Two cheers for technocracy

Who needs experts? The minimum wage was once an example of the triumph of technocracy, where decisions are delegated to experts to depoliticise them.

The Low Pay Commission was set up to balance competing priorities – increasing wages without creating too much unemployment. If you were a moderate who thought the minimum wage was a good way of boosting low wages, but recognised that it might also create unemployment, the LPC gave you a middle ground position. (For what it’s worth, I’m an extremist.)

That technocratic settlement also allowed politicians to, basically, safeguard against an ignorant public. By delegating decisions like this to experts, bad but politically popular policies could be avoided. Relatively well-informed politicians could avoid having to propose bad policies by depoliticising them.

Other examples of this include NICE’s responsibility for deciding which drugs the NHS should and shouldn’t provide, and the Browne Review that recommended student fees, which had cross-bench support. The old idea that “you can’t talk about immigration” comes from an informal version of this – everyone in power knew that people’s fears about the economics of immigration were bogus, so they were basically ignored.

But that technocratic settlement now looks dead. Labour has now made a specified increase to the minimum wage part of its electoral platform, following George Osborne’s lead earlier this year. That means that voters will have to choose not just between two rival theories about the minimum wage, but two competing sets of evidence about whether £7/hour or £8/hour is better, given a wage/unemployment trade-off.

Whether voters are self-interested or altruistic doesn’t really matter. A self-interested low wage worker would still need to know if a minimum wage increase would threaten her job; an altruistic voter would similarly need to know a lot about the economics of the minimum wage and the UK’s labour market to make a judgement about what level it should be.

And of course the minimum wage is just one of dozens, if not hundreds, of questions that political parties offer different answers to that voters have to make a judgement about.

In practice this does not happen. Voters are very uninformed about basic facts of politics, and are almost entirely ignorant about economics, which almost everyone would agree would be necessary to make the correct judgement about something like what the minimum wage level should be (even if they didn’t agree on which theories and evidence was relevant). Even the use of rules-of-thumb such as listening to a particular newspaper or think tank (ha) will suffer from the same problems.

Voters, then, face a nearly impossible task. Assuming they are bright, well-intentioned, and believed that it was important for them to cast their vote for the party that would have the best policies, they would have to amass an enormous amount of information to make the right decision on all the questions they, in voting, have to answer.

So voters are trapped. They cannot know what minimum wage rate is best any more than they can know what drugs the NHS should pay for. They are, empirically, very unaware of basic facts, but they would find it hard to overcome that even if they wanted to.

Does democracy make us free? Maybe, but it’s the freedom of a deaf-blind man – we can choose whatever policy we want, without any idea about what those policies will actually do. So, if the alternative is more direct democracy like this, maybe technocracy isn’t so bad.

The end of an auld West Lothian song

The Scottish National Party leader Alex Salmond loves causing trouble (as many contemporaries of mine from the University of St Andrews relish as well). He must be grinning, because despite losing the independence referendum in Thursday, he has really put the Westminster politicians in a stew.

Before the vote, to buy off wavering Yes voters, all the main political parties in Westminster signed a pledge to give more powers to Scotland anyway. On Friday, UK Prime Minister David Cameron correctly declared that if Scotland was getting more power, then people in Wales, Northern Ireland – and particularly England, the only bit of the UK without devolved powers – would expect nothing short of the same.

He is right, even if that reality only made itself plain after the more-powers pledge had actually been signed. And having set the idea running, he realizes that he has to initiate a House of Commons vote on English devolution before the June 2015 UK general election.

Labour leader Ed Miliband is currently refusing to back any such plan, calling it a ‘back of the envelope constitutional change’. He has a point: Westminster politicians are remarkably cavalier about how they change the UK’s constitution. A small public company cannot change its rules just on a majority vote of the directors, so why should a large government be able to change its rules on a simple majority in Westminster? But his real concern is to ensure that the large number of Labour MPs that Scotland sends down to Westminster can still vote on everyone else’s business, the ‘West Lothian Question’.

The impish Alex Salmond will be chuckling at the stooshie he has created. Some say we should devolve powers down to the English cities and local authorities. Others say we need a proper English Parliament. A few talk about barring Scottish MPs from voting on English-only laws.

But devolution of power to the local authorities is a non-runner. We have been promised it for decades, but it has never really happened, and nobody trusts that it will now. As for an English Parliament – well, we have seen the expense of the Scottish one (the extravagant building alone cost ten times its original estimate) and its notoriously poor quality (stuffed, inevitably, with failed local councillors and superannuated MPs).

The simple solution to devolution, all those years ago, would have been to form English, Scottish and Welsh parliaments out of their respective Westminster MPs; and have them meet at Westminster in the mornings on their own country business, then together on UK business in the afternoon. Yes, there will be a few arguments about which matters are ‘UK’ and which are ‘English’. But the solution is costless, and without adding an extra tier of government, you get home-grown politicians of some quality deciding home-grown issues. It is the obvious solution for England. And the end of an auld West Lothian song.

£8 minimum wage hype: political trick, economic disaster, moral outrage

Britain’s Labour Party leader Ed Miliband says that a Labour government would boost the national minimum wage to £8 an hour, an increase of about £60 per week, by 2020. He says the UK economy is booming, and the low-paid should get a bigger share of it.

Actually, at present rates of growth, the minimum wage will be close to £8 in 2020 anyway, so this is a one of those political sensations that doesn’t amount to much. Even so, it is foolhardy now to commit UK businesses to pay any specific figure in 2020, since anything could happen in the meantime.

