into dividends and stock buybacks, which exceeded a record-breaking $1.1 trillion in 2018.” This reinforces the sense that Trump’s economic policies have benefited the rich at the expense of those who voted for him. Yet there is a good reason why this should be the case: Presidential hopefuls require a big war chest, to which big business is more likely to contribute if their interests will be served by the candidate. As the experience of Bernie Sanders illustrates, politicians who are prepared to tackle the redistribution question are unable to generate sufficient buy-in to be elected. Nor is the business capture problem confined to the US. Michel Cames and Eckard Helmers argue (here) 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 [diesel]” and they did so in tandem with the European Commission by selling it as a way to meet CO₂ reduction targets. Never mind the fact that it raised nitrous oxide levels, with all the attendant health consequences.

The danger in all this is that rising economic inequality and the capture of the political decision making process by big business threatens to further raise the degree of anger at the status quo. This could be used by future generations of nationalist politicians to pursue an agenda which makes that of Trump seem tame. The long-term health of the Anglo Saxon economy and the society which underpins it depends on it being seen to serve the interests of voters. After a decade of uncertainty in the wake of the financial crisis of 2008, and even more so at a time of the unprecedented Covid pandemic, the US and UK are crying out for someone to deliver genuine leadership and make voters believe that the economic system works for them. Failure to act before it is too late risks condemning the Anglo Saxon model to irrelevance. We may not understand the slow process of erosion as we live through it but it will surely be clear to future generations of historians.

How not to Excel

The UK authorities continue to demonstrate imaginative ways to screw things up in ways which would be laughable were they not so serious. The recent news that the number of reported Covid-19 cases jumped by 85% on Saturday and by another 78% on Sunday to leave them more than three times the figure reported on Friday has been blamed on a computer error. But it was not a major system failure arising from the complexity of the infrastructure. It was one of those dumb things that happen from time to time, like when the Mars Climate Orbiter was lost in 1999 after one piece of software provided output in imperial units to a routine that was expecting them in metric units.

In this instance, the agencies responsible for collecting the swabs for the Covid track and trace system delivered data in a CSV file, whose length is theoretically unlimited, to Public Health England (PHE) which imported it into an Excel spreadsheet. Unfortunately PHE failed to realise that a spreadsheet is limited to 1,048,576 row entries and 16,384 column entries. Data which exceed these limits are simply ignored, hence 15,841 positive test results were overlooked – as were the details of those with whom they had been in contact. As someone with a lot of hands-on experience handling datasets which regularly exceed Excel limits, I was very surprised that an organisation handling such volumes of data made such a basic error (for a small consultancy fee I will happily teach the health authorities to handle such datasets). 

Better tools for the job 

The issue resonated with me because over the course of recent months I have become very interested in the appliance of data science techniques to the collection and analysis of large datasets, particularly real time data. Whilst I am no expert, I know enough to recognise that Excel is not the appropriate tool. There are much better resources to handle data. If it is storage that the authorities are concerned with, a low cost solution would be to use a dedicated database such as Microsoft Access. Excel is great for dealing with relatively small datasets but it is completely the wrong tool for dealing with big data. Jon Crowcroft, Professor of Communications Systems at the University of Cambridge, was quoted as telling the BBC that “Excel was always meant for people mucking around with a bunch of data for their small company to see what it looked like … And then when you need to do something more serious, you build something bespoke that works - there's dozens of other things you could do. But you wouldn't use XLS. Nobody would start with that."

Nor is it necessarily the right tool for many economic applications. Back in 2013, it was revealed that a paper by Carmen Reinhart and Ken Rogoff contained a spreadsheet coding error which invalidated their result that GDP growth declines once public debt exceeds 90% of GDP. For years academic economists have been using systems such as Matlab and Gauss for much of their quantitative work. Whilst they are excellent for handling data matrices underpinning most econometric analysis, they come with a high price tag. This limits their use to those who have stumped up the licence fee and discourages those who merely wish to engage in low cost experimentation. 

