What exactly is the case for Brexit?

I tend to see myself as an agnostic on the European Union. I’m not a particular fan of anything about it, though I think it does have its qualities. Stopping politicians from throwing up barriers to migration and effectively banning them from renationalizing private industries are both good things, however undemocratic they may be. And I tend to think of the EU as being a force for good for Europe in general, the disastrous euro project notwithstanding.

Of course there are huge problems with it as well. It is opaque, difficult to hold accountable and seems to hand down endless new regulations on everything from permitted working hours to olive oil storage. Britain’s legal and political institutions have evolved (and I stress the word evolved) quite separately from most of continental Europe’s, making it perhaps a poor fit with the rest of Europe. And, fundamentally, the EU is one extra layer of government, adding bureaucratic and political inertia to an already sclerotic political process.

But, as an agnostic, I am finding myself baffled and underwhelmed by the arguments currently being floated by “Leave” campaigners. So far, virtually none of them stand up to scrutiny. Unless something changes, I cannot see how these arguments can fly in a proper referendum.

Benefits: The issue of the day, thanks to a row between David Cameron and Donald Tusk that seems to be political theatre. The irrelevance of this was shown (by accident) by Julia Hartley-Brewer in a pro-Brexit piece today:

the argument often given by EU supporters is that very few migrants actually claim these benefits anyway, so it doesn’t really matter. According to the Government’s own figures, EU migrants on “in-work” benefits cost the taxpayer £530m in 2013. Total Government spending is £733 billion this year.

While half a billion quid is not a small number to ordinary taxpayers, it is the principle that matters to most of us. Why should anyone be entitled to come to live in this country and claim welfare benefits without having first made any contribution?

Got that? The £530 million (0.07% of the budget) that we spend on tax credits for Europeans – less than we give to the Arts Council England every year (including Lotto funds) – is a ‘principled’ reason to leave the EU. Never mind that by any decent measure EU immigrants are net contributors to the budget in other respects, or that British citizens receive reciprocal benefits when they work abroad, I suppose. If this is the principle over which we should decide whether to stay or go, count me In.

The balance sheet: Vote Leave say we should stop spending £350 million a week (£18.2bn/year) to Brussels so we can spend that on the NHS or on science fuding.

Well, maybe. Firstly, that number appears to be misleading – it’s a gross figure and doesn’t include the UK’s rebate or other EU grants. When you do include those things, it falls to about £9bn a year. And, as (pro-Brexit) Pete North points out, quite a bit of the remaining money goes on projects we’d want to be involved in whether we were in or out, like Europol and Single European Sky, which coordinates airspace across Europe.

Yes, it also includes disgraces like the Common Agricultural Policy. But it’s hard to believe that any government would have the spine not to just subsidize farmers domestically if we left the EU. And our net contribution to the CAP is quite small anyway – almost as little as we spend on tax credits for Europeans.

Regulation: It’s not difficult to find annoying, wasteful, illiberal regulations that come from the EU. But the question is the counterfactual: if we were out, what would we have instead?

Practically everyone agrees that we’d want, and probably get, a free trade agreement with the EU if we left. But tariffs are not the main barriers to trade between developed nations. The TTIP negotiations underline that – only 10% of the projected benefits will come from abolishing tariffs between the EU and the US. The rest will come from removing regulatory barriers, whether through mutual recognition (we accept US regulations, they accept our regulations) or harmonization. Mutual recognition is preferable, but obviously is only politically viable if each set of regulations is roughly as harmful as the other. If not, one side of the agreement will be outdone on everything by its freer rival.

So what should we expect a UK-EU free trade agreement? At best we can hope for a situation where only British exporters (and their suppliers?) are bound by EU rules; at worst, one where we end up with exactly the same set of rules, only now without any say in how those rules are made. Arguably, these rules are not even really designed at EU level at all.

But even if we get the better end of that stick, who has confidence that a Britain freed from the EU would actually be particularly free market? Maybe we’d lose things like the Working Time Directive, but in the grand scheme of things is there any reason to expect this or any likely alternative government to be any less interventionist than Brussels is? Remember the Red Tape Challenge, or the ‘bonfire of the quangos’ that never was. The counterfactual is just not very encouraging.

