The two unions

The European Union consists of two parts: an economic union and a political union. The economic union has a single market with the same rules applying to all member states. Non-members of the EU who export to the EU must comply with those rules for their goods, but not for goods they trade outside the EU. The economic union features a common customs tariff for goods entering the EU, but none on trade between EU members. The political union has an elected Parliament with some legislative and budgetary powers; so does the Council of Ministers, composed of 28 ministers (one per member state). The European Council, composed of the 28 heads of state or government defines the EU's policy agenda, and the European Commission is the executive, dealing with the day-to-day running of the EU and enforcing its treaties. It has one commissioner appointed by each state. The aim of the political union is "ever closer union," increasingly giving the EU the characteristics of a unitary state. The aim of many of its adherents is a European state with its own army, embassies, and laws.

Several states outside the EU have negotiated trade deals with it giving them access to the economic union's single market, without becoming part of its political union. If the UK were to leave the EU's political union, it would certainly do the same, since this would be hugely to the advantage of both the UK and the EU. Similarly several non-EU states have agreed visa-free travel with the EU, though of course non-members have to pass through passport and customs controls, as UK travellers currently do.

The case for the UK's leaving the EU amounts to advocating that the UK retains the advantages of the economic union, with access to the single market, and with EU access to its own market, while withdrawing from the political union that gives EU bodies powers over it.

The case for remaining in the EU ought to be about continuing to be a part of a developing political entity, pointing to any gains that derive from this. Instead it has thus far been almost entirely based on the fear of adverse economic consequences, many of them based on the utterly false assumption that the UK would not negotiate an agreement that kept it closely integrated with the EU's economic union.

The UK's citizenry has never wholeheartedly endorsed the political union. When it voted in the 1975 referendum to endorse the legislative decision to join, the arguments were almost entirely about the economic advantages of doing so. The case for remaining in the political union has never really been put to the test, and is not now being done. A vote to leave would be one to reject the political union, while remaining closely integrated with the EU's economic union.

New Report: Migration and Development

The best international development policy would be to let in more workers from the third world in to work in Britain, according to a new paper from the Adam Smith Institute. Politicians should stop trying to save entire countries with foreign aid programmes and instead help their inhabitants by letting them move to developed countries, it says. The report Migration and Development argues that doling out billions in foreign aid risks propping up corrupt kleptocratic governments and having little impact on development; letting people move to where they can be most productive is a reform that really works.

The paper, authored by Swedish policy analyst Fredrik Segerfeldt, suggests an immigration target, modelled on the 0.7% of GDP foreign aid target, in order to boost the welfare of the global poor.

Not only would this help the migrants themselves, but it would even help their source countries to develop, Segerfeldt says. Migrants send around three times as much home in remittances as governments send in foreign aid, and this private development aid is far better targeted, going directly to those in need and not through flawed institutions. The money is often used by developing country citizens to educate themselves and raise their human capital, helping to create a virtuous development cycle.

To assuage worries that migrants will empty the state’s coffers as a fiscal burden on the state, Segerfeldt advocates both that migrant work permits be temporary, and that the full suite of benefits would only be available to natives.

To access the full press release, click here.

To download the report for free, click here.

GDP is becoming an ever worse measure of how we're doing

That GDP isn't a very good measure of how we're doing has been known since the concept was first pushed by Simon Kuznets coming on a century ago. It only includes monetised transactions, includes government at what it costs rather than the value it adds, doesn't discuss the distribution of income or consumption, only the gross amount and so on and on. It has its merits, in that it is also reasonably easy to calculate, something that isn't true of all of the potentially better alternatives. The really important thing to understand though is that it is not actually a measure of how well we're doing. It's a proxy for how well we're doing. And unfortunately it is becoming an ever less accurate proxy, as this new paper details:

It is also the case that zero-priced digital goods are – by definition – not counted in GDP. Some of these are advertising funded, rather than subscription funded, so the business model choice affects measured GDP – although the invariance could be restored by taking account of the imputed cost to consumers of the unwanted adverts (Nakamura and Soloveichik 2015). Zero prices and the prices of digital bundles are not accounted for in the consumer price deflators either, leading to an understatement of real growth.

Some zero-priced goods – not only products such as software, blogs, and videos, but also ‘sharing economy’ services such as house swaps or shared meals – could be considered voluntary activities, analogous to reading to children in the local school or volunteering in a charity shop. These volunteer activities are outside the conventional production boundary, just like household services.

The importance here (and the paper discusses many other reasons why GDP is getting less good as a measure) is that we're not in fact interested in production at market prices, nor cconsumption at them, at all. What we're truly interested in is how much people can consume. With physical goods we have a rough rule of thumb: the consumer surplus (that is, the value the consumer gets but which they don't have to pay for) is 100% of GDP. So, if GDP is £1.5 trillion, roughly right for the UK, we're really saying that we think that the value of all consumption, to those doing the actual consumption, is some £3 trillion. But those digital goods skew this horribly.

We measure, for example, Google's addition to GDP as being the advertising they sell here. Which, given that they sell it all from Ireland means no addition to UK GDP at all (well, OK, the wages of their support engineers do count but). But absolutely no one at all thinks that the consumption value to all of us of Google's existence is zero. Thus GDP is getting ever further out of whack with what we really want to measure, which is total consumption.

It's also true that there's no very easy answer to this either. But we should be aware of it. And for two very good reasons. Firstly, economic growth is not as slow as the standard GDP figures show us. And secondly, inequality is rather less than most think. You and I have just as much access to, and at the same price, the services of Facebook, Google and so on as Gerry Grosvenor, something that does indeed reduce the gap between the richest man in the Kingdom and us working stiffs.

