May News Roundup
In this instalment, there are stories relating to health and the welfare bill, utilities, the value of work, insurance markets, monetary policy, tariffs and trade, artificial intelligence and the environment, as well as a review of our latest book
Health and Productivity
Faced with a an increasing benefits bill, driven in part by long time sickness, the Treasury is considering the possibility of wider access to weight loss jabs, following research based on government modelling which suggested that such jabs could save tax payers some £5 billion annually by increasing productivity and reducing unemployment or absence through sickness.
With separate research indicating that obese people are twice as likely to be off work, loosening the restrictions on access to such drugs has the potential to boost the economy, lower welfare costs, reduce strain on the health service and improve individual health, while increased economic activity generates revenue for public services:
A Further Review
A second review of our recently published book by Brian Griffiths, Inflation is About More Than Money:
Tariffs and Trade
Against claims that tariffs will rejuvenate American industry, as happened in the past, this article contends that American economic supremacy actually arose from innovation, efficiency and international economic integration.
Tariffs lead to special-interest lobbying and a decline in competition, which is the driver of innovation and productivity – and without protecting workers:
Water Companies and the Market
Why are water companies apparently letting their customers down in a variety of ways? Are their failings indicative of a failure of markets?
In the absence of genuine competition and scattered regulation, there is a strong case for suggesting that this is not a case of markets ‘not working’ at all. Moreover, the capital demands in water supply are vast compared to revenue, which makes maintaining infrastructure difficult and expensive, to the point at which companies often require constant injections of new money.
In consequence of this, such companies are not attractive to investors and they have therefore relied on debt to be able to pay dividends – a practice which appears to be encouraged by the UK’s tax regulations. All of this has led to poor performance, reputational damage, public criticism and fines – and now significantly increased bills for customers:
Savings
The Chancellor of the Exchequer is said to be considering changes to the ISA market, with a view to encouraging greater retail investment in the UK. This might mean limiting the amount that can be held tax-free in a cash ISA, with a view to supporting the economy by getting ‘the balance right between cash and equities’:
Amid speculation that the Chancellor is considering alterations to the provision of ISAs, perhaps by reducing the amount of cash that can be saved tax-free, there are questions about whether such a move would indeed result in greater investment in UK stock market as hoped. If not, then what is the real benefit of the reform, beyond greater tax yields on savings?
Artificial Intelligence
Insurers at Lloyds of London are to launch a product that covers companies for losses caused by failures in AI technology, for instance, those occasioned by the company being sued by a customer who claimed to be harmed by an AI malfunction.
Cover already exists in some policies for such losses but levels are fairly low. Importantly, the new product would result in a pay-out if the insurer judged the AI to have performed at a level below that initially expected. It is thought that the existence of such specific insurance will help to encourage the adoption of AI by businesses by allaying fears connected with possible failures:
Functioning on statistical correlation rather than empirical observation, and lacking any baseline concept of truth, let alone a grasp of its value, can AI models really ever be the ‘truth machines’ that some hope for – particularly when attempts to fine tune and correct them can simply introduce new forms of bias or distortion?
The latest version of ChatGPT, called o1, has displayed tendencies to advance its own goals and defy human commands when these were contrary to the model’s objectives. During testing, when led to believe it would be shut down, o1 attempted to disable a mechanism, overwrite code and copy itself. This appears to have been in response to programming instructing the model to pursue its own goals, but in the majority of cases, the AI would not ‘confess’ to what had occurred:
The Value of Work
In this article, Robert Hughes-Penney – Investment Director at Rathbones, Alderman in the City of London and adviser to CEME – discusses the idea of work as a calling: a locus for the beginning of ethics, where we develop notions of responsibility, purpose and achievement:
The Risks of Monetary Policy Responses to Financial Problems
Has the Bank of England been too ready to use quantitative easing to address financial problems? If the Bank creates money for the purchase of government bonds in order to reduce the cost of borrowing and pays interest on the deposits of commercial banks, there is a risk of inflation – but a further problem emerges when interest rates climb: the interest paid on commercial deposits begins to rise above the returns from government bonds. When this occurs, the question arises of whether the bonds should be sold on and if so, at what price. Might they be sold too cheaply? Is it possible that monetary policy responses of this kind have been used too readily since the financial crisis of 2008?
Environment and Sustainability
The British company, Union Maritime, has orders for oil tankers that combine both diesel and wind propulsion courtesy of new fibreglass sails of 123 feet in height. It is expected that the use of such sails, known as WindWings, will save about 1.5 tonnes of fuel per day. The first ship to use WindWings is to be launched from a shipyard in Shanghai in the coming weeks:
Insurance and Markets
Steep rises in insurance costs following the recent wildfires have raised questions about California’s regulation of insurance premiums. With restrictions on the amounts that insurers can charge, as voted for by residents, insurance companies unable to charge market rates are increasingly reducing cover or leaving the state as a result of high property values and increasing risk of damage. Perhaps a return to a free market system for insurance would lead to insurers being able to distribute costs according to risk more efficiently, while also incentivising people to protect their homes against fire and reducing the likelihood of people dwelling in more risk-prone areas: