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.

The death of the solar subsidy

This looks like a good idea:

Britain’s solar boom is over after ministers announced they would offer virtually no subsidies for people to install panels on their homes.

For there’s no actual reason for the UK to offer such subsidies. Despite these claims:

Alasdair Cameron, from Friends of the Earth, said: “From California to China, the world is reaping the benefits of a solar revolution, yet incredibly in the UK David Cameron is actually trying to shut rooftop solar down.
“These absurd solar cuts will send UK energy policy massively in the wrong direction and prevent almost a million homes, schools and hospitals from plugging in to clean, renewable energy.”
Dr Doug Parr, from Greenpeace, said: “The timing couldn’t be worse as the young and potentially booming solar industry is on track to go subsidy free but if these cuts happen, it will be too sudden, too soon and too dramatic. It is highly likely to irrevocably damage the domestic solar industry.”

Solar power has indeed been getting cheaper at a remarkable rate. But it’s been absolutely nothing at all to do with any subsidies being offered by the UK government nor any feed in tariffs gouged out of the energy consumers of Britain.

This is not, by the way, anything at all to do with the arguments over global warming exists, whether we need to do something about it nor anything else like that. It’s a simple public goods argument. Let us assume that the problem is real and we do want to do something about it. That something being, well, we’d like solar power to become cheap enough to use effectively.

So, should British people have to pay more for their electricity to make this happen?

Nope, they most certainly don’t need to at least. How cheap solar becomes will be driven by technological breakthrough. And that will be driven by the wall of money that countries like China, Germany and the US are throwing at it. The technology, when it arrives, will be a public good: we Brits will be able to use it when it arrives just like everyone else will.

So, the correct thing to do is let everyone else spend their money on such subsidies and we install it when it actually works. The removal of the British subsidies makes no difference at all to the date at which this wonder-technology will arrive but it makes us all better off while we wait for it. Thus a good decision.

Owen Jones is entirely right here: refugees’ lives matter too

It’s not often that we write with unreserved praise for Owen Jones but his piece today deserves it:

As the news of up to 200 dead refugees, drowned off the coast of Libya, filters fleetingly into news coverage, the only guarantee is that more will drown. And with news of more than 70 refugees found dead in a truck in Austria – to try to imagine their last living moments triggers a horrible feeling in the pit of the stomach – we know that more bodies will be found in more trucks. Those of us who want more sympathetic treatment of people fleeing desperate situations have failed to win over public opinion, and the cost of that is death.

For those who believe that hostility to human beings from other countries who lost the lottery of life is somehow hardwired into us, there is evidence to the contrary. Germany takes in around four times as many refugees as Britain does; and for every Syrian asylum seeker received by Britain, Germany gets 27. And despite German generosity comparing starkly with our own, half of Germans polled support letting in even more refugees.

Like Alex Tabarrok, I am not aware of any mainstream moral theory that does not tell us that all humans matter, not just the ones who look like us or were born near us. I often wonder how different our approach to trade and immigration policies would be if we took it as axiomatic we don’t just care about people lucky enough to be born in Britain. This is the ‘big assumption’ I ask people to make when I talk to them about liberalising immigration – and if we made it, the debate about immigration’s impact on natives’ incomes would be a mere sideshow.

There are valid questions about the most humane policy towards the asylum seekers trying to cross the Mediterranean or English Channel. And I am much more optimistic than Owen about the potential for migration to reduce global poverty. But, as he rightly says, the baseline for all of these debates must change. When people are dying from drowning and suffocation, we have to accept that we are not the only ones who matter.