Yes, Polly's spouting nonsense again

So once again Polly Toynbee steps into the breach to tell us all about the gender pay gap. And at one point she's spouting simple nonsense:

Latest figures from the Office for National Statistics show the gap for median hourly earnings standing at 19%.

No, they don't. And Polly has been told this many a time. By Sir Michael Scholar no less. To mix the part and full time pay rates to gain a general gender pay gap is a "misleading quantification" which "may undermine public trust in official statistics".

The full time pay gap is 9.4%, the part time pay gap is a negative 6.5%.

However, Polly does in fact get one part of it correct:

A bigger question is why is it still women who do most of the caring?

That is indeed the cause of the gender pay gap that we can see, something more properly known as the motherhood pay gap. And we agree that we're not scientists or biologists but we do have a small sneaking suspicion that this might be to do with humans being a dimorphous and viviparous mammalian species. Sometimes this doesn't matter at all, as with who we decide should be bus drivers. At other times it matters rather a lot, as we decide who should bear a child to term. And we don't insist at all that it does matter when considering the question of who cares for children and families. Rather, we just note that the vast majority of human beings act as if they do think it matters. And that's the thing that will have to be changed if that gap is to disappear.

Which, given that the gap is thus the outcome of how people prefer to organise their lives, means that we think the remnant gap is of no importance at all.

The ASI's best of 2015

Madsen Song: Easy Love by Sigala.

Musician: Charlie Puth.

Movie: The Martian.

Book: Chavs (updated edition) by Owen Jones.

Restaurant: East India Club Dining Room.

Cocktail Bar: Ozone Bar of the Ritz-Carlton, Hong Kong.

Article: The New Statesman's piece on the mountain Labour must climb to regain power.

YouTube video: Anton Howes on Innovation & the Industrial Revolution.

Political moment: Waking up to learn I'd won my election bet.

Toy: Phantom 3 drone.

Eamonn

Song: Well it sure ain’t The Writing’s On The Wall by Sam Smith.

Album: I suppose after all the hype it has to be 25 by Adele but it’s pretty dreary stuff.

Musician: Neither of the above, sadly.

Movie: Paddington - one of the funniest films of all time, surely (OK, it came out in November 2014, but I only saw it in on the way to Peru in March).

Book: Am I allowed to say Magna Carta – A Primer by Eamonn Butler?

Restaurant: La Rosa Nautica, perched on a pier in Lima – with the Jumbo floating restaurant in Hong Kong a close second.

Article: Matt Ridley: ‘The Climate Change Agenda is a Conspiracy Against the Poor’ in The Spectator.

Political moment: The look on David Dimbleby’s face when he opened the envelope containing the UK general election exit polls and realised the Tories had won.

Person: Charlotte Bowyer – a hole opened up in the office when she moved on

Sam

Song: Run Away With Me by Carly Rae Jepsen (My top 63 list is here).

Album: E•MO•TION by Carly Rae Jepsen – one of the best pop albums of all time, in fact, up there with ABC's The Lexicon of Love.

Musician: Carly Rae Jepsen (surprise surprise).

Movie: Inside Out.

Book: The Man Who Would Be Queen: The Science of Gender-Bending and Transsexualism, by J Michael Bailey – essential reading to understand one of the major debates of the year. Or the Life-changing Magic of Tidying Up by Marie Kondo – I just need to apply it to my desk as well as my house!

Restaurant: The floating restaurant Jumbo in Hong Kong, followed by Megan’s Kitchen in Wan Chai, which did a (delicious) hot pot broth so spicy that I wept and spent most of the day doubled over in pain. Totally worth it.

Article: Has to be my own posts on StraightUpLondon.com, which Ben, Philip and I have set up to review London’s restaurants and (eventually) cocktail bars.

Political moment: Ireland legalising gay marriage in a referendum – the first country to do so by popular vote.

Person: Rachel Dolezal.

Hunter

Song: Justin Bieber - What Do You Mean (a triumph for tropical house and beliebers across the globe)

Album: The Mars Volta - De-loused in the Comatorium (terrified warblings from ‘03)

Musician: Carly Rae Jepsen (my introduction to pop music)

Movie: Mad Max: Fury Road (if only for the Fallout 3 nostalgia)

Book: Albert Camus - The Myth of Sisyphus (assuaging my existential doubt in the least philosophically robust way possible)

Favourite sports moment: Chelsea’s decline (and, by extension, Jose Mourinho in all his petulant glory)

Political moment: Dave and Xi chillin over a pint.

Person: Donald Trump (for taking it upon himself to berate a Saudi prince over twitter).

Ben

Song: Frank Fiedler - Transhimalaya (full list here).

Album: DJ Richard - Grind (full list here).

Musician: Tuluum Shimmering - eight or nine albums in one year, all very good, is pretty impressive.

Movie: Queen of Earth (Alex Ross Perry).

Book: Dictator (Robert Harris) or Blindsight (Peter Watts).

Restaurant: Shotgun, Soho.

Article / blogpost: Would cracking down on guns in the US really reduce violence? (Robert VerBruggen).

Political moment: Madsen's correct prediction of the general election.

Person: Donald Trump.

Annabel

Song: Wild Beasts, Wanderlust (it's 2014 but I think I only first listened to it in 2015).

Album: Maccabees, Marks to Prove It.

Musician: Laura Marling.

Movie: Slow West OR Mad Max: Fury Road.

Book: Miriam Toews, All My Puny Sorrows.

Restaurant: Murano. Italian posh nosh. What more could you want?

Article: Hugo Rifkind: My Week: Robert Peston.

Political moment: Miliband doing "mockney" during Brand interview/Miliband pledge stone.

Person: Wiggo, for breaking the hour record.

Kate

Song: White Lightning – The Cadillac Three.

Album: Cold Beer Conversation – George Strait.

Subbing Musical for Musician: Hamilton.

Movie: TIE! Mad Max: Fury Road / Inside Out.

Netflix Original Series: Narcos.

Book: Yes Please – Amy Poehler.

Restaurant: The Dairy (Recommendation: Ben Southwood)

Article: A Bow to Charleston – Peggy Noonan, WSJ.

Political moment: Mitt Romney 2016 (any day now...)

Person: This angry patriot.

Holly

Song: House Every Weekend, David Zowie. My school leavers’ trip to Zante (aka Baes Abroad 2K15) would not have been the same without this song.

Album: If You're Reading This It's Too Late, Drake. All songs make for excellent taxi music, relaxing music, or even telephone holding music if you’re cool enough.

Musician: The Weeknd.

Movie: Straight Outta Compton

Book: Girl on a Train

Restaurant: Oblix at The Shard. Tasty food with an equally tasty view.

Article: “The Dalai-Lama is as sexy as a fungal nail infection”, Rebecca Reid. (Discussing the hypocrisy of the Dalai-Lama saying his successor should be an ‘attractive’ woman)

Political moment: When Kanye West announced that he’s going to run for president in 2020. Iconic.

Person: Shigetaka Kurita (The man who created emojis)

Quis Custodes NAO?

The Auditor General has reported that the £113.5 million “Britain is GREAT” advertising campaign already achieved a £1.2 billion payback with a further £0.5 - £0.7 billion to come in the next five years. In other words, for every £1 we taxpayers invest, we can expect at least £17 back. The National Fraud Office is forever telling us that if an investment looks too good to be true, then …….

It is indeed sensible for 17 departments/quangos to share a single campaign with clear objectives, rather than each do its own thing. Furthermore the campaign appears to be creative and well executed.

The NAO comments buried in the review wisely indicate concerns with the methodologies. For many of the FCO/UKTI performance measures, for example, it says something like “Difficult to link directly to GREAT campaign particularly if UKTI has a long-standing relationship with that company.”