The big picture: Perhaps the question is, as Madsen and the pseudonymous WhiteWednesday both say, not about the details at all. They say that it doesn’t matter what the reforms secured now are: being in the EU means an inevitable drift towards further centralization and federalism. And the fact on regulation that little would change immediately is a feature of Brexit, not a bug – it takes the risk out of it, and makes reform a long-term project that we can approach on a case-by-case basis, not as the sort of all-or-nothing deal that some others are telling us is on the table.

Perhaps. This does seem to assume a certain degree of inevitability in the European project that is at odds with the idea that the EU, not just the Eurozone, is ready to collapse at any moment. I’m not so sure, and against this I must weigh the possibility that our immigration policy would become a lot more restrictive. For now, the arguments being made by the Leave campaigns just do not cut it.

Would a basic income reinvigorate civil society?

I’ve long made the case for a basic income (aka a Negative Income Tax) on the basis that it would simplify the welfare system and make sure people always have an incentive to work. My fear is that in-work poverty will be the challenge of our time, just as unemployment was in the 1930s and inflation was in the 1970s, because things that are raising living standards overall like globalisation and automation may be leaving behind people at the bottom of rich societies. Consider what options the former steel workers at Redcar now have.

But Charles Murray’s argument for a basic income is different:

My real goal with all of this is to revive civil society. Here’s what I mean by that: You have a guy who gets a check every month, alright. He is dissolute; he drinks it up and he’s got 10 days to go before the next check comes in and he’s destitute. He now has to go to friends, relatives, neighbors or the Salvation Army, and say, “I really need to survive.” He will get help.

But under a guaranteed basic income, he can no longer portray himself as a victim who’s helpless to do anything about it. And you’ve got to set up feedback loops where people say, “Okay, we’re not going to let you starve on the streets, but it’s time for you to get your act together. And don’t tell us that you can’t do it because we know you’ve got another check coming in in a couple of days.”

A guaranteed basic income has the potential for making civic organizations, families and neighborhoods much more vital, helpful and responsive than they have been in decades. …

Right now, people can say, “What am I going to do? There’s no job out there. There’s this or that.” If you’re getting a check every month, you are not without resources, and that opens up a whole new dialogue between you and the other people around you.

America’s always been very good at providing help to people in need. It hasn’t been perfect, but they’ve been very good at it. Those relationships have been undercut in recent years by a welfare state that has, in my view, denuded the civic culture.

That’s an interesting thought. “Primary poverty” is usually thought of as just not having enough to get by, no matter how hard you try. I think that probably describes the situations of most poor people in the world today. “Secondary poverty”, though, is the poverty that comes from wasting the resources or skills you have through low conscientiousness, addition, laziness or something else.

I’ve always thought of a basic income as being a very good solution to “primary poverty”, while perhaps risking exacerbating “secondary poverty”. But if Murray is right that the state crowds out civil society, then perhaps there is a very conservative case for rolling it back, and just giving people the cash instead.

What happens when you ban e-cigarettes

A quick note on what happens when governments ban e-cigs: cigarette smoking rates rise among teenagers.

Regression analyses consider how state bans on e-cigarette sales to minors influence smoking rates among 12 to 17 year olds. Such bans yield a statistically significant 0.9 percentage point increase in recent smoking in this age group, relative to states without such bans. Results are robust to multiple specifications as well as several falsification and placebo checks.

And, from an earlier version of the paper:

Among those with the highest propensity to smoke, ecigarette use increased most while cigarette use declined: a 1.0 percentage point rise in ever use of e-cigarettes yields a 0.65 percentage point drop in this subgroup’s current smoking rate.

The idea that e-cigarettes ‘glamourise smoking’ has always struck me as being extraordinarily stupid. Turns out I was right. Now, will people who should know better like Public Health England please stop trying to get e-cigs turned into prescription-only medications?

A guest worker programme for Syria’s women

I have previously written that we should let Syrians come to work in Britain through a guest worker scheme, arguing that the effects for natives are unlikely to be very bad, and I suspect may well be positive. But how might such a scheme work?

Typically guest worker programmes are seasonal, allowing workers to migrate during harvests to work in agriculture. The UK ended its Seasonal Agricultural Workers schemes in 2013 when it was scrapped alongside work restrictions on Romanians and Bulgarians being lifted. New Zealand’s programme has supplied workers for its growing wine industry, which quadrupled in size between 2004 and 2012 (from NZ$300 million to NZ$1.2 billion).

Britain’s agriculture sector is growing less quickly, and shows less of an obvious need for new workers. But we do have a problem with high childcare costs and, perhaps relatedly, low native fertility rates leading to an older population.