The minimum wage gets unthinking politicians (and not just Labour leaders) dewy-eyed. ‘We can’t have people being paid a wage that isn’t enough to live on.’ ‘Businesses should pay their workers more, and take less profit.’ ‘The minimum wage hasn’t killed jobs as the doomsayers say.’ You know the story.

In fact, high minimum wages do destroy jobs. in particular, they destroy those starter jobs, the low-paid, temporary jobs that once gave young people their first step on the jobs ladder – pumping petrol (as I did), stacking bags in supermarkets, ushering people to their seats at the flicks. Now those jobs don’t exist, because they are not worth the minimum wage (plus all the National Insurance and the burden of workplace regulation that goes with them – a particular burden on small firms). So we have a million young people out of work.

As for profit, try using that argument on anyone running a small business, already weighed down by taxes, rates, and regulation. Often they are getting less than their lowest-paid employees, and working longer hours for it Higher minimum wages mean they can afford to employ fewer people, or provide less generous perks and conditions.

I don’t want to live in a country where people can’t afford to live on what they take home either. That is why we have a welfare system, to top up the earnings of the lowest paid. We need a negative income tax – above the line, you pay tax, below the line, you get cash benefits – structured so that you are always better off in work than out of it. A paying job, even a low-paid job, is the best welfare system the human mind can devise.

And we must take low-paid people out of tax and national insurance entirely. Then more small firms could afford to take on more low-skilled workers and give them that first step on the jobs ladder.

If we could simply vote ourselves higher pay, why stop at £8? Why not fix the minimum wage at £800 an hour. The answer is obvious. The only people who would be worth that amount to anyone would be a few Premier League footballers, rock stars, investment bankers and high-class hookers. The rest of us would be out of a job.

The minimum wage does no harm to people who are already earning it, though it does them no good either. But it does positive harm to those earning less, or those who cannot get a job at all. The former will be let go, or will have to endure worse conditions; the latter will find it very much harder to get a job. And all that, of course, has already happened.

Quelle Surprise: Nick Stern wrong again

We’ve yet another attempt from Nicholas Stern to persuade us all that beating climate change would actually be good for the economy. Fortunately we’ve also got Richard Tol around to tell us what’s really going on here:

The original Stern Review argued that it would cost about 1% of global GDP to stabilise the atmospheric concentrations of greenhouse gases around 525ppm CO2e. In its report last year the Intergovernmental Panel on Climate Change (IPCC) put the costs twice as high. The latest Stern report advocates a more stringent target of 450 ppm and finds that achieving this target would accelerate economic growth.

This is implausible. Renewable energy is more expensive than fossil fuels, and their rapid expansion is because they are heavily subsidised rather than because they are commercially attractive. The renewables industry collapsed in countries where subsidies were withdrawn, as in Spain and Portugal. Raising the price of energy does not make people better off and higher taxes, to pay for subsidies, are a drag on the economy.

Just not impressed there is he?

There are some eminently sensible things that could be done, things that would have the effect of reducing climate change into the future. Poor and oil producing nations throw $600 billion a year in subsidies at fossil fuel use for example. Stopping that would be a sensible thing to do: but it would be a sensible thing to do simply because it’s a sensible thing to do. The effect on climate change is just an added benefit.

But the most important part of this latest report is this:

“Well-designed policies … can make growth and climate objectives mutually reinforcing,” the report claims.

Yes, that’s entirely true. But as Tol also points out:

But low-cost climate policy is far from guaranteed – it can also be very, very expensive. Europe has adopted a jumble of regulations that pose real costs for companies and households without doing much to reduce emissions. What is the point of the UK carbon price floor, for instance? Emissions are not affected because they are capped by the EU Emissions Trading Systems, but the price of electricity has gone up.

There’s an awful lot of weight resting on that “well-designed” there. In fact, absolutely every report, yea every single one, that has concluded that we’d be better off trying to avert climate change than to go through it has been running the numbers on the politicians using sensible methods of aversion rather than not sensible ones. And yet when we see what those same politicians actually enact on that evidence base they’re not sensible policies. Thus the justification they’re relying upon doesn’t in fact exist.

Of course poverty traps exist: but they’re possible to escape

povertytrap

Over at The Economist some musing on whether there really is a poverty trap that developing economies can get stuck in. and the answer is yes, of course there is: but also that it’s potentially possible to escape such traps.

DO POVERTY traps exist? Academics seem to think so. According to Google Scholar, so far this year academics have used the phrase “poverty trap” 1,210 times. (Paul Samuelson, possibly the greatest economist of the 20th century, was mentioned a mere 766 times). Some of the most innovative work in development economics focuses on how individuals’ lowly economic position may be perpetuated (geographical and psychological factors may be important).

But, says a new paper by two World Bank economists, the idea of poverty traps may be overblown. They focus on national economies and present some striking statistics. In the graph below, a country that manages to get to the left side of the line has seen real per-capita income improvement from 1960 to 2010.

So that’s the empirical evidence. But there’s also a basic logical point that we can make.

Three hundred years ago all countries were poor. Now some countries are not poor and some countries still are. It’s thus logically certain that it is possible to escape whatever poverty traps there are. For some places have done it. It’s also equally true that there must be things that prevent that economic growth from happening for some places haven’t had that economic growth. Thus we can assert, without possibility of contradiction, that sure, there are poverty traps but there’s nothing inevitable about them at all. It is possible to escape for some have done so.