Mr Corbyn and the deaf philosopher

Jeremy Corbyn captivated the Labour Conference with his calls for a kinder politics and a caring society.  His audience enthusiastically applauded the idea of seeking fairness and compassion.  This is not surprising, since these are all aims that would be shared and expressed by many, if not most, people across the political spectrum.  David Cameron would have received rapturous applause for the same words, as would Tim Farron.

It is not the aims that mark the political divide, but the methods that might be deployed to achieve them.  It is not the intentions that matter, but the policies pursued to bring them about.  Mr Corbyn's speech was long on ambition but short on policy, though there were some policies, together with others in the pre-conference days, that enable us to picture the approach he would take, if not the detail.

I have at times advocated being a 'deaf philosopher,' not listening to what politicians say, but watching what they do, judging them by their actions and not their words.  It is all very well talking about caring and compassion, but not much use if the policies pursued bring about drabber and more restricted lives for the people they claim to serve.

The Communist governments of the Twentieth Century uttered high-vaulting words of fairness and 'rule by the people,' but the reality they delivered was of squalid poverty and stunted lives.  More than that, their rule was marked by a huge gulf in living standards between the party elite allowed to buy Western goods in special shops and the mass of ordinary people consigned to the endless queues for the shoddy products of a socialist economy.

Mr Corbyn talks of rent control, a policy no serious economist endorses.  This is because it fails in practice.  For a few it fixes their rents, but given non-market returns, landlords withdraw properties from the market, so availability diminishes.  Moreover, with inadequate returns landlords do not spend to maintain properties as well, so they decline in quality.  Fewer and poorer properties is not the intent, but it is the result.

Renationalizing railways and utilities is advocated to 'put the people in charge,' but in reality it means bringing them under political control.  When they were under state control they were characterized by under-capitalization, producer capture, vulnerability to frequent industrial unrest, and services that paid scant attention to consumers.  The talk was of one thing, the reality of another.

It will be very important during the coming months to make the case that real-world results matter more than high-falutin intent.  We need to see what happened before in the UK, and what happens elsewhere when politicians attempt to impose ideas without regard to their actual results.

Transport for London's taxi conspiracy against Uber

Adam Smith wrote in his Wealth of Nations that, “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” He goes on to conclude that proposals for new regulations “ought always to be listened to with great precaution”. His words from 1776 remain as true as ever in London today. Transport for London’s latest regulatory proposals are a sop to the Unions. They will hammer innovative businesses like Uber, reduce competition, raise prices and worsen the quality of transport Londoners receive.

Proposed rule changes include a ban on showing available cars for hire “either visibly or virtually on an app”, and a mandatory wait time of 5 minutes from booking a journey to getting a car, even if a car is available immediately. These two rules alone would undermine the core of Uber’s business model – you won’t be able to see cars on the app and you’ll be left needlessly waiting on the street.

The rule changes would harm many drivers too, particularly those who work part time, with a ban on working for more than one operator at a time. “Controls on ridesharing” would halt plans to introduce UberPool and other upcoming digitally enabled transport services. TfL are also looking at new tests, advertising controls, payment rules and a requirement that companies “seek TfL approval before changing their Operating Model”.

TfL innocently claim the consultation seeks to "raise standards across the industry" following an "exponential" growth in the private hire industry and technology.  Yet according to City-AM the taxi unions are boasting about their influence over the consultation, and Addison Lee is happy they are putting the “genie back in the bottle”.

Regardless, these proposals would protect incumbents at the expense of innovators and flexible jobs. This is hardly consistent with the Government’s ambitions to cut regulations, promote the Tech City, and make services ‘Digital by Default’. Londoners looking for instant, cheap and quality transport are the ultimate victims.

This all reminds me of Bastiat’s satirical parable from 1845 in which the candle makers petition the French government to block out the sun, lest their business be harmed by unfair competition. Fortunately, Uber has established a counter petition, which you can sign here.

