Welfare cash cards are a paternalistic folly

At the end of last year, the Conservative MP Alec Shelbrooke suggested to parliament that 'Welfare Cash Cards' should be introduced to curb benefit spending. Janice Atkinson has recently suggested that UKIP adopt the policy, and a worrying number on the right seem to agree with the idea. There are two quite major problems with this policy, first, it will not deliver the intended consequences and will result in higher costs to the taxpayer, and second, it is paternalistic and ethically wrong.

I agree that government should seek to reduce costs to the taxpayer, but it is unnecessary and cruel to punish people on benefits purely for being out of work. If they are not trying to find work (and breaking their “jobseeker's agreement”), then sure, sanction them. But to punish all on benefits, purely for being such, will not help anyone. As long as people on Jobseeker's Allowance (JSA) are trying to find work, they should be supported by the government, not punished purely for trying. This is especially true in times like these, when unemployment is often involuntary and there can be hundreds of applications for every job.

Petty moralising over this problem will not deliver positive outcomes. Just like the US Food Stamps program, 'Welfare Cash Cards' will be plagued with corruption and other problems from the start, requiring police resources to deal with. Anyone addicted to drugs (including alcohol and tobacco) will find ways around the system. They might start dealing drugs, join a gang, they might resort to theft or other crimes to pay for their habit. Something that will happen will be the growth of a new industry that turns 'Welfare Cash Cards' into ready cash, taking a tidy sum in the process, diverting taxpayers money away from the intended recipients (who will be poorer as a result) straight to criminal gangs.

Government will not be good at closing loopholes or fixing other problems with the system. Are local corner shops going to be registered? That's tens of thousands of little shops. What about people who get jobs through networking in pubs? What products are allowed to be purchased exactly? Are we going to have a government register of acceptable products? Did anyone proposing this think through these problems? Of course not; small-minded moralising was more important.

This idea, like many that usually come from the left, is nothing but government meddling. It is attacking the results of various problems rather than dealing with the sources. We should instead look to legalise drugs, end high alcohol and tobacco taxes, tighten up the benefits system and tackle supply-side issues to create jobs and reduce the cost of living. Whatever the issue, misguided and petty moralising is not the answer.

Some Reason on gay marriage

There's a lot to like about the Reason Foundation's new report, "The Argument for Equal Marriage". Its basic argument is:

1. Marriage has changed enormously over time. 2. Same-sex marriage is just another change, and on the scale of possible changes that can be made to "marriage", it is far less significant than changes that have already been made to the status of women. 3. "Traditional" marriage as defined by the monotheistic traditions has treated both women and gay people badly, and it is therefore not wise to use it as a basis for law or public policy.

As the report says,

Marriage has been put through the laundromat of the Enlightenment, two waves of feminism, and the civil rights movement: what we have now would be unrecognizable to Bracton or Blackstone or Jesus, and this is a good thing. If one were to isolate the greatest change in the definition of marriage over time, it would come down to a choice between the enactment of unilateral divorce (with its attendant effect on murder, suicide, and domestic violence rates) and the ending of coverture, granting women property rights in marriage and separate legal personality. Compared to these definitional shifts, equal marriage is peanuts.

Read the whole report. Last month I wrote for The Guardian that marriage, gay or straight, should be taken out of the hands of the state.

Basic budget blunders

Worryingly many commentators repeatedly make two basic budget blunders. Firstly, ‘deficit’ and ‘debt’ are not the same. Secondly, this government is not cutting spending. Neither point is original. Both should be simple to understand. Given consistent misinformation these both need clarification.

Debt is an obligation owed by one party (the British Government, i.e. the taxpayer) to a second party, the creditor (owners of British government bonds). The national debt is the total amount our government owes. It is different from the budget balance. That is the gap between what the government spends and what it receives. The budget is in deficit when the government spends more than it receives.

So what are the numbers? According to latest estimates from the Office for Budget Responsibility, public sector net debt for 2012-13 is projected at £1189 billion. By 2017-18 this is expected to reach £1637 billion. So when David Cameron said earlier this year, “…this government has had to make some difficult decisions, we are making progress. We are paying down Britain’s debts”, he was wrong. No. We haven’t paid down debt and will owe more.

It is the deficit that is projected to fall. For 2012-13 the deficit is forecast at £120.9 billion. However, the coalition no longer expects to meet pledges to balance the budget. Even by 2017-18, government will spend more than it takes in (with an estimated £43 billion deficit). High deficits will remain and the Government will add to the amount we owe every year.

Surely we've been cutting spending? No, again. The OBR neglect to mention how much the government spends for most of their report. Yet on page 123, they note spending is rising. For 2012-13 they forecast government spending of £673.3 billion, increasing to £765.1 billion by 2017-18. So in absolute terms expenditure is rising, not falling. Even accounting for inflation (using their inflation projections) expenditure rises significantly. The Coalition have only reduced the amount by which government planned to grow expenditure. Nevertheless, this brings pain, from pay freezes to programme closures, because budgets assumed even more profligate spending. Now that expenditure is growing more slowly than previously planned, some old commitments have lost out to new sources of expenditure.

Debt is rising, expenditure continues to outstrip receipts, and the Government is increasing not shrinking spending.

James was a founder of the Liberty League, who are hosting the upcoming Freedom Forum.

Abandon hope all ye who enter this immigration debate

Immigration is good for us. With every major party now promising to ‘get tough’ on immigration, it’s easy to forget that immigrants bring new skills to the country, allow for more specialization, tend to be more entrepreneurial than average, pay more in to the welfare state than they take out, and make things cheaper by doing the jobs that Britons won't.