So I suggest we set up a guest worker programme for Syrians to come and work in the childcare sector here. This would reduce costs – labour costs account for around 78% of total childcare costs, in part because we have such tight regulations about things like staff:child ratios compared to most other Western European countries.

But interestingly, this could have a significant knock-on effect on fertility. A paper released last year found that, by reducing childcare costs, immigrant inflows can boost the fertility rate of high-skilled native women. By reducing the cost of having children, highly-educated women are able to have more of them (and may be less inclined to leave the workforce when they do have kids.)

Virtually all childcarers – 98% of them – are women, so the visa programme could be opened to women only without distorting the existing shape of the UK labour force.

This would have the added benefit of avoiding most of the crime that people (possibly exaggeratedly) worry about immigrants causing – the UK’s male prison population is about nineteen times the size of the female one (i.e., women account for 4.6% of the prison population). Of course we could require that applicants have English language skills as well.

This would also significantly boost the incomes of Syrians back home or in refugee camps – the New Zealand guest worker programme led to per-capita income gains of 30-40% in countries like Tonga and Vanautu with per capita GDPs significantly higher than Syria’s.

I have heard objections to this that Syrian women would simply not be allowed to come by their families, which seems to me to be a misreading of the strictness of Syria’s religious culture. But even if I’m wrong and there’s not much take-up, the few people who do come would still be made better off. The main downside might be what would happen to the men in Syria if the gender ratio became significantly lopsided – an argument against doing this on a massive scale, perhaps, but not against taking an extra twenty or thirty thousand people.

A programme like this is obviously going to be limited in scope. It won’t solve the Syrian crisis, but it could be very good for the people who take part. And it would have the nice bonus of reducing costs for British families and boosting the birth rate among high-achieving British women. So what are we waiting for?

Simon Jenkins is quite wrong about the housing crisis

Simon Jenkins says that there is no housing crisis, and lists 11 ‘myths’ that have misled people into thinking there is. I usually really like Jenkins’s pieces, but I think almost all of his rebuttals of these ‘myths’ are wrong:

1. That there is a housing “crisis”. There is none. Too many people cannot find the house they want in London and the south-east, which is where most politicians and commentators live. …Average prices in London may be £500,000, but in the north-west and north-east of England they are £150,000.

There are even cheaper houses in the Scottish Highlands, Spain and Bulgaria. The point is that London and the south east are not just where ‘most politicians and commentators’ live, they’re where most of the best jobs are being created, and hence where people want to live — from 2007 to 2011, “London’s economy (GVA) grew by a nominal 12.4% compared to between 2.3% and 6.8% across other UK regions.” There’s a good case for trying to rebalance but for now it’s easier to build houses where the jobs are than move the jobs to where the houses are.

2. That an average is a minimum. It is not. Housing hysteria is based on averages. When someone asks “How can I possibly afford £500,000?”, the answer is: you cannot, but somebody presumably can. But go on Zoopla and there are houses in parts of London for £180,000. Even the poorest newcomers seem to find somewhere (usually private) to rent.

The problem here is that the average house is not affordable for the average earner. So the cheapest houses Jenkins can find in London go for £180,000 (actually, I’m not sure this is true because I can’t find any on Zoopla) – where does that leave people on the lowest salaries? So ‘the poorest newcomers seem to find somewhere (usually private) to rent’ – never mind if those places are squalid, far from work and cost half those people’s incomes, eh?

3. That there is a national “need” for 250,000 new houses a year. … Housing need implies homelessness. It should refer to the 60,000 people currently in temporary accommodation, who ought to be the chief focus of policy attention. All else is “demand”.

The 250,000 new houses a year figure is based on the number of new houses needed to stabilise affordability. True enough, people’s wish to have more in their lives than food and shelter – a bit of disposable income for themselves or their kids – is ‘demand’, not ‘need’. They won’t die if they don’t have it, they’ll just have worse lives.

4. That the solution to house prices lies in building more new houses. …The chief determinant of house prices is the state of the market in existing property and the cost of finance. During the sub-prime period, prices soared in America and Australia despite unrestricted new building. It was cheap money that did the damage. The house-builders lobby equates housing to “new build” because that is where their interest lies.

No doubt interest rates have an impact on the price of houses, as with any investment good. Simon Wren-Lewis explains why here. But think of interest rates and housing supply as two blades of a scissors: the only reason houses are an investment good rather than a simple consumer good is because the supply is so inelastic. There is no investment market in TVs or cars because the supply of these things responds to changes in demand for them.