The amateur nature of the review is indicated by the lack of understanding of technical terms such as return on investment (ROI), metrics, and brand equity. ROI, for example, is the cash received from an investment as a percent of the cash invested. It cannot usually be applied to advertising without considering its effect on the underlying asset, generally called “brand equity”, a term misused here to mean the value of an ad campaign.

The review ignores the voluminous academic literature on “country of origin effects”, i.e. the impact of the country’s name on economic choices by the target market. At the very least, the specific performance indicators should be reported with “after” compared with “before”. Instead we get broad generalities such as “3.9 UKTI and FCO have a five year target for return on investment for several of its metrics.” We are not told what changed by how much nor the methodology for transposing those changes into cash returns.

A key performance measure for VisitBritain was all the people indicating an intention to travel to the UK whether they saw the campaign or not. That was translated into, for 2012–2014, “£360.3 million validated by the Cabinet Office and included in ROI figures.” The NAO notes a concern with that but still accepts the Cabinet Office “validation”.

Finally, one must have misgivings from all the data for this report being collated from those who spend the money and who have clear self interest in wishing to spend more. Most advertisers I know research the target market directly.

Overall, the role of the NAO in this review reads more like that of a cheerleader for government expenditure rather than a rigorous audit of value for money. For an organisation that generally does such a thoroughly good job, that is disappointing.

Proof that regulation is not needed used as proof of the desirability of regulation

This is a rather alarmingly bad piece of logic from a prestigious source:

The Committee employed investigators to collect data from the munition plants and to conduct surveys of the health of the workers. From the data collected, the Committee made a number of recommendations including mandatory shorter working hours, the avoidance of continuous night shifts and, above all, giving workers at least one full day off from work each week.

This study revisits the data collected by the Committee’s investigators and determines whether the Committee’s recommendations are supported by this new examination. It finds the Committee’s recommendations fully justified. For example, with respect to the value of one day off work each week, Professor Pencavel calculates that the week’s output was slightly higher when these munition workers worked 48 hours over six days than 70 hours over seven days.

Excellent. So there's an optimal length to the work week then. All work and no play produces not just dullards but lower output.

So, what would we expect a profit making employer to do then? Correct, try to determine where that optimal work week length was and then employ people for that period of time. But what does our professor suggest instead?

‘Instead of viewing restrictions on working hours as harmful restraints on management, statutory regulations on hours may serve as an enlightened form of enhancing workplace efficiency and welfare.’

He's using the proof that a profit maximising employer doesn't need such regulation to argue for such regulation.

Most, most odd.

Markets can see the future

One argument that monetarist economists like myself often make is that what matters is not so much the central bank's policy now, as what the central bank is expected to do in future years. The Bank's base rate might be low right now, and the Bank may hold rather a lot of government bonds in a big quantitative easing programme—but if it's expected to offload the gilts and hike rates tomorrow, markets will react today. Macro conditions are tight now if monetary policy is expected to tighten soon. A new paper (pdf) from Stefania D'Amico and Thomas B. King of the Federal Reserve Bank of Chicago, and entitled "What Does Anticipated Monetary Policy Do?" tackles this question empirically, looking specifically at 'forward guidance' over rates—where central banks tell markets they will keep policy interest rates at a certain level for a certain amount of time in the future.

They use a methodology similar to earlier papers, including one that I wrote about earlier, using surveys of financial market actors to work out whether a given change in rates (or planned future rates) is a shock or not.

They identify this difference by looking at expectations of inflation and GDP. If lower forward rates coincide with lower expected inflation and GDP, they reason that rates are being lowered to counteract some external factor driving inflation and GDP down. If lower forward rates coincide with higher expected inflation and GDP, they reason that the rate lowering signals an easier monetary policy overall, higher future aggregate demand, and thus higher nominal variables (and if there's any demand deficiency, higher real variables).