No political figure of any stature will say any of these things. Instead, people like David Cameron and Ed Miliband and Nick Clegg focus on the two potential problems with immigration: that, other things being equal, immigrants may push down average wages, and that an unrestricted welfare state incentivises immigration by people who want to draw benefits instead of working.

These are both valid points, but insignificant ones. Ben Powell points out that the wage-depression claim ignores the fact that immigrants demand goods and services (raising wages for those things) as well as supplying them. It also assumes that immigrants always directly compete with indigenous workers for jobs. If immigrants are doing jobs that indigenous workers will not (or cannot) do, like highly unskilled service industry work, then they are not outcompeting indigenous workers.

There is quite a bit of evidence to suggest that this is the case in Britain. Fraser Nelson has shown the high effective marginal tax rates that people on welfare face if they want to enter the workforce. If these Britons are unwilling to take low-paid jobs, then there is no harm to them caused by immigrants taking these jobs. On the contrary, the fact that these jobs are being done by someone adds to the number of goods and services that everyone in Britain can take advantage of. (There is one other point: if people’s lives are getting better overall, who cares where in the world they happened to be born? Not me. But even I do not expect any politician to go so far as to say that all men are created equal.)

The second point against immigrants is usually the one focused on by politicians. The problem here is that a valid theoretical point is assumed to be a significant problem in actual fact. Here, the numbers simply do not bear the theory out.

As it happens, we don’t actually have an unrestricted welfare state – most major forms of welfare and state services are limited to UK residents. And, if anything, the evidence suggests that immigrants are less likely than Britons to draw out of work benefits – according to Jonathan Portes, “migrants represent about 13% of all workers, but only 7% percent of out-of-work claimants”. What a surprise: the people leaving behind their friends, family and communities are the ones who most want to make better lives for themselves. Again and again, empirical studies have shown that immigrants pay more in than they take out.

In any case, if we have a benefits system that is open to exploitation, why only worry about it being exploited by non-Britons? Conversely, if benefits are necessary to maintain a basic standard of welfare, why doesn't the welfare of non-Britons matter? There is a good case for reforming benefits so that they complement work instead of substituting it, but that has nothing to do with immigration.

Like most ‘major policy announcements’, the specific proposals outlined by the Prime Minister today will probably be forgotten soon enough. Even if they do end up becoming law, they will not affect many people. But what David Cameron and Ed Miliband and Nick Clegg have achieved is to throw out any chance of a policy line that, however unpopular, has the rare political virtue of being right.

Changing the way we study the social sciences and economic behaviour

Writing in Pacific Standard magazine, Ethan Watters draws attention to the game-changing work of Joe Henrich, Steven Heine and Ara Norenzayan, and the studies they have made on the behaviour and perceptions of non-Western cultures.  For example, the 'ultimatum game' produces different results.  This is the 'game' where one player is given $100 and told to offer some of it to another player.  If the second player rejects the offer, neither receives any money.  Typically players offer 50-50, and reject small offers in order to punish inequitable behaviour.  The Peruvian Indians Henrich introduced to the game with amounts representing a few day's wages behaved differently.  The first player tended to offer smaller mounts, and the second would usually accept them, however small.

“It just seemed ridiculous to the Machiguenga that you would reject an offer of free money,” says Henrich. “They just didn’t understand why anyone would sacrifice money to punish someone who had the good luck of getting to play the other role in the game.”

In cultures elsewhere where gift-giving is used to secure favour or allegiance, the first player would often offer more than 60%, and the second player would refuse, not wanting to accept the burden of obligation that would come with it.  What social scientists and economists had thought was human behaviour was in fact behaviour conditioned by the culture from which the players emerged.  Other studies showed that perception of the length of a line (depending on whether arrows at its ends pointed upwards or down as in the Müller-Lyer illusion) varied with culture.  Those brought up in a built environment tended to be deceived more often than desert nomads and foragers.

Henrich, Heine and Norenzayan published a paper in 2010 in the journal Behavioral and Brain Sciences.  It was entitled "The Weirdest People in the World," and they were talking about Americans.  WEIRD is an acronym for Western, Educated, Industrialized, Rich and Democratic, and the paper makes the point that our Western habits, cultural preferences, and even the way we perceive reality, separate us from people in other parts of the world and even from our own ancestors.  The importance lies in the fact that much of our study in the social sciences and in economic behaviour has used almost entirely Western subjects to arrive at its findings.  When other cultures are included, the Americans are outliers in many of their attitudes.

WEIRD minds are analytic, focussing in on an object rather than understanding it in the context of what is around it.  Experimental psychologists assumed that their job was to look beyond the content of people's thought to the hard-wired origins it came from.  "Deeply flawed," says Norenzayan, "because the content of our thoughts and their processes are intertwined.  The influence of culture on cognition has to be factored in.

He [Henrich] notes that the amount of knowledge in any culture is far greater than the capacity of individuals to learn or figure it all out on their own. He suggests that individuals tap that cultural storehouse of knowledge simply by mimicking (often unconsciously) the behavior and ways of thinking of those around them.

The research lends powerful support to Hayek's notion of dispersed knowledge, and seriously undermines the notion that an object such as the human mind can be lifted from its context and studied in isolation.  It also supports the notion that human choices are very complex and defy simple statistical treatment that treats people as if they were all similar.

But I'm afraid we've tried Allemannsrett in Britain

George Kirby had a suggestion here on this blog last week. That we ought to copy the practise of Allemannsrett in Britain. This Nordic idea that access to the land is for all