Increasingly, however, the economics profession is moving towards the use of systems which can store data and conduct advanced analytics. Two of the most popular are the R software environment and the Python programming language. Both are free to download and each has a huge volume of online libraries which users can integrate into their own system. So far as most economic applications are concerned, the likelihood is that someone has already written a library to do the analysis you are interested in or there is something sufficiently close that minimal code changes are required. Since both can do what Matlab and Gauss can do, and they can be downloaded for free, what’s not to like? 

The cost of change 

Unfortunately, financial costs are not the only issue: a major investment in time is required in order to become proficient in any system. Since neither R nor Python are particularly user friendly at first glance, it is easy to understand why people are daunted by the prospect of getting stuck into what looks like some heavy duty coding. Moreover, those who many years ago invested time and effort in learning other systems need to be persuaded that the benefits of switching are worthwhile. In my case, I have yet to come across a system that handles structural macroeconomic models better than the Aremos system, whose roots extend back almost 50 years (a view that may not be shared by everyone but it is a system which has worked well for me for many years). However R and Python do a lot of other things far better so I have been experimenting with both. 

Examples: (i) Big data sets

At the outset I should declare my preference for R. This is primarily due to a number of system-related reasons, but Python can do all the things I am about to describe. A good place to start is the analysis of big data sets and anyone who has looked at the Google mobility data will run into the same problem as PHE did when looking at Covid data. Whilst it is possible to download the CSV file from Google’s website containing 2,621,847 records (as of today) it is not possible to load it into Excel. But R can handle vectors of more than 2.1 billion records so it is straightforward to download the data and do any required data manipulation before exporting it in the format of your choice. 

(ii) Natural language processing 

Another thing that R does well – although probably not as well as Python – is natural language processing. I may look at this topic in more detail another time, but suffice to say that last year I did some work in R to analyse the communication content of the Bank of England MPC minutes. Amongst other things, the analysis looks at the readability of the minutes by calculating the Flesch ease of reading index. We can also attempt to define particular keywords in context by identifying those words which are most closely associated with a specific term. Thus, for example, we can identify how often the word “inflation” is associated with those words representing concern (“worries”, “problems” etc.) thus allowing us to quantify the extent to which the BoE is currently worried about inflation (we can add further filters to determine whether the concerns are about overly-high or overly-low inflation). 

(iii) Scraping the web 

A lot of data sit on websites which in the past might have had to be typed in manually. Those days are long behind us. Numerous libraries exist in both R and Python which allow users to grab data from online sources. We can, for example, import data from Twitter which opens up numerous possibilities for analysing tweet patterns. One of the routines I regularly undertake is to scrape four-hourly data on UK electricity generation directly from Twitter as an input into my real-time economic analysis 

(iv) A bit of statistical fun 

For anyone who may be daunted by the thought of using systems such as R, the best way to get acquainted is to run some existing code and experiment with it yourself – something made more palatable if it happens to coincide with a subject that interests you. I will thus leave you with an example in the form of code (below) designed to extract data from the Fantasy Premier League database to predict my points score for last weekend’s fixtures. The top panel shows the code and the bottom panel displays the output. For anyone with a team entered in the Fantasy Premier League (and there are more than 6 million people around the world), all you have to do to customise the code by substituting your own team number into line 8 in the top panel (“entryid=…”). For the record I was predicted to score 54 points but in the end I scored a miserable 36. The code worked fine – the problem was that the algorithm which produced my expected points score was an exogenous variable over which I had no control thus highlighting the old computing adage of “garbage in, garbage out.”

Last word 

Whilst Excel is a fantastic tool for many of the day-to-day tasks we undertake, it is limited in what it can do. You can be sure that PHE will not make the same data mistake again. But the point of this post is to demonstrate that there are more appropriate tools for the job they are trying to undertake. You don’t have to be a rocket scientist to figure that out. The appliance of data science will suffice.

