How we know that the tax justice campaign is entirely rubbish

An interesting little whine in The Independent about corporate taxation. Which contains one gem and one great truth. The gem:

So enough of multinationals treating the British state as if it were a charitable fund to which they can voluntarily contribute. ... Their vans drive on taxpayer-funded roads, and they frequently avail themselves of a legal system paid for by you and I.

The roads are more than paid for by vehicle and fuel duties, both things which local and foreign companies pay if they do actually use the UK's roads. And the commercial courts system is paid for by user fees: it isn't actually true that you and I pay for it, not unless we avail ourselves of its services. but the great truth is this:

At a time when public trust in business is plummeting, tax justice has been called 'the Fairtrade of our times' - a measure by which we tell a good business from the bad. And as with Fairtrade, when co-ops were the first to stock the products, co-operative councillors the first to demand fairtrade procurement, and Labour & Co-operative MPs the first to demand political support, it's the co-operative movement and social enterprises that have once again been ahead of the curve.

We have nothing against cooperatives whatsoever, but we do against Fairtrade. For as we've found out it doesn't in fact benefit those poor producers very much if at all. It's simply a form of outdoor relief for the dimmer members of the upper middle classes, to whom all the actual money flows. And do note that it's nor us making the comparison between Fairtrade and tax justice but someone who supports both. And thus we know that tax justice isn't something either serious nor likely to be of benefit to us all: just as Fairtrade isn't and most certainly isn't to the poor.

Reminder to CDC: Women are more than baby-portals

No one likes to receive unsolicited advice; and government recommendations are no exception to this. But the United States’ Centers for Disease Control and Prevention didn’t heed that warning when on Tuesday it released a new alcohol advisory, aimed at child-carriers (who we in the 21^st century have started to call ‘women’).

The CDC has recommended that women of a childbearing age who are not using birth control completely abstain from alcohol intake to avoid an accidental, alcohol-exposed pregnancy.

From the CDC's Principal Deputy Director Anne Schuchat, M.D.:

Alcohol can permanently harm a developing baby before a woman knows she is pregnant...About half of all pregnancies in the United States are unplanned, and even if planned, most women won’t know they are pregnant for the first month or so, when they might still be drinking. The risk is real. Why take the chance?

Why take the chance? In the off-chance that a woman could get pregnant during 3-4 decades of her life, why wouldn't she abstain from alcohol (and while she’s at it, cut out raw fish, cured meat and soft cheeses, stop skiing, avoid overheating and sign up to antenatal courses too.)

Those outside the- 4-decade span haven't been excluded fully from the press release either. While the CDC mainly addressed the effects of alcohol on pregnant women, their infographic suggests far more ambitious plans to cut down on women's alcohol consumption alltogether. Keep in mind "heavy drinking" is defined by the CDC for woman as "consuming eight drinks or more per week".

Fear-mongering much?

Quite rightfully, the Internet went ballistic over the insinuation women should be prioritizing the biological possibility of pregnancy over their daily activities, which include drinking habits.

These recommendations in the States come just weeks after here in the UK the Department of Health changed its alcohol guidelines, lowering maximum unit intake to 14 a week for both men and women, making the UK’s recommendations some of the most restrictive in Europe.

The CDC's and DoH's recommendations are different, but the recommendations of both government bodies were created with the same, faulty assumption: individuals can’t be trusted to their own lifestyle choices, and if left to make up their own minds, will engage in risky behavior.

There is indeed an appropriate way to advise women about the potential consequences of drinking while pregnant, but terrifying non-pregnant women out of a glass of wine because of ‘what might be’ falls short of providing an education tutorial.

