Turning points

There have been turning points in the development of humankind.  Some would point to the ability to make fire and the effect it had on people’s diet and survival chances.  Undoubtedly the development of agriculture about 12,000 years ago and the domestication of grains and livestock enabled humans to become a settled species and to store value against adversity.

For most of the time men and women have been on this planet they have lived a meagre existence at subsistence level, vulnerable to storms, drought and crop failure.  Something happened about three centuries ago that changed that for an increasing proportion of Earth’s population.  It was undoubtedly a turning point when people began to use some of their resources as capital to generate wealth. 

Social and intellectual changes played their part in fostering a culture of experiment, innovation and investment.  Led by Britain, the Industrial Revolution set humankind on an upward course of wealth creation that has lifted large and increasing portions of humankind out of starvation and misery.  The wealth generated by the use of capital has made possible a secure and adequate diet as well as modern medicine and sanitation.  It has enabled widespread access to education and healthcare.  It has profoundly altered the conditions of life along with the other major turning points.

Capitalism has spread and is spreading its benefits across the world.  It is not to Socialism that we owe lifestyles replete with opportunities as well as comforts.  By concentrating on the creation of new wealth instead of the mere redistribution of existing wealth, capitalism has set humankind on an upward path of limitless development.  In place of envy of those who have more, it provides space or what Adam Smith called “the uniform, constant and uninterrupted effort of every man to better his condition,” and of course it applies equally to women.

It seeks not a fairer world but a better one, not equality but opportunity.  It works with the grain of the real world rather than attempting to impose a preconceived mental pattern upon it.  It works by improvement and evolution, not by revolution.  Even though this seems obvious, it is worth repeating from time to time to people for whom this is not so.  When people are tempted by the fantasy world of Socialism, it is worth reminding them of the real-world achievements that Capitalism has brought about and Socialism never has and never can.

No, prefabs are not the housing crisis solution

There’s a short answer to this question posed in the Telegraph:

Are prefab boxes the answer to Britain’s severe housing shortage?

That answer being “No”.

There’s a longer possible answer as well: “No way”.

Because, as the article itself goes on to point out, the problem is not in fact the cost of housing:

“The nature of London property prices in particular makes moving house impossible. We want to prove prefabs can be cool – if you have spare land, why not have an extra bedroom. And you can take it with you if you do move, “ said Lee Thornley, co-founder of Bert & May.
He adds that prefabs are a cheaper alternative to costly extensions, as planning permission isn’t required for structures that are counted as mobile homes.

That “cheaper” part isn’t quite right:

Bert & May Spaces, which launches its units next month at design show Decorex, will sell three types of units. The smallest will be a one-roomed box retailing for £25,000, a one-bedroom unit will be available from £75,000, while the most expensive will be the two-bedroom option at £150,000.

Because any form of volume building operation will have a build cost of better than £150k for a two bedder. However, accepted, the total cost, when including that planning cost, might well be lower. But at this point we need to note that it isn’t the cost of building houses that is the problem. It’s the cost of negotiating the planning system.

That is, prefabs, classed as mobile buildings, are an arbitrage around the planning system. Meaning that our problem is in that planning system, not in building nor the cost of it. Our solution must therefore be to do with the planning system as that is the root cause of our problems.

It’s possible to be reformist here and suggest minor changes and tweaks to the system. But we are increasingly of the opinion that that’s just not going to work. We’re not entirely convinced that incremental reform is impossible but very nearly so. Thus the solution is simply the wholesale shredding of the Town and Country Planning Act of 1947 and all the subsequent updates to it.

The real importance of this solution is that we know that it would actually work. It’s said that we need 250,000 new homes a year: the last time the private sector managed this was in the 1930s, before planning became so constipated restricted. And what was constructed was exactly what gains a significant premium in today’s market: the 1930s suburban house, the very thing which people fight over to buy in the Home Counties.

That is, the last time the market was left free to build houses for the people the industry built the houses that the people wanted, where they wanted them. Our current system does not manage that so why not blow up that current, nonfunctional, system and retreat back to the last one we had which actually worked?

Out today: The Oxford Handbook of Austrian Economics

Released today, The Oxford Handbook of Austrian Economics (edited by Peter J. Boettke and Christopher J. Coyne) contains contributions from two of our Senior Fellows: Kevin Dowd and Anthony J. Evans. In his chapter, Evans takes an Austrian look back at the causes of – and the lessons we can draw from – the UK’s 2007 Financial Crisis. Focusing on regime uncertainty, he rejects both the idea that the crisis was “caused by greedy bankers, complicit politicians, or capitalism itself” and the prominence of analysis that overstates the role of incentives in the run-up to the crisis. Instead, he takes the view (with reference to the work of Jeffrey Friedman, among others) that

There is far more evidence to suggest that it was ignorance and error that caused the crisis and that theoretical issues such as regime uncertainty, big players, recalculation, price naiveté, trading strategies, and corporate governance deserve closer attention.

And that

Allowing insider trading (to improve market efficiency) and reducing barriers to entry and exit (so that foreign banks can provide additional competition) help to thaw the economy and to solve the knowledge problem.