Two Angry Men

Those of you unfortunate enough to have watched the US Presidential (so-called) debate were witness to an event which gives democracy a bad name. Chinese officials wanting to demonstrate the superiority of their system could do worse than force the Chinese population to watch the debate in its entirety. It was devoid of form and content and was characterised instead by name calling and fractiousness. Whilst it always matters who wins the US election, this time feels even more important than usual. Moreover, it matters how the aftermath of the election plays out. If, as many fear, Trump loses the election but does not agree to a peaceful transfer of power this would take the US down a dark road from which it might be very difficult to return. However, whilst this is a risk, we should perhaps refrain from getting too far ahead of ourselves. Instead let us confine ourselves to looking at some of the many economic issues that did not get an airing.

Four years on

Four years ago, in what we thought was the most unedifying campaign in history, we were at least able to pick out some discernible economic policies. Both Donald Trump and Hillary Clinton set out a clearly defined tax policy, for example, and Trump gave fair warning of his protectionist trade stance. The economics is less clear cut this time around although that is because tackling the Covid-induced economic collapse and the resulting rise in unemployment are – or should be – priorities for Messrs Trump and Biden. Trump has raised the use of Twitter to an art form and has spent the last four years tweeting about the strength of the stock market as a barometer of the economy’s strength. Although the economy suffered a dramatic plunge in output in the second quarter, with the result that employment levels are back at early-2015 levels, the equity market is broadly back where it was prior to the March collapse. However, it is likely that voters will use the evidence of their labour market experience as a barometer of how strong the economy is rather than rely on the elevated level of the equity market.

It's the economy, stupid

One-term presidents are rare these days and in the last 100 years only Herbert Hoover (1932), Jimmy Carter (1980) and George H. W. Bush (1992) have served a full presidential term only to lose at the second attempt. In all three cases the weakness of the economy was the factor which undermined their efforts to win a second term. The economic position facing Trump less than five weeks ahead of the 2020 election is at least as bad as that facing his predecessors. The role of government in providing support is proving to be one of the more contentious economic policy issues. The Coronavirus Aid, Relief and Economy Security Act (“CARES Act”)  has provided support equivalent to an estimated $2.3 trillion (11% of GDP), whilst the Paycheck Protection Program and Health Care Enhancement Act chipped in another $483billion. Talks on further support are stalled in Congress and time is running out to reach agreement before the election, with the Republicans keen on business support measures whilst the Democrats are looking for more support for individuals (e.g. increased unemployment benefits).

Pressure on the Fed ...

The role of the Federal Reserve could also come under scrutiny after the election. Trump has frequently excoriated Jay Powell (whom Trump nominated) for not doing enough to support the economy even before Covid in a series of messages which are reminiscent of the way Turkish President Erdogan treats the Central Bank of Turkey. We can be certain that if Trump were to win in November the Fed will come under even greater pressure to bow to the demands of the White House. Trump has nominated Judy Shelton to the FOMC – a nominee who believes in returning to the gold standard and has in the past been extremely critical of the Fed. It is uncertain whether she would receive Congressional approval even if Trump were to win. It is pretty certain that she will not get the nod under a Biden presidency. But analogous to the way nominations to the Supreme Court have become another front in the culture war, so the Fed has become another unwilling participant in the war between the various political factions in the US.

... and China 

Whatever else happens, relations with China will dominate the next four years. Trump has made it clear that he is willing to do whatever it takes to ensure the US remains the top dog and the view from China is that he is trying to suppress China’s rise come what may. Just as matters seemed to be cooling earlier this year, events have since heated up again. Trump has demanded that Chinese firm Bytedance, owner of the app TikTok, sell its US operations; he has banned the sale of electronics components to telecom firm Huawei, and has threatened to delist Chinese companies from US stock exchanges. Although under a Biden presidency the China bashing may be less aggressive, the Democrats are not about to re-pivot towards Obama’s pro-Asia stance. Biden's proposed trade plan will confront China in cooperation with allies rather than acting unilaterally on trade, and he plans to tighten rules against corporate inversions to discourage companies from moving overseas.