Quick, someone tell Jeremy Corbyn about national insurance

In economics, as in medicine, we usually find out that things are connected. The shin bone is indeed connected to the knee bone and insurance benefits are closely connected to having paid insurance premiums. Sadly, in politics this essential interconnectedness of things is often missed. It could, of course, be some aspect of the political mindset that causes this but we think that it's essentially the ignorance of the political classes about the world they would rule. An example is this idea from Corbyn:

“I want our policy review to tackle this in a really serious way and consider opening up statutory maternity and paternity pay to the self-employed, so all newborn children can get the same level of care from their parents.

“Labour created the welfare state as an expression of a caring society but all too often that safety net is not there for self-employed people. It must be.”

The self-employed pay a radically different rate of national insurance than the employed. And they thus get rather different benefits from the social insurance schemes that we have. Thus such an "opening up" should lead to NI charges to the self-employed rising: a policy we think will be rather less popular than Corbyn might think.

We do however wonder what's going to happen when someone breaks it to Jezza that the self-employed don't get unemployment benefit either....

We have something of a problem here

There are those about who would change the world. OK, we might not agree about how they would do so but that's all part of the joy of arguing about it of course. But it is really incumbent upon people who would change this oblate spheroid to understand how it does currently operate before floating plans to change it. And that understanding seems to be rather lacking. Here's one example:

In a speech that may be the most critical of the week to the credibility of the Corbyn project, McDonnell will insist he understands the need to bring the current account deficit under control.

Now, who doesn't understand this, McDonnell or Patrick Wintour who wrote the article, is unknown to us. But the current account deficit isn't something that particularly needs to be dealt with and it's also not something under anything but the vaguest influence of government and politics. What is meant is the budget deficit not the current account one. It it would be useful if people telling us how to make the nation a better place understood the difference.

But, sadly, it gets worse:

McDonnell has promised he will review the role of the Treasury so that it focuses on fiscal policy and revenue collection. He will promise a drive to end corporate tax evasion and, like the party leader, will point to specific firms deemed to be involved in tax evasion.

There is no corporate tax evasion. Evasion is, recall, the illegal kind: and there's no one at all, not even the Dread Murphy, who thinks that there's anything other than the most trivial amount of illegal tax dodging activity in Britain's corporations. There's an awful lot of allegations of tax avoidance, structuring things so that tax is not legally due. There's even more allegations of taxes that aren't even theoretically due not being paid on the grounds that those making the allegations think that the tax system should be changed to make them practically due.

But as far as there is tax evasion it's simply not in the corporate world. It's you and I paying the window cleaner in cash that is the evasion. And again it would help if those who want to change the world understood this difference.

The country being run by people who don't understand these sorts of differences is unlikely to work out well.

McDonnell has now given his conference speech:

Our balance of payments deficit, which is the gap between what we earn from the rest of the world and what we pay to the rest of the world, is at the highest levels it’s been since modern records began.

You can't have a balance of payments deficit. It's a balance, it balances by definition. You can have a trade deficit, which means most likely a capital surplus, and vice versa, but you can't have a balance deficit.

No, not going to work out well.

Markets make us greener

  When it comes to Pigouvian taxes, like taxes for car emissions, it is thought by some that they are primarily stealth methods for generating government income under the pretext of positive change. So the theory goes, politicians are using a ubiquitously held public view (that we seriously need to become greener) and capitalising on that with green taxes. I don't have much of a problem with most green taxes - taxing extra on car emissions because it incentivises people to care about cleaner air by caring more about their car tax bill does, in effect, resemble the market. Alas, there are lots of people who think it is only politicians who can engender this change to make us greener. I think this assumption needs correcting. Although Pigouvian taxes bring in revenue for politicians short-term (for a few decades maybe), the long-term indicators are that the market left to run by itself will naturally make us greener anyway. The reason being: businesses are already looking for the most efficient means of supplying customers using as little energy as possible, because in a highly competitive market it is in their interest to do so to remain profitable. The goal to reduce energy output can, and has, come in various ways: replacement of human energy for machines, replacement of metal-based technology for higher intensity resources or carbon-cased materials, replacement of paper for digital devices, and so forth - and these are improvements in production that naturally improve business's cost-effectiveness.

Consequently, compared with how the market engenders continually increased efficiency, emission taxes probably will turn out to have had only a much more negligible effect on lower energy output and more efficient use of resources than the free market, because the market is driven by efficiency far more than politicians with political interest. If there is a race to make us greener, politicians are more like the tortoise and the market is more like the hare.

What is austerity?

It seems like the meaning of the word 'austerity' has transmuted over the past five years, from referring to the balance of fiscal policy, to purely relating to spending issues. For example, Jeremy Corbyn's Labour is widely interpreted as being anti-austerity, both in the popular imagination, and even by Keynesian economists like Simon Wren-Lewis. But his shadow chancellor, John McDonnell, has promised to aim for the same fiscal policy as George Osborne, the man most closely associated with UK austerity! I suspect that the process has gone something like this:

• Osborne proposes a fiscal policy that is genuinely austere in Keynesian terms—i.e. he aimed to close the deficit year-on-year 2010-2020 on whatever measure you like (cyclically-adjusted, current budget, raw deficit)
• This is attacked as fiscal austerity, which is inappropriate, according to New Keynesian economists (i.e. the mainstream of macro), when the central bank's policy interest rates are at the Zero Lower Bound while it is nevertheless undershooting its macro targets (not that it actually was undershooting these targets)
• The popular mind associates 'austerity' with Osborne's economic policy generally, the most concrete and close-to-home example of which is reduced public services spending, rather than the less tangible (supposed) aggregate demand deficiency (supposedly) driven by fiscal austerity
• Thus 'austerity' is associated not with the budget balance (or any adjusted measure thereof) but simply the spending side of the government's balance sheet, and its general approach to public expenditure (e.g. Robert Peston's definition of austerity as "public spending cuts in a recession")

Alternatively, this meaning change might indicate that the right won the battle on fiscal austerity.

Inflation was well above target despite austerity and the zero lower bound—monetary policy was dominant. Unemployment crashed, employment rose to its highest ever level and highest ever rate as a percentage of the working age population. Slow growth (surely driven by poor productivity) during 2011 and 2012 turned around, and even labour productivity growth might be returning. Wages may now be seeing solid real growth for the first time in years, just as inflation dips into negative territory and GDP grows solidly.

If fiscal austerity is supposed to hurt the economy through reduced aggregate demand and employment then it doesn't feel like such a great argument to hit the Tories with—austerity hasn't seemed to work that way. But if 'austerity' is used as a nebulous term for a general agenda, like 'neoliberal', then it might have legs. Its credibility is helped by the ambiguity it's given when mainstream macroeconomists use it to describe ostensibly similar (but actually quite different) things.

This leads to an interesting symmetry. Wren-Lewis and others have attacked the government for using deficit reduction as an excuse to cut social programmes that he believes they actually want to do for other (ideological) reasons. It seems to me that we're also seeing the converse: those opposing spending cuts for their own ideological reasons use the language of macroeconomics, like 'austerity', to give themselves their own political cover.

Then again, never attribute to malice that which is adequately explained by ignorance.

Can you spare a few pence for the regulator?

The announcement by the chief executive of the National Council for Voluntary Organisations that there should be a new organisation to regulate the fundraising activities of charities was paradoxical in a sector supposedly grounded in voluntary action and philanthropy. Sir Stuart Etherington and three members of the House of Lords recently authored a review in the wake of goings-on deemed to have been sharp practices by certain well-known charities in persuading some people to part with donations.