That “ignorance, not omniscience, is the norm” (and a well-functioning price mechanism is the only feasible method by which to ameliorate that problem) is a point too rarely made in reference to the crisis, which is most often blamed on the greed of bankers or the laxity of financial regulations.

As well as being a Senior Fellow of the ASI, Anthony J. Evans is Associate Professor of Economics at ESCP Europe Business School in London and a member of the IEA’s Shadow Monetary Policy Committee.

You can buy The Oxford Handbook of Austrian Economics here, visit Anthony J. Evans website here, and download Dr. Eamonn Butler’s (excellent) ASI primer on Austrian Economics here.

Andy Burnham’s very strange £11 minimum wage

Gosh, isn’t Andy Burnham showing himself to be a strong leader?

Firms have been warned by Andy Burnham that they could face penalties including higher national insurance payments if they failed to pay a proposed new higher living wage of around £11 an hour.
In a fresh push to make up ground on surprise left-wing Labour leadership frontrunner Jeremy Corbyn, the shadow health secretary said he would seek to use a “carrot and stick” approach to force up wages if he led the party to power in 2020.
At the start of the final 10 days of campaigning, Mr Burnham will set out his proposals at a campaign event in Pudsey, a Yorkshire constituency that Labour failed to win at May’s general election.
The national rate – which would rise to over £12 in London – would apply to all age groups and be adjusted for the loss of tax credits and linked to the cost of housing, food and household items.

Such a strong leader that he can simply divine the price of something and 65 million people and the markets that are their interaction will simply buckle under and obey. Sadly for such price fixing games that’s not in fact how things work.

More specifically, the level of the minimum wage has an impact upon how many people actually have jobs to earn a wage from. It’s entirely true that low minimum wages have little effect on employment: simply because very few people earn very low wages. The higher that minimum is compared to the general wage level the greater the unemployment effect. There’s no cut and dried limit here, but the rule of thumb is that a minimum wage higher than 50% of the median will have substantial such unemployment effects.

Currently the median wage is around £13 an hour meaning that the proposed £11 is around 85% of that median.

This isn’t going to work out well, is it?

“It will be based on the simple principle that the same hour’s work deserves the same hour’s pay, regardless of your age. So I will abolish the youth rate minimum wage, apply the higher rate to everyone and give incentives for companies to go even further.”

And there is where the real effects will be felt. For those the minimum wage is most binding upon are those who are young and untrained. And if someone fresh off the educational production line must be paid that same £11 an hour as someone with a decade of experience of turning up to work on time and sober then that teenager just isn’t going to get employed is she?

We thus return to our long stated position. Which is that if we are going to have a minimum wage, something we don’t think should exist at all, then whatever that minimum wage is must be the same as the tax free allowance for both income tax and national insurance. For if there is, as is claimed, some moral amount that an hour’s work is worth then there can be no justification for the state taking some of that amount to pay Andy Burnham’s salary.

Or, if you prefer, if you’d like the working poor to have more money then stop taxing them so damn much.

Much as it pains us to say it, Tony Blair was actually right about the Third Way

Not that we agree with the goal: a high tax and large welfare state society is not something that we desire. Rather, a low tax and richer one where welfare isn’t needed to the same extent. But we do find ourselves agreeing with Tony Blair in a manner that we don’t with the Corbynites or the Sanderistas. If a higher, or large, welfare state is what you desire it is that third way that can deliver it. Other options, from predistribution through to market rigging just don’t work.

Another way of putting this is that if National Review have got it then Scott Sumner’s message is being heard:

Socialism has two relevant features: Central planning of the economy by political powers and the public provision of ordinary goods (as opposed to public goods such as national defense and judicial systems). This is distinct from welfare-state policies such as those found in the United States, Canada, and Europe. Sweden has a large and expensive welfare state, but it has a robustly capitalistic trade-driven economy that in many ways is more free-market than our own, with lower corporate taxes and fewer trade barriers. The difference between welfare programs and socialism is the difference between food stamps and the state-run groceries that were the bane of the common people’s existence in the old Soviet Union and in modern Venezuela. The former is imperfect, the latter catastrophic.

We would, of course, prefer perfection, as far as that is possible in any human endeavour. A low tax, low welfare society in which the general level of wealth makes public provision for any other than the truly incapable unnecessary. But our message to those who disagree with that idea is that Tony Blair really was still right about that third way. If you do want to do it then you really do have to do what the Nordics have done. Let markets rip (entirely different from allowing capitalism to run amok) and then tax it to produce the transfers.

Another way of putting this is that those who insist that others should have more of what they have should be put to the test. Are you willing to give up what you have that others may have it? If not then perhaps you don’t quite believe your rhetoric then, eh?

And a third way of putting this is that redistribution has to be redistribution: the taking from some to the giving to others. And our intuition on this is that those being redistributed from tend to object when it’s put in such stark terms. When members of the 1% change their minds on this perhaps we will too.

Or, you know, maybe we won’t.