We have to announce that all modern physics is rubbish

Well, obviously it's rubbish, eh? Because as Walter Heisenberg pointed out we can't even pin point the location of a particle using physics. So, what's the use of it, eh? We can know where an electron is going, possibly even how fast, but not where it is. So, thus, obviously, we need to take an entirely different approach to the whole subject of trying to understand the physical world around us. At least, this would be so if we were to take Tim Garton Ash on economics seriously:

The Guardian recently asked nine economists whether we’re heading for another global financial crash and they gave many different answers. Yet still we turn to economists as if they were physicists, armed with scientific predictions about the behaviour of the body economic. We consumers of economics, and economists themselves, need to be more realistic about what economics can do. More modesty on both the supply and the demand side of economics will produce better results.

Which is to entirely miss the point over what economics can tell us about the timing of crashes. The physics tells us that we cannot know both velocity and location of that electron. This is a finding from the science: it's not one of those things open to negotiation nor something that we're going to solve by using a different evidential or logical approach.

And so it is with the timing of a crash in financial or other markets. We do not in fact say "Oh, economics cannot predict that". We say that "It is impossible to predict that, we have proven it". Thus the hunt for a predictive method for a crash is a odd as a hunt for the true location and also velocity of a particle. It's not that we cannot do it with the current state of the science: it's that the science has proven that we cannot do it.

Thus, if economics fails on this point then so does all of modern physics fail on the same point. And the silly thing about saying that is that nuclear bombs still go boom even if we cannot tell which particle caused it in what manner, and economics is still, even the current economics we use is still, hugely useful in describing the larger world we live in, even if not accurate to the level of detail that physics is not.

Yes, let us be realistic about what economics can do. One of the things we know it cannot do is predict a crash.

In praise of gentrification

In a column for Inside Housing I've looked at some of the data around how gentrification affects existing residents to see if there's any reason to worry about it. Surprisingly, it doesn't look as if gentrification really does push out existing residents very much – involuntary movement out of a gentrifying neighbourhood is about 0.6 percentage points higher than city-wide averages:

Instead of displacing people, gentrifiers tend to add to a local area’s population through new builds and property conversions (like warehouses and former industrial buildings). Although rents might rise for existing tenants as overall demand for the area rises, the involuntary displacement rate is very small - in one US study, it is 1.4% compared to a city-wide average of 0.9%. . . .

And gentrification brings benefits for locals, with better jobs opening up:

It often feels like the staunchest opponents of gentrification are other gentrifiers who got there a bit earlier. The evidence from the US and the UK is that gentrification raises the incomes of people living in affordable homes and improves their credit scores.

And this is not even to mention the reduction in crime that usually takes place as well. Read the whole thing here.

Yes, we're afraid we are this cynical

That the major concerns in economics - or perhaps we should say that major concerns in political economy - have changed in recent years is true to us. But we're afraid that we are really rather cynical about why they have changed:

I hear frequently that economics needs to change, and it has, at least in the questions we ask. Twenty years go, the dominant conversation in economics was about the wonder of markets. We needed to free the banking system from regulations so it could do its important job of turning saving into productive investment unfettered by government interference. Trade barriers needed to come down to make everyone better off. There was little need to worry about monopoly power, markets are contestable and the problem will take care of itself. Unions simply get in the way of our innovative, dynamic economy and needed to be broken so the market could do its thing and make everyone better off. Inequality was a good thing, it created the right incentives for people to work hard and try to get ahead, and the markets would ensure that everyone, from CEOs on down, would be paid according to their contribution to society. The problem wasn't that the markets somehow distributed goods unfairly, or at least in a way that is at odds with marginal productivity theory, it was that some workers lacked the training to reap higher rewards. We simply needed to prepare people better to compete in modern, global markets, there was nothing fundamentally wrong with markets themselves. The move toward market fundamentalism wasn't limited to Republicans, Democrats joined in too.

That view is changing. Inequality has burst onto the economics research scene.

If we are to talk about that political economy then yes, we agree that the change has happened. We do not project this cynicism onto Professor Thoma's views, of course, but we do think we know why the change has occurred.

Because the answers to that first set of questions were correct. Things like the Washington Consensus (essentially, a list of stupid things you shouldn't do to an economy) were correct. Don't do these things, don't mess with markets where they do work and economic growth will happen. The adoption of those simple rules: let markets alone in those areas where they do work, has led to the greatest reduction in absolute poverty in the history of our entire species.

The questions were asked and answered and the answers to those questions were correct.

But of course that's not enough for some people. We too are entirely happy to agree that pure unadorned markets do not work in all circumstances. There are interventions, things that only government can do and which also must be done, that must and should be made. However, it's a very human desire to want to be able to plan the world in one's favoured image and a societal instruction set which says "intervene in these small and limited areas, otherwise leave well alone" just isn't going to be emotionally or professionally satisfying for all too many in the field.

And thus inequality. An excuse to do all sorts of societal management, management and fiddling that the answers to the previous set of questions ("How do we make the poor rich?" "How do we make all richer?") largely preclude, as people who would wish to manage society for emotional reasons would prefer.

As an example we think of the work of Piketty, Saez and Zucman. It's entirely clear in the economics of taxation that transactions taxes, wealth taxes and capital taxes are to be abjured. They make everyone poorer to no good reason. Yet if we start shouting about inequality then we can impose those things which we know to be deleterious. That is, the concentration upon inequality is simply a result of people desiring to do those things that the previous set of answers say not to do. So, obviously, change the subject and quickly.

Yes, this is cynical: but then we are about the motivations of our fellow humans. Oxfam has spent decades arguing that the only solution for abject poverty is that the rich world transfer more to the poor. Recent decades have shown that the cure for abject poverty is for rich people to buy things made by the abjectly poor in abjectly poor places. But there is still that very strong desire to tax the heck out of the rich: so the same original policy is now proposed it's just using inequality, not poverty, as the excuse. We are being less cynical about Oxfam there than we are about economics in general.

As it happens inequality is a problem which is going to go away of its own accord. Global inequality, as a result of that fall in absolute poverty, is falling. And in country inequality is going to start falling as a result of the change in demographics. The last few decades, as we added those poor to the global economy, have seen a relative rise in the amount of labour compared to he amount of capital. The returns to, the price of, capital have thus risen. The working age population, globally, started falling relative to the supply of capital last year. Thus inequality will decrease for the opposite reason that it increased. It's a self-solving problem: but that won't stop the calls to soak the rich for of course the soaking is the point, the answer whatever the question is.

All we've got to keep an eye out for in the future is the next reason they'll give for the policies they so desire. Who knows, they might even come up with a valid one one day.

We wholly approve of voluntary migration

No, we're not quite thinking of the wave of migration entering Europe just at present although obviously open borders do have their attractions. Rather, we're thinking of migrations in which people sort themselves into the sort of State that they desire. Like, for example, American "liberals" moving to Canada to find a society that they desire rather more:

“If Americans want to live in a country where there is an investment in public education, where people aren’t afraid of going bankrupt because they get sick, and where democracy is taken seriously, they should move, because an alternative exists,” said Tom Kertes, 43, who moved from Seattle to Canada with his now husband Ron Braun in 2007. ... For Laura Kaminker, however, that’s completely out of the question. In the 20 years before she and her partner Allan Wood finally moved to Canada from New York City in 2005, she had “lost hope” in the country she saw plagued by “civil liberties crackdowns” and “endless wars”. Although she still has her American citizenship, she doesn’t vote any more in US elections, and whenever she comes back to Canada after visiting family or friends in the States, she breathes a sigh of relief.

“Every time I say, ‘God, I’m so glad to be out of that crazy country,’” she said.

That's not a view of the United States that we share but then we are liberals not "liberals". Chacun a son gout and good luck to all who sail in her is our motto. And if you don't like the society you're in but can see a better one, by your lights, just over the horizon then great, move to it.

It certainly strikes us as a great deal more honest, more adult even, to go and live in a society that operates as you wish one did rather than try to insist that your 320 million fellow countrymen must follow your own plans. It's not so much that we would say good riddance to those who with to be more statist, it's that we do indeed understand that different people have different ideas about what the good society entails. and we're just fine with people going off to one they find more congenial. As, of course, is the foundational myth of the United States itself.

It's just that we'd really rather hope that the tolerance would be mutual, that we might move, or if they do we might remain, in a society more attuned to our own tastes and prejudices but that never really does seem to happen, does it?

The Pink Tax is a myth

Or, rather, it is in much the same way that the gender wage gap is a myth. I’ll provide some context: this article by Anne Perkins is the latest in a wave of pieces expressing latent support for a study released by NYC Consumer Affairs in December. Amongst its findings were that 42% of products available to consumers were targeted at women and more expensive than an equivalent alternative. As a consequence of women deciding to buy these pink products, they are on average $1,351 a year worse off.

Perkins argues that companies price their gender-targeted products differently ‘because they can’ – they are taking advantage of the ‘soft underbelly of exploitation’.

The logic underpinning the campaign seems to involve services and products possessing a sort of objective value – a ‘fair’ price. That companies discriminate between consumer groups in their pricing is evidence that they charge above this price, and therefore exploit their customer base.

Of course, there is no such objective value. The value of a product or service is only what it brings to the consumer, its emotional payout. In this vein, we would expect having a shirt dry cleaned to afford a greater emotional payout to women than to men - this is explained by their willingness to pay for the higher price in the first place. Although in material terms, they are offered identical (or at least very similar) services, the emotional experiences of the groups are different. Madsen provides an excellent account of this theory of value in this Youtube video.

Perkins also neglects to recognise that in return for higher prices on their bottles of shampoo or perfumes, women enjoy a greater range of products to choose from. Supply does tend to equal demand, folks!

The campaign may have some genuinely positive aims: informing consumers that just down the aisle is a near-identical product in different coloured packaging for 30p less can only be a good thing. I myself had no idea that products were priced in this way. Perkins does say that the power to redress the imbalance, should we abhor it as she does, lies in the hands of each and every one of us. I endorse this sentiment.

However, to go a step further than this and use the information as ammunition in the ideological assault on free-markets and to support a demand for government intervention is undoubtedly misled. If we do as Perkins suggests, and outlaw gender price discrimination, then in some cases we will rectify a wrong that could have been solved by easier access to market information. In other cases, we will end up either giving women an especially sweet deal or raising the price to such a level that very few men are willing to pay.

The New Aristocrats: A cultural and economic analysis of the new status signalling

A new report, released today by the Adam Smith Institute, argues virtue signalling has made widely-held ideas like ‘keeping up with the Joneses' and conspicuous consumption completely outdated. Rather than trying to one-up one another by buying Bentleys, Rolexes and fur coats, the modern social climber is more likely to try and show their ‘authenticity’ with virtue signalling by having the correct opinions on music and politics and making sure their coffee is sourced ethically, the research says. The paper, The New Aristocrats: A cultural and economic analysis of the new status signalling by Prof. Ryan Murphy of Southern Methodist University in Texas, lays out how trends in status signalling—showing one’s self to be worthy of respect and privilege in the eyes of one’s group—have changed over recent decades.

While the conventional understanding holds that families are apt to buy ever-bigger cars and ever-bigger homes in the pursuit of higher social rank—a fruitless zero-sum competition that might well be tackled by luxury taxes—the new race for prestige is quite different.

A modern aspirant elitist would be better off getting an arts degree than buying a gas-guzzling four-by-four, Prof. Murphy points out, if they want to raise their profile in the eyes of their peers. This trend of ‘virtue signalling’ has been widely noted, but policy has not shifted with society.

Education is one policy where Murphy’s analysis is readily applicable. Though pursuing practical education, a STEM degree, or even building up work experience may be better for an individual’s earnings and society’s productivity, individuals may pick extended study of essentially useless degrees in pursuit of status.

This is enabled by an extensive system of subsidies, which actually, since the last reforms, made the terms for those expecting to earn very little—i.e. those pursuing degrees that barely enhanced their career potential—much more generous. Murphy’s analysis suggests these subsidies should be scaled back—we are only encouraging an endless arms race.

To read the full press release, click here.

To download the paper for free, click here.

Perhaps James Daley could be encouraged to learn some economics?

This rather surprises us even if, perhaps, it shouldn't. That a man can reach a senior management position, reach middle age in fact, without having the first clue about how products are priced by those who sell them. James Daley, used to be of Which?, is railing about credit cards fees being charged.

But the likes of Ryanair and Easyjet are still charging 2pc. While British Airways charges a fixed fee of £5 a ticket – which can amount to a double digit percentage on cheaper shorthaul flights. The reason that companies have been getting away with this is that no one is enforcing it. Strictly speaking, it falls to the under-resourced Trading Standards. But consumers are also in their rights to challenge companies in the courts. I’m seriously considering doing just that. I’ve spent several thousand pounds on flights over the past few years – and I’d like to challenge the airlines to justify the excessive credit card charges that they’re passing onto their customers.

This is all about credit card fees that airlines and others are charging us to purchase things over their websites. And Daley has entirely missed the underlying point here. Companies do not charge us on a cost plus basis. Nor should they: we would not like a world in which they did. Suppliers of whatever it is charge us the maximum they think they can get away with: the greatest price consistent with profit maximisation. And that's how it should be too.

If we had a static economy this would not be true: but thankfully we do not and we would not want one either. The point being one that Adam Smith noted, we actually want people to make excessive profits. For, as he noted, capitalists are both greedy and observant. They'd like to be making more than the average level of profit: and they will note when someone comes up with a plan to do so. They will then invest in that area producing that excess profit and the resultant competition will bring that profit down to average again.

And yes, we want this to happen in a non-static economy: because that's the thing that advances it by stopping it from being static. Some new technology comes along, and a new technology can be anything from a smartphone to the idea of unbundling the package that used to be air travel into the seat, the meal, the drink, the luggage and yes, even the paying by credit card and then charging for each separately, and if it works then people will copy it. Ryanair started, Easyjet followed and we're at the point now where almost all short haul carriage uses this model. Because profits are higher through using it and given the amount more we all fly so is consumer surplus. We're all better off as a result of this new technology.

This system is dependent not upon regulation of prices, not upon set margins for certain actions, but upon being able to gouge the customer for as much as said customer thinks whatever it is is worth. For it is the excess profits from doing exactly that which foster the competition that makes this new idea, new technology, near universal.

When people have alternatives, whining about the fee for one method or another of doing something is simply economically illiterate.

And yet these people are able to influence the legislation we all live under? Sheesh.

Applications for Freedom Week 2016 are now OPEN!

 

Freedom Week is an annual, one-week seminar at Sidney Sussex College, Cambridge which teaches students about classical liberalism and free market economics. It is open to over-18s who are currently attending or about to start university. The event is jointly run by us and the IEA and will be held July 4th - 9th.

The week is entirely free to attend: there is no charge whatsoever for accommodation, food, tuition or materials.

If you are lucky enough to be successful in your application, you will spend the week immersed in talks from some of Britain's leading thinkers. Seminars will cover the foundations, history and underlying economic principles of classical liberalism, as well as discuss cutting-edge research and contemporary debate from within the movement.

As if that wasn't enough, there'll be as many evening activities as you can handle, including a BBQ, a drinks reception, several dinners in the College, trips to local pubs and a seriously fun pub quiz. Attendees will also be able to try their hand at ‘punting’ on the River Cam, and will have ample free time to explore Cambridge.

Still not convinced? Let our website cinch it for you: all this information and lots more can be found here.

Competition for the few highly coveted places is intense, so get your applications in ASAP before someone else does!