It's the second kind—where rates and inflation/GDP move in opposite directions—that signals a change in policy. And this policy change, according to D'Amico and King's data, feeds through into real outcomes. Promising easier policy does lead to easier conditions now—raising inflation and real GDP right away—and in fact it does so substantially. In their own words:

We find that when survey respondents anticipate a monetary policy easing over the subsequent year (controlling for past macro data and the current policy stance), this leads to an immediate and persistent increase in both prices and output.

For example, a decrease of 25 basis points in expectations for the average short-term rate over the next year, holding all else constant, results in a short-run increase in both GDP and the price level of about 1 percent.

These effects occur much faster than those of a conventional monetary-policy shock, which we identify in the same VAR. After about two years, a given shock to policy expectations has about the same effect on output as a conventional policy shock of the same size and an effect on inflation that is 2 to 3 times as large.

Shocks to expectations beyond the one-year horizon still have effects in the same direction, but they are smaller, less persistent, and not always statistically significant

Now, this doesn't necessarily mean we want central banks to do forward rate guidance. We might reasonably want them to get out of the business of setting any of the lending rates in the economy, and simply adjust the supply of money to meet demand, as private banks would do under a free banking system. But this does give us an extra reason to be wary of fiscal policy in slumps—monetary policy is enough.

A surprisingly good idea about council housing

This isn't what we really expect from governments of any stripe but occasionally the odd good idea does manage to filter through the system, possibly by mistake. And such is this idea that council (and then housing association) tenancies should be for five years, not life. It's causing the usual moaning over on the left for there's absolutely nothing quite as conservative as the British left. Everything, but everything, must be left exactly as it was first laid out under St Atlee to hear some of them pontificate. Yet none of them manage to even ask, let alone answer, the crucial question:

In a stealthy amendment to the housing and planning bill, the government has announced an end to lifetime council tenancies. All new council tenants (and eventually housing association tenants) will be given maximum five-year contracts, after which their circumstances will be reviewed. If they’re told to leave they’ll be offered a more suitable council tenancy, directed towards other rental options (the expensive private sector) or assisted into home ownership.

The government has thus far refused to confirm any exemptions (for the long-term disabled, say, or families with small children). It’s unclear who would be conducting these reviews, and no assurances that this wouldn’t turn into another welfare-bashing crapshoot.

That crucial question being, if you need aid and welfare at some point in your life why should that turn into a lifelong subsidy?

Any and every system of governance is going to have some form of aid for housing for those who cannot afford it any other way. We're fine with that. Three's all sorts of things that can occur in life that mean that welfare, aid, is required for some period of time. Unemployment means unemployment benefits, being ill means treatment and possibly even benefits while being treated. But we do not then say that because you were unemployed in 1992 therefore you should have unemployment benefit for the rest of your life, nor do we say that because you were ill in 2002 then you should still be resident in an NHS ward. And so your requiring aid in gaining access to housing at some point should not mean access to subsidised housing for the rest of your natural days.

After you don't need welfare you shouldn't get welfare in short.

Top tools for understanding economics

There are vital thinking tools that people well-informed in economics have that most other people do not. These tools are roughly translatable as being the following 8 things. These things are ones that need to be understood, but frequently are not. 1) Almost every action has tangible and intangible benefits, and tangible and intangible costs, and if you haven't considered all of those factors thoroughly you do not understand enough about what you’re doing.

2) Just because there are good intentions and a perceived ethical stance behind a view or an action, this does not mean what you have is a good idea. In fact, quite often good intentions and a perceived ethical stance actually mask the reasons why many ideas are bad ones.

3) Just about everything in life is a trade-off, where something happens at the expense of something else (primarily time, money, and material resources) - and there is rarely anything you can do, or ought to do, that lies outside of this consideration.

4) If there is one thing that should almost never be interfered with it is the mechanism of prices that are dictated by the supply and demand market. Prices are not just sums that tell us the value of something, they are vital information-carrying signals that inform us of the outcome of billions of transactions throughout the world. No politician can know the market clearing price of anything better than the market knows itself.