People prefer neo-traditional buildings

It seems obvious to me—and I think to most people—that housing built since the 1930s is by and large much less attractive than housing built before. But if this is true, and if we are much richer now than we were in the 1930s and before, then why would we build, buy and live in housing we don't like? We have some sort of market in housing; surely if we really all preferred traditional housing styles we'd just buy it.

A new paper (slides) provides the answer—at least if we can assume the UK and the Netherlands are similar in this respect. The authors look at a large database of new-builds and sales and compare similar neo-traditional houses to houses with some traditional features and those with none. They find that, even controlling for a wide range of features, fully neo-traditional houses sell for 15% more than fully non-traditional houses. Houses with references to tradition sell for 5% more. We might reasonably speculate that truly traditional houses sell for yet more.

In their words:

Popular reports on the housing market often refer to attractive style characteristics of houses. In the case of the Netherlands specifically housing from the 1930s is very popular. It is, however, difficult to disentangle the attractive vintage effects of the dwelling from (often inner city) locational amenities.

This paper studies exactly these attractive physical features without the confounding influence of age and location effects by studying newly built houses in newly developed neighborhoods only. A rich data set of housing transactions in the Netherlands is enriched with style characteristics of houses on 86 (Vinex) housing estates across the Netherlands. This resulted in over 60,000 transactions between 1995, the starting point of the development of these sites, and 2014.

The hedonic price model that has been estimated shows a significant price premium of 15% for pure neo-traditional styles and 5% for referring to traditional styles. Various robustness checks confirm that these results are partly, but not entirely, driven by, e.g., unobserved differences in quality between houses with different building styles.

The riddle is why—if this premium exists—do developers not build mainly or purely in the neo-traditional style, to reap profits from satisfying market demand. Why do developers only build neo-traditionally—why don't they really try and ape the creations of the past? The authors blame tight regulation of both the volume of production and the inputs; local authorities effectively prescribe modern styles and proscribe prerequisites for traditional design. They find that construction cost has only a marginal or negligible impact, by contrast.

This research is especially plausible, as it turns out London and the Netherlands probably are similar in the relevant respect: some of our housing problems are caused by similar factors. Everyone wants to live in beautiful terraces, right? But new housing usually looks nothing like the most popular existing stock.

Nicholas Boys Smith and Create Streets provide an elegant explanation (pdf): building codes in London make popular traditional housing—which is very dense and could be sold very profitably—near-impossible. They blame six key barriers including: bans on recycling dead space between buildings into gardens; universal lift requirements; illogical value calculations; staircase width rules; and excessive wheelchair requirements; as well as many others with smaller individual impacts.

Top-down planning ruins cities, wherever it is tried. If we loosened regulations on the volume of building, and the type of buildings that could be built, then we could massively increase London's density while simultaneously providing the sorts of dwellings people actually want to live in.

We wish we had said this about inheritance tax

And in fact we have said things like this before:

Do you plan to leave your wealth to your children? Yes, on the understanding that they, in turn, protect it for their children and grandchildren, as I’m strongly against inheritance tax. Even at the height of my youthful Marxist fervour in the great socialist Jerusalem of the North West, I understood that the only real way to increase social mobility is to allow the working classes to keep the wealth they create and pass it on with their values, so that their children have the wherewithal – the money – to bring about change. Otherwise, you’re just giving it to out-of-touch politicians to waste and constantly pushing people off the mobility ladder.

Rather than the political classes taking a slice of the wealth each generation has created, then wasting it as is so often the case, why not a society in which wealth does cascade down the generations? We don't actually need to worry about the plutocratic fortunes: contra Piketty, absent those who pass on urban land through primogeniture those do get dispersed down the generations. What some thing of as great inherited fortunes (say, the current generation of Rothschilds) are in fact fortunes that have been generated again in that current generation.

So, why not a society in which that accumulated wealth of each generation is passed on to the children and grandchildren? A bourgeois society in which each is a sturdy independent yeoman, or one in the making?

We would hesitate to state that this is the entire and compete solution to anything at all, but what's wrong with it as a vision of future society? It doesn't look that unpleasant, does it, a world in which all have the resources to not be dependent upon the State?

Isn't it just wonderful how politics works?

If you promise someone lots of other peoples' money then you can buy their vote:

“I’m 100 percent Bernie,” freshman and first-time voter Emily Wilcox told ThinkProgress. “On education, women’s rights, equality, climate, and really everything, he’s great. He’s looking to the future and thinking about our generation.”

Wearing American flags as capes and BERNIE scrawled across their foreheads in black marker, Wilcox and her friend Summer Auvil said the campus has been leaning towards Sanders in large part because of his promise of tuition-free higher education. The students said signs for Clinton or any Republican candidate were rare on their campus.

“Bernie is just the right choice,” Auvil, a sophomore, said. “Kids are sick of being worried about paying their debt when they get out of college. I had to take out a lot of loans, and it’s a burden hanging over your head. Both of us know people who went into the military just because they couldn’t pay their loans.”

As, of course, everyone running for office has known since Demosthenes, if not since Ur of the Chaldees.

There is always some other whose money, resources, can be taken, desires thwarted, in order to achieve the goals of whoever is being addressed. And given that human beings are both selfish and greedy this is a tactic that works. Which is why we're rather grudging about this democracy thing, supporting it because it is less bad than all of the other possibilities. For there are things that do need to be collectively decided and using the power and violence of the State. But those things are few and far between which is why we are democratic minarchists, not supporters of the tyranny of the majority.

Democracy, government, they are for only those things that can only be achieved in that manner and also must actually be achieved. For everything else there's markets and personal liberty. Also known as paying your own damn way into a higher income and a professional job.

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.