Health and taxes

One of Trump’s signature polices was the 2017 Tax Cuts and Jobs Act which consisted of a large, permanent tax cut for corporations and temporary cuts to individual taxes that will expire in 2025. One consequence of the Act was that investors used the tax cuts to repatriate funds back to the US and channelled it into share repurchases and dividends, rather than wage increases or investment. Biden’s tax plans point to a swing in the other direction with tax hikes for wealthy individuals and a plan to raise the taxes on long term capital gains to the same rate as normal income. To the extent that the Trump tax plan supported the equity market, Biden’s plans are likely to be a lot less equity supportive.

Healthcare is another major economic issue particularly in the wake of the huge spike in Covid-related deaths. Having failed to repeal Obamacare the Republicans may be treading on thin ice on this issue. Obamacare is generally popular and the House rejected a serious effort to overturn it in 2017 on the grounds it would be a vote loser. We hear far less these days about the negatives of the policy although this does not preclude the Republicans from making another attempt to repeal it in the next four years. But such an attempt would never be passed by a President Biden. Healthcare will thus be one of those issues that the two sides of the political spectrum will fight over when there are less pressing things to worry about.

May the man with the best pitch win

Of course we heard none of this last night. But when it comes down to it the candidates have to realise that attacking each other is pointless – the man who wins on 3 November will be the one who makes the best pitch to restore the living standards of voters. It is hard to make a proper judgement from this side of the Atlantic but if the debate was anything go by, that person is not Donald Trump.

A shadowy cabinet

Thanks to my good friend Vladimir who is big in the security industry, I was able to obtain a verbatim transcript of this week’s Cabinet meeting. And they say fact is stranger than fiction.

Boris Johnson: Well good morning colleagues. It has certainly been, um, an eventful week but there is light at the end of the tunnel. Or maybe it’s an oncoming train, who knows? But nil desperandum, we are putting new restrictions in place to combat Covid-19. Brexit is going terribly well and I think it’s safe to say that people have forgotten all about last month’s difficulties with the exam results. I would like to take this opportunity to thank you all for your hard work. To give us a flavour of what each of you are up to, I want to go round the table and ask you to give us a brief synopsis of the things which currently concern your department. So, Dishy, sorry I … I mean, Rishi, maybe you could kick us off with a view from the Treasury.

Rishi Sunak: Thank you Prime Minister. Well as you know we are committed to phasing out the furlough scheme at the end of next month and I presented my new measures to parliament on Thursday. Unfortunately it won’t be as generous as the existing Job Retention Scheme. What we plan now is a scheme where we pay up to one-third of wages for any shortfall in hours worked, subject to employees working one-third of their normal hours.

BJ: That sounds very generous, Dishy. Sorry, I mean Rishi. Do you think I could take a sabbatical by working one-third of my usual hours and the taxpayer would fund the rest? And then I could get on with making some real money by going back to write for the Telegraph. After all I do have a wife, an ex-wife and six children to support. Or is it seven?

RS: Err, no. Sorry, that’s not how it works. Whilst we pay a third, the employer also has to pay a third.

BJ: But the taxpayer is my employer. So I could do one-third of my hours as usual funded by the taxpayer. Then the taxpayer could pay for half of the shortfall in hours whilst my employer, the taxpayer, funds the rest.

RS: Well Prime Minister, the taxpayer will only fork out a maximum of £697.92 per month.

BJ: Ah, not so good then. That’s not going to address my financial woes. I took a big enough pay cut to do this job in the first place. Honestly, how do people manage on £155,000 per year?

Dominic Cummings: Pity! If you worked a third of the hours, Boris, maybe you would do only one-third of the damage to my grandiose plans to restructure the economy.

BJ: Oh, ha-ha, Dom! I didn’t hear you come in. Wasn’t this meeting only for cabinet ministers?

DC: Don’t flatter yourself Johnson. I appointed half the cabinet!

BJ: Touché. One last question, Dishy. Sorry, er … Rishi. Doesn’t this all sound a bit expensive? I mean the plebs aren’t going to be happy if we have to put their taxes up to pay for it.

RS: Well the good news Prime Minister is that I have cancelled the Budget scheduled for November. So we won’t be announcing any tax rises this side of Christmas, though we will clearly have a bit of a deficit problem.