5) The economic pie is not fixed, nor is it zero sum. If I have a slice of it, this does not mean it leaves less for you, because the economy can keep growing, creating wealth and value for both of us.

6) The principal drivers of human prosperity, increased well-being and economic growth are trade and competition.

7) Just as in the market of goods and services, tax is also something that also ought to be opened up to competitive forces.

(Note on 7: Just as shops and restaurants compete with one another for your custom, so too do governments of nation states in their rates of taxation (they would be able to do this more successfully were it not for the fact that so many people are under the misapprehension that society would be better if the rich were taxed more). Governments are competing with governments of other countries for foreign investment, where attracting more external workers and more capital investment from foreign entrepreneurs benefits the nation. People want to work and invest in nations where they are not taxed too heavily on their income and their investments.

8) To properly understand economics you have to understand incentives. When one person goes out to complete a transaction based on self interest, he (or she) adds a little bit of value not just to his own circumstances, but to every agent involved in the transaction (the seller, the transporter, the manufacturer, those mining for raw materials, and so on). Multiply that one transaction by the billions that have been going on every day in the past century and a half (in particular) and the result is the Smithian invisible hand mechanism that aggregated to all the increased prosperity and well-being the world has seen.

Understanding these 8 points provides the bedrock on which you can build pretty much your entire arsenal of economic understanding, political analysis and societal commentary. Virtually everything you need to speak rationally on any of those three things is bootstrapped by the wisdom of 8 points above.

Entirely the wrong decision on climate change in Paris

What is so maddening about this climate change kerfluffle is that everyone, but everyone, seems to be determined to make the wrong decisions, entirely ignoring everything they are being told by the scientific consensus on the subject. There've been a number of reports chewing over what should be done, assuming that the case for doing anything has been made, and they all say much the same thing. That this decision just announced is wrong:

A new UN climate change deal is expected to commit the world to trying to limit global warming to 1.5C - despite warnings the target cannot be achieved because people will never vote for the costly policies it would require.

The highly ambitious goal would require such a radical shift to expensive green energy that it would be impossible in a democratic society, a leading academic warned last night. It would also require as-yet-untested technologies to extract carbon dioxide from the atmosphere, others said.

The point is explicitly made in the Stern Review.Our target, if target there is going to be, should not be any particular temperature nor even level of emissions. It should be the cost of whatever changes we make. This is simply very basic economic reasoning.

If there are to be damages in the future then sure, we should pay some amount now to avert those damages. But obviously, we should not spend more now than what those damages will be: to do so would just be making everyone, present and future, poorer for no very good reason. Thus the most important number we need to know is what is the cost of averting the damage.

To insist that some particular temperature goal, or even emissions number, should be met regardless of the cost of doing so is to invert this reasoning. And given that the original reasoning in Stern (the economic reasoning, whatever one thinks of the climate science underlying the issue) is correct in its logic, this makes setting a temperature or emissions target is just the wrong thing to be doing.

We'd be much more amenable to discussing the climate change issue if everyone wasn't so insistent on applying what we know, absolutely, is the wrong answer to it.

It's great that we've got Dickensian working conditions these days

Felicity Lawrence is trying to tell us, over in The Guardian, that working a pretty bad job in a Sports Direct warehouse is equivalent to Dickensian times. Total nonsense, of course. For the only people asking for another bowl of gruel these days are the Islingtonistas who scoff down the Italian equivalent, that polenta pictured above. That the cheap (and disgusting) sustenance carbohydrate of the masses is now eaten by no one at all other than fashionistas shows us quite how far we've come. However, there's a deeper mistake that she makes:

Sadly, the Sports Direct warehouse is not an aberration. Much of the growth in employment of recent years has been in this field: jobs that in fact represent the death of the real job. The idea that a company’s value and brand is built not just by its owners but by the labour of all its workers has become a lost paternalistic dream. The notion that staff should be rewarded for their part in success with a fair share not just of profit but of security has all but disappeared. The risks of doing business, traditionally carried by capital, have been pushed down to those who can least afford them.