One of the report’s recommendations is to have a levy on charities’ fundraising to pay for such a new regulator – the Fundraising Regulator.

Apart from anything else, in 'austerity Britain’ asking charities to fork out to fund such a thing is surely not on. Charities already get criticism for not spending enough on their stated aims, whether that perception is justified or not.

I can see it now:

"£1 in the tin for the Good Cause and don't forget the extra 34 pence to help the deserving regulator."

(Director’s note: cut to stock video of 87 administrators slaving away over iPads in a modern office - with appropriately sad musical soundtrack?)

Instead of reaching for the quango toolbox, just fix whatever the problems are. There are enough laws and codes of practice to assist in that. There is also the Charity Commission, for example. Then again, its chair has been quoted as saying:

‘"I think it is inevitable that the sector will have to assume much more of the responsibility for funding its regulator," he said. "It happens in many, many other parts of society and there is no reason why it should not happen in this one."’

So that’s all right then.

All that seems to typify a mindset all too common among quangocrats; the public has to pay for something that it (the public) decides to do voluntarily so that some superfluous bureaucrats can come along and charge the aforementioned volunteers (the public) to tell them whether they are doing it properly. Marvellous piece of job creation.

This country needs another public regulator for this like a hole in the proverbial. How much more effort has to be expended on box-ticking and draining resources from useful voluntary effort? Let alone in creating at least two regulators in place of one.

Geraint Day is a trustee of two charities and co-operative sector activist but has not sought permission to write the above from any nascent quango that might want to vet volunteered expressions of opinion on charities.

On the consistency of Willy Hutton

Of the varied commentators that parade and prance across the national life we have a certain weakness for Will Hutton. As a wonderful example of the, umm, consistency which is required to remain as an authoritative national voice over the decades. For example, it's a very good idea, in fact we should remake British business in this image, that companies are largely family owned, with a secure shareholding structure, so that management can get on with looking to the long term of the business and not be distracted by the flightiness of the here today gone in milliseconds nature of the stock market:

The proposed new Companies Act would set out a new legal framework that will privilege long-term, engaged investment. Mutuals should be created to aggregate proxy votes, and cast them on behalf of shareholders. The basic voting share will continue as now, but it will attract more votes the longer it is held; if shares are lent, voting rights will be forgone. This will strike many in London as going too far – a dagger at the heart of British capitalism. But when Google floated, its founders Sergey Brin and Larry Page issued two classes of shares, with class A shares having 10 times more votes than class B – so Brin and Page ended up with 37.6% of the votes for 3.7% of the shares. As they said in the letter accompanying the initial public offering, “we have set up a corporate structure that will make it much harder for outside parties to take over or influence Google. This structure will also make it easier for our management team to follow the long-term, innovative approach.” Ten years on from the flotation, who can say they were wrong?

LinkedIn offered its original long-term shareholders 10 times the votes when it floated in 2011, and the Glazers floated Manchester United in New York rather than London because American rules allowed the family shares to have 10 times as many votes. Owners in mainland Europe – from the Wallenbergs in Sweden, who have holdings in most of Sweden’s top companies, to the Piëch family, part-owners of Porsche – use similar devices. Where there is business success and innovation, look for non-British corporate structures.

This trinity – business purpose, trusteeship and a range of committed shareholders – will be the foundation for the creation of purposeful companies, freed to behave like long‑term trusts rather than dance to the tune of peripatetic day traders. They will be value creators rather than rent extractors. It would be stakeholder capitalism in practice.

These proposals must be supported by a new takeover regime. The argument in hostile takeovers should not just be over price: it should be whether business purpose is being protected – with both sides being required to ask their shareholders’ view – and long-term shareholders’ votes privileged over those who have bought for a quick buck. The government should refer bids that create public-interest concerns and use the Competition and Markets Authority more aggressively. In short, takeovers, especially hostile takeovers, should be the exception rather than the rule of British business life.