DC: Why don’t we just whack up the fines for people not complying with the new lockdown restrictions. That way we would enforce compliance with the new rules and claw back some money. Obviously there would have to be some exemptions. For instance, I’m not going to be paying any fines.

BJ: Obviously. Good idea, though. Let’s look into that. Now, Michael, let’s have an update on those Brexit preparations.

Michael Gove: Well Prime Minister, as you know we are three months away from finally being free of the EU which will allow us to do all those things that sovereign nations do. Like controlling our own borders.

BJ: Ah, yes, on that point. I’m hearing whispers about problems in Kent.

MG: Yes, well you see, it turns out that the road haulage industry has not been listening to a word we say and they have failed to make preparations for a no-deal Brexit.

BJ: The one we said wouldn’t happen? What seems to be the problem?

MG: Quite. Well it turns out that in the event of a no-deal Brexit this will mean customs checks on both sides of the Channel and it might lead to some big queues on the motorways towards Dover.

BJ: Worse than it is already? I was driven down there the other day and the traffic was horrendous. We were held up by an hour due to road works.

MG: It could get a tad worse. We are potentially looking at queues of up to 7000 lorries, meaning it would take a couple of days to clear the ports. Of course, it won’t always be that bad. Eventually, hauliers would realise the situation is so bad that they will stop delivering goods into and out of the UK, so the queues would diminish of their own accord. The slight downside with that is it might impact on food imports. Moderate avocado shortages and all that. The good news is we have a better solution.

BJ: Which is?

MG: We’ll put the customs border in Kent. So any lorries which don’t have the requisite paperwork can’t enter the county. All those Tory voters in Kent won’t see any horrendous queues. The genius of it is that with city centres deserted thanks to Covid, we can back up the lorries into urban centres such as London which is stuffed full of Labour voters, thus minimising the electoral damage.

BJ: Well it has its charms but I get enough grief from backbenchers about putting a border in the Irish Sea. We are trying to pass an Internal Market Bill in which taxes and tariffs are the same across the country. Now you tell me you want a border in Kent?

DC: You do realise that if we put the border in Kent, illegal migrants landing on the beaches will be able to claim that they are still in French customs territory and therefore cannot be sent back to where they came from because they’re still there?

MG: Don’t worry, Prime Minister. I have it on good authority that the French will cave. After all, they need us more than we need them.

BJ: Jolly good. I’ll leave it in your capable hands then. We’re running a bit short of time but I just wanted a quick update from Matt Hancock on the health situation. Everyone has dealt so well with the big issues that I’m sure you won’t want to let the side down.

Matt Hancock: Thank you Prime Minister. As you know, because you announced it, we implemented new restrictions which will force pubs and restaurants to close at 10pm. And I am confident that the world beating test, track and trace system will be in place soon.

DC: Good, because I believe we cannot process enough tests due to extremely high demand. And is it true that such high demand has meant we are running out of the chemicals to process the Covid tests?

MH: Look, if we make the tests free then obviously demand is going to be high. As for running out of chemicals, that’s fake news. You shouldn’t believe anything you read in a newspaper unless we leaked it in the first place. In fact the Test and Trace app is now ready to download as we speak.

DC: Except that the tests aren’t free. They are paid for by the taxpayer. As for the app, it doesn’t work on anything older than an iPhone6. And that’s a pity, Matt, because I want to collect all the information to build a huge database that I can let my team of data scientists loose on.

MH: Dom, this is irrelevant. What matters is we halt the spread of the disease. The latest plan is to lock students into their universities for the next six months and prevent them from going out and enjoying themselves. In this way we should be able to curb the rate of infection by next year, but also ensure that students do what they are supposed to do at university which is to study.

BJ: I’m not sure about that. When I was at university I partied hard for three years. Did I ever tell about that time at the Bullingdon Club when we had a Rolling Stones themed evening? It involved a lot of Goats Head Soup and Sticky Fingers as I recall, though I don’t think it had much to do with the albums of the same name. Anyway, I digress. Afraid I will have to call a halt to proceedings here. I have to dash off to listen to the Attorney General explain why our Internal Market Bill can break the law without actually breaking the law. So keep up the good work, and remember the old motto, Lex enim homines parum. Cheerio!