The story Jenkins gives of the US housing bubble is a popular one but isn’t well supported by the evidence. Jenkins is extraordinarily ignorant if he thinks that building was or is ‘unrestricted’ in the US – planning controls mean that US GDP may be 13.5% lower than it would otherwise be. Houston, Texas, which (in)famously is the only major US city with no zoning code, actually escaped the subprime collapse virtually unscathed, and Texas issues so many building permits annually that median home prices in Texan cities are a fraction of that of tightly-controlled California.

5. That the solution lies in the green belt. This is an anti-ruralist’s version of myth four. Even were the green belt obsolete, which few accept, or partly so (which I accept), it will not dent the pressure of overall demand. Nor is sprawl remotely “sustainable” development. It requires new infrastructure and puts more pressure on roads and commuting. It is bad planning.

Jenkins does not explain why he thinks building more houses in places people want to live ‘will not dent the pressure of overall demand’ so it’s hard to rebut this. There is plenty of land around existing train stations into London that could be built on. Certainly new infrastructure would be required. I’ve discussed some ways to capture planning gain and use impact fees to fund other new infrastructure here.

6. That high buildings are the answer. They are inefficient as the higher you build the more is spent on servicing. London’s most popular and economic housing is “high density/low rise”. Towers have supplied mostly empty pads for the rich, housing no one.

I mostly agree with Jenkins here. “High density/low rise” housing is popular because it is relatively cheap, as he suggests. There is a clear price premium for lower density terraced and semi-detached housing – compare similarly units in the same areas in almost any part of London. This is the sort of thing people seem to want to live in, if we built enough for them to afford it. The reason we can’t do this is – you guessed it, and Jenkins later acknowledges it – planning laws.

7. That the answer lies in new social housing. Security of tenure and low turnover – not to mention right to buy – renders the fixed stock of public housing inflexible and immobile. Increasingly it has become a generous donation by the taxpayer to a fortunate few, for life.

Yes. Very few people actually want to live in social housing – 80-84% say they’d like to own their own home, if they could. But Jenkins seems to want neither social housing nor much private housing to be built.

8. That people have a “right” to live where they or their parents lived before. Localities benefit from stable populations, but conferring and bequeathing such a right to discriminatory subsidy is in no book of rights.

and

9. That there is also a “right” to home ownership. The state has a housing obligation for those who need help. Home ownership is capital accumulation, developed out of the Tories’ mortgage tax relief as a form of saving for old age and to endow offspring. It promotes inequality and cannot be termed a right.

No, there isn’t and shouldn’t be a ‘right’ to home ownership or to live where your parents lived, but nor should home ownership be seen as capital accumulation only. As per above, houses are part consumer good (because people use them), part investment good (because they are scarce and valuable and their supply is inelastic). People want to own their own homes – we don’t need to use the empty language of rights to think it’s worth trying to give them that.

10. That renting is stupid. Renting is buying a service. About 60% of Germans rent. They do not think of buying until their 40s. Booming Berlin has 90% of its population renting. Renting aids labour mobility and channels savings into productive investment. As a result, Germany has little house price inflation and no “ladder” advantage to owning not renting.

Renting is great – Jenkins is entirely correct here. But a dysfunctional housing market also means a dysfunctional rental market. Rents seem to be less elastic than house prices, though they are rising, but quality and choice are dropping. A minor anecdote in evidence of this: flats that lettings agents used to show to people individually are now being shown to large batches of people, and there is a mad rush to be the first person to secure any half-decent flat that comes onto the market.

A second point: when people like Jenkins and Robert Shiller warn against owning a home, I tend to agree, but I have to wonder whether they are renters themselves. If not, why not?

11. That buy to let is evil. The poorest people rent from the private sector. The more houses are available to rent, the more flexible is the housing stock and the lower are rents for those who do not buy. Whether buyers-to-let should enjoy tax breaks and whether rents should be regulated are quite different matters.

This seems right to me. Buy to let has been demonized unfairly, although there are bad tax loopholes that distort the market in favour of it. But if you accept the logic that renting is desirable for at least some people you must accept that some people will need to act as landlords. They effectively bear the risk involved with investing in housing that renters do not want.

Jenkins’s ‘realities’ are worth reading but are all fairly lacklustre. The goal should not just be to put roofs over people’s heads: it should be houses people want to live in, in places people want to live, at prices they can afford.