We quote at length to show that this is not some throw away line, but central to Willy's vision of how business life should operate.

That was in February. This month we are told that it's a very good idea, in fact we should remake British business in this image, that companies are largely not family owned, with a secure shareholding structure, so that management can get on with looking to the long term of the business and not be distracted by the flightiness of the here today gone in milliseconds nature of the stock market:

Former CEO Martin Winterkorn, who resigned last week over the scandal, claims he knew nothing of what was going on, blaming a few unnamed executives for making a catastrophic error of judgment. Winterkorn was the consummate German engineer, knowing every dimension of engine performance; if he did not know how the dirty diesel engines of some popular VW brands were successfully passing US emission tests it was only because he chose not to ask. He did not need to. He had the backing of the Porsche family, who own just over 50% per cent of VW’s shares and who agree to vote as a block; the support too of the state of Saxony with a further 20% per cent –and of union members on the supervisory board. Winterkorn could run a company of 600,000, as Süddeutsche Zeitung remarked, as if it were North Korea.

VW is about production and jobs which trumps concerns about environmental sustainability – a culture than unites unions as much as the Porsche family.

And that's even in the same newspaper. So, umm, yes, the consistency of Willy Hutton. We wonder if he's heard of consistency?

Excellent news: only 30% of the population is knuckle draggingly ignorant

Or, we suppose, we could see this as deeply depressing news, that near 30% of the population is still knuckle draggingly ignorant. Because this question isn't about which variant of a free market economy makes people better off. Even we, arch marketeers that we are, will agree that all markets, nowt but markets and only markets isn't the correct operating system for a socio-economic polity. And Pew isn't asking about whether health care should be government supplied, government financed, insurance so or whatever. They're asking about the basic underlying principle, are we to have an economy that is roughly market based or one that has no markets?

And it really shouldn't be difficult for people to get the right answer to that question. Are roughly market based societies the ones that make the populace richer than not market based ones? Even at the possible expense of inequality?

The answer to this is probably the best researched one we have in all of economics. Because the largest ever controlled experiment was carried out into this very question: we generally call it the 20th century.

Hundreds of millions, then billions, were walled off into non-market economies at various times, from 1917 to 1945 and 1948, to return in 1978 and 1989. With some sad remnants in Cuba and North Korea still stuck in the abject penury of non-market economies. And we know the answer very well indeed. No non-market economy has managed decent economic growth (no, the Soviet Union managed, according to Paul Krugman, not one iota of total factor productivity growth over its entire span) while everywhere that has been a market economy for more than a couple of decades is opulently wealthy by any historical or global standard.

It really shouldn't be difficult for people to get the answer to this question right.

Still, to be cheerful about this, at least we have a decent estimation now of the upper possible bound of the Jezzbollah vote.

We're astonished that Polly Toynbee actually said this

Which, given the things Polly Toynbee normally says, inuring us to astonishment much of the time, means that it must be particularly outrageous:

I see a compromise here – though junior doctors may resist. Why not pay them fairly, train and employ many more so they are not endlessly filling gaps and overworking – but oblige them, in exchange for their expensive training, to work for the NHS for, say, a decade.

If they were indentured to the NHS, along with dentists, nurses and the other medical professions,

Toynbee is seriously suggesting that we bring back time limited slavery? Indenture?

Yes, that does astonish us. Two further points occur. The first being that of course if we're going to enslave people whose education the State has paid for, we'd really rather better stop hiring people that another State has coughed up the education fees for. Thus no foreign trained doctors or nurses should be hired until, say, a decade after they finish their training. not that the NHS would survive such an imposition. The second being that if those who have been educated at the expense of the taxpayer are to be indentured then, well, taxes finance the secondary educations of 93% of the populace. Why aren't all of them to be held in, bound to, the UK economy for some years? That Tony Benn repeatedly suggested that this should apply to any university degree shows that it is a vile idea: but if it applies to nurses then why not to everyone?