Yes, that's exactly how we want it too. No, not because we're siding with the plutocrats but because anyone at all with the ability to see can note that this last recession was somehow different. Where did all the unemployment go? Given the fall in GDP we would have expected a rise in unemployment to perhaps 4 or 5 million. As many did in fact predict and as did happen (and very much worse) elsewhere. Instead, in the UK, productivity and wages fell.

The answer is at the core of the Keynesian (and New K) analysis. Wages are sticky downwards: thus, in a recession, when labour needs to become cheaper relative to what it produces, we get spikes of unemployment as that's the only way that wages do indeed fall. And this time around this just didn't happen. Incomes took the hit, not employment. The result being that we must conclude that we have a much more flexible labour force, that wages are less sticky downwards.

This is generally thought to be a good thing. In bad times, that all or most lose 5% of their incomes could be, if that's the way you want to look at it (we do), considered to be better than 5% of the people losing their entire incomes. So, that's how the labour market has been rigged. So that it is incomes and wages that take the minor hit, not some subset of the population that take the major unemployment hit.

Profits and capital income also fell, by much more than those labour incomes, so it is shared pain, not entirely loaded on one side or another.

But that is the choice that has to be faced. We either place all the risks of busts on capital, in which case we risk soaring unemployment in such busts, or some part of it is placed upon flexible labour and thus some part of the pain is felt in minor losses of income.

Well, which do you prefer? And you can only choose one of those two, there are no others available to pick from.

An unelected check is better than no check on the House of Commons

Who says politicians are useless and inefficient? They are superbly efficient at one thing, at least – curbing any restraints on their own power. Thus Lord Strathclyde, the Conservative grandee charged by Prime Minister David Cameron with reviewing the role of peers in the governance of the United Kingdom, is set to propose that the Lords lose their veto over delegated or ‘secondary’ legislation. It all stems from the Prime Minister’s (and the Chancellor’s) agitation at the House of Lords blocking plans to cut tax credits. And that was not the first time that the Lords has irritated the House of Commons by questioning its legislative plans.

The argument is that the Commons is elected and the Lords (mostly) isn’t. So the Lords have no right to block Commons legislation. But even the most slavering MP these days would not suggest simply abolishing the Lords and giving the House of Commons absolute power. That would lead to riots. But they figure they can get rid of the ‘problem' a bit at a time. The Lords have already lost their powers to block financial legislation; they can delay but not veto other measures; and the Parliament Act, designed to be used in dire emergencies, is now deployed with dazzling frequency, to push through measures that the Lords feel queasy about.

Lord Strathclyde’s proposals are just the latest sortie in these one-sided air-strikes. Secondary legislation is the detailed regulatory stuff that MPs can’t be bothered with, and delegate to officials: so (runs the argument) why do we need the Lords to worry about that?

Well, we should all worry about it, as we can at least get rid of MPs and even overturn laws, but we can’t vote out regulators. Scrapping regulations ain’t so easy, either. So it is good that such proposals are properly scrutinised before they get going. Give it a year or three, though, and there will be some other issue, and the Lords’ powers will be trimmed again. And again.

Don’t mistake me: there is a lot wrong with the Lords as a legislative chamber (it should be one-eighth of the size, for a start). But it is better to have a crude check on the House of Commons than not. The UK has the most extraordinary ‘constitution’ in which the Executive sits in the House of Commons, and the Commons can vote for anything it wants – including changing the constitution itself (as with devolution – and see where that is getting us). About the only thing that can stop it, apart from the public armed with pitchforks, is the fact that there is a House of Lords standing in the way.

The earliest liberal thinkers on constitutional matters understood the importance of checking power with power. Montesquieu (1689-1755) argued for separate legislative, executive and judicial bodies – and that the legislative branch should comprise two Houses, so one could block the decisions of the other. He was not wrong. Our politicians don’t want to understand this: the worry is that the public and the commentariat don’t seem to grasp it either.