Here we go again

It was inevitable that we would see a sharp rise in Covid cases as the restrictions on social distancing were progressively eased over the summer, and we find ourselves celebrating the autumnal equinox with a big rise in infections and a major equity selloff as markets digest the implications of further lockdowns. It feels a bit like March all over again except that this time we have some idea of what we are letting ourselves in for. With the total of Covid deaths in the US today edging above 200,000 (roughly equivalent to the population of Salt Lake City), this should act as a reminder that the pandemic is quite literally a matter of life and death.

Turning first to the rising Covid infection rates, we should note that more tests are being carried out so it comes as no surprise that there are more positive results. The last time the UK 7-day average of cases burst through 3600 in early April, the daily number of deaths was already averaging 400-plus. Today it is running at just 22 – admittedly triple the number three weeks ago. According to estimates made by epidemiologists at the London Schoolof Hygiene and Tropical Medicine on Day One of the lockdown in March, around 100,000 people were being infected every day but at the time the official statistics were showing just 1000 new cases per day. One worrying development is that the number of positive cases relative to the total number of tests has picked up recently and it is now running at its highest since late-May. Roughly 2% of all tests show a positive result compared with 0.6% in late-August (chart). For the record, in early-April more than 35% of all tests registered positive though this is because initially testing was restricted to hospital patients.

We have learned from experience that the trends in other European countries should be followed closely. In March, Italy was the canary in the coalmine. Currently, we should be paying close attention to trends in France and Spain where the 7-day average mortality rate has risen from less than 10 in mid-August to 53 and 107 respectively. It thus should not come as any surprise that Boris Johnson announced a further raft of UK restrictions including the forced closure of pubs and restaurants at 10pm each day and the scrapping of efforts to open up sporting events to crowds from October. With official guidance now exhorting workers to work from home wherever possible, this marks a U-turn from previous policy to force them to return to the workplace. Whilst it is easy to criticise governments for the about-turn, it does appear to make sense to put some form of restrictions in place if we are to avoid over-burdening an already overstretched health service.

But it is less the imposition of restrictions that are the problem than the ill-judged rush to get people back into the office in the first place. Although government ministers did continue to highlight the risks of a second Covid wave, their actions were inconsistent with this caution. More than 64 million meals were served up at restaurants under the government’s Eat Out to Help Out scheme during August. Bringing people together in this way is likely to have played a role in facilitating the spread of the disease. Nor is it any surprise that the rate of infections has risen as schools across Europe reopened from late August. According to a study published last month in The Lancet the reopening of schools needs to go hand-in-hand with a coherent track and trace system in order to keep infection rates down. As the authors note in the case of the UK, “reopening of schools together with gradual relaxing of the lockdown measures are likely to induce a second wave that would peak in December, 2020, if schools open full-time in September, and in February, 2021, if a part-time rota system were adopted.”

Indeed, here we have the nub of the problem: The track and trace system has been a complete shambles. Just to give some anecdotal flavour, a friend of mine works in the NHS and was seconded to the testing team in the spring. He recently quit the role citing the shambolic nature of the organisation, and a lack of experience on the NHS Test and Trace board only one of whom has a background in public health. This rather supports the lurid media stories reporting the difficulties people face in obtaining a Covid test anywhere near their home (another friend faced a 110 mile round trip for their test, only to find that after they were not given the results within the mandated period, the testers claimed to have “lost” them). 

One of great misnomers is that the system goes under the banner of NHS. But in fact large parts of the testing have been subcontracted to private sector companies (talk about destroying a brand!). This is another illustration of the point I have made numerous times on this blog that the private sector often struggles to generate the scale necessary to manage big projects. Yet all this aside, there was a case for a limited reopening of the economy over the summer. However, it needed to be backed up by a coherent testing infrastructure and in the UK we are not at that point yet.

Medical experts are not particularly enthused by the new measures. Paul Hunter, professor of medicine at the University of East Anglia was quoted as saying “It is doubtful that the measures currently being enacted will be sufficient to reduce the R value to below one much before this side of Christmas.” Indeed, closing pubs at 10pm when people have been drinking for the previous 2-3 hours seems to be at best a marginal response.

As for the economic implications, it seems likely that the burden on the service sector will increase still further. Just when it thought it had a fighting chance of survival, additional lockdown rules will deal another heavy blow. The furlough scheme has so far prevented the worst of the recession from hitting the labour market, but it is set to be phased out at the end of October. So far the government has given no indication that it plans any extension. But by imposing restrictions on the economy, voters will expect some form of quid pro quo. There are suggestions that the Chancellor is considering a scheme in which companies would pay staff for the time they are at work, while the Treasury would cover part of their wages for time when they have no work (similar to the German Kurzarbeit system). This is naturally going to come at a big financial cost.

One of the calls made during the lockdown is for a more coherent approach to pandemic planning. Although the government claims to have followed the science, there is an argument that says a whole range of disciplines need to be involved in setting up a national contingency plan (as Tony Yates pointed out here). It is right that societies do their best to protect their citizens and we have to give governments credit for that. But this does come at a huge cost – financially and in other ways – which means that we need to have a proper debate about weighing up the costs and benefits. Governments will be judged on how they reacted to the pandemic and just as they have outsourced aspects of monetary and fiscal policy to experts, there is a strong argument to suggest that at some point we will have to consider outsourcing pandemic planning as well.

No-one is above the law

Since early 2016 the well of public debate has become increasingly poisoned by rising levels of mendacity. It had been occurring before that, of course, but the Brexit referendum campaign brought out the worst in the political class with both sides – but especially the Leavers – making increasingly outrageous claims. One of the lasting consequences of the referendum is that public figures have realised that since there are no sanctions for lying in public debate, this tactic can be repeatedly applied. At some point, however, the lies begin to catch up with you. This week marked such a point with the government apparently intent on trashing its international reputation with its blatant willingness to break international law in order to secure the Brexit deal it wants. 

What happened? 

Earlier this week the UK government presented the Internal Market Bill (IMB) which, as a government minister admitted to parliament, would “break international law in a very specific and limited way.” That is a bit like saying a criminal charged with theft could claim that since they were not charged with murder, they breached only a limited part of the law in a specific way. The legal profession was quick to point out that the Attorney General’s defence of this action was “risible”. The shadow Attorney General noted: “The rule of law is not pick and mix, with acceptable laws chosen by the home secretary or an adviser in Number 10.” Such was the strength of feeling within the civil service that the head of the UK government’s legal department resigned. Clearly this action flies in the face of the image that the UK has tried to project for decades that it stands for the rule of law, and has prompted warnings from three former leaders of the Conservative Party that it threatens to undermine the UK’s standing on the world stage. So why has the government taken such a stance? 

What is the government trying to do? 

The government’s biggest concern is that the Withdrawal Agreement, drawn up by the UK and EU in October 2019 and passed into British law in January 2020, draws a border between Britain and the island of Ireland which runs down the middle of the Irish Sea. This has significant legal and economic consequences. One of those consequences is the treatment of state aid which underpins the enforcement of the European single market. In the Northern Ireland Protocol of the Withdrawal Agreement, Article 10 makes it very plain that “the provisions of Union law [relating to state aid rules] shall apply to the United Kingdom.” In other words, the limits on state aid which were in force when the UK was a member of the EU will also apply in the event that the Withdrawal Agreement comes into effect.

In the IMB legislation presented this week, the Bill states that “Regulations … may (among other things) make provisions – (a) about the interpretation of Article 10; (b) disapplying, or modifying the effect of Article 10”. Clause 45 of the IMB goes on to say the provisions in the bill “have effect notwithstanding any relevant international or domestic law with which they may be incompatible or inconsistent.” In other words the government has given itself carte blanche to take actions which are unlawful. This is not “a very specific and limited” breach of the law. The government intends to drive a coach and horses through it.

What is the point of such action? 

A number of well-placed sources have reported that the UK has taken specific exception to state aid rules because it wishes to provide support to the tech industry as the economy repositions for the digital age. Ironically, the UK has traditionally been opposed to state aid to support particular industries. According to the EU’s State Aid Scoreboard the UK share of state aid spending in 2018 was 0.34% of GDP versus an EU average of 0.76%. It could thus double its support and not be out of line with the rest of the EU. Without knowing exactly who in government is pushing the idea, we know that Dominic Cummings, Boris Johnson’s key adviser, is passionate about all things tech. According to Cummings: "Countries that were late to industrialisation were owned/coerced by those early (to it) ... The same will happen to countries without trillion dollar tech companies over the next 20 years." 

But the UK’s efforts to back industrial winners over the last 70 years have been abysmal. British Leyland, the former state-owned car giant, was a microcosm of all that was wrong with state-backed capitalism: Management which did not know how to manage organising a labour force which did not want to work to produce cars for a public which did not want to buy them. Previous efforts to back tech companies include ICL, formed in 1968 to create a British computer industry that could compete with major world manufacturers like IBM - an experience that did not end well. ICL was sold to Fujitsu in 1990. Nor did the Conservative government raise any eyebrows when ARM was sold to Softbank in 2016. In any case, for all the noises about generating tech titans to compete on the world market, the UK will not be able to develop one if it is unable to sell into the European market. And that is precisely what will happen if the current spat results in no trade deal between the UK and EU. 

Implications 

It is worth noting that the agreement which Theresa May’s government reached with the EU did not envisage a border in the middle of the Irish Sea. In her words to parliament, “no UK Prime Minister could ever agree to” such a plan. Her government therefore reached an agreement with the EU which created a UK-wide ‘single customs territory’, avoiding the need for customs checks between Great Britain and Northern Ireland although the province maintained regulatory alignment with the EU. But Northern Irish politicians objected because it would have introduced differences in regulation between Northern Ireland and the rest of the UK, even though a majority of the population were in favour. Hardline Brexiteers (including Johnson) objected because it would have meant the UK remaining in a customs territory with the EU, removing the UK’s ability to vary its tariffs. Therefore the plan which the Johnson government signed up to allowed the UK to vary tariffs but in return reintroduced the sea border. 

For anyone in government to argue that they did not understand the implications of the plan is disingenuous. This was a plan the Johnson government negotiated and signed up to in October 2019; sold to the electorate during the election campaign (“Our deal is the only one on the table. It is signed, sealed and ready”) and was passed by a majority of 331 to 231 in the House of Commons on 9 January. Johnson owns this – there is no getting away from that fact. So why undertake such a stupid act? 

Perhaps one of the objectives is to prompt the EU to walk away from negotiations, thereby delivering the no-deal Brexit which some in government appear to want. With the EU rather than the British government withdrawing, the government could then blame the adverse economic fallout on the EU. But the experienced EU negotiators are smarter than to fall for that trick and have instead called for the UK to withdraw its plans to override the Withdrawal Agreement by end-September or potentially face a legal challenge. The US has also applied pressure with Nancy Pelosi, speaker of the House of Representatives, warning that if “Brexit undermines the Good Friday accord, there will be absolutely no chance of a US-UK trade agreement passing the Congress.” The Johnson government is thus looking ever more diplomatically friendless. Going ahead with a policy which jeopardises a trade deal with both the EU and the US would be the height of stupidity.

As to how all this ends, the next few days will tell. The IMB may fail to pass the House of Commons if sufficient MPs rebel against the government. It may be blocked in the Lords where by convention manifesto commitments are not blocked (the Salisbury Convention), but a policy which contravenes promises made to the electorate is likely to promote significant resistance. It may even be passed into law! However, I maintain that there is still a Brexit deal to be done but the limits of what the EU will tolerate are being tested. Whatever happens, this is a government which is rapidly losing the trust of large parts of the electorate as well as unsettling the international diplomatic community. At a time when it is drawing up new measures to combat the spread of Covid-19, it would do well to remember that they will only be successful if people comply with the law. And as last year’s legal challenge made clear, even the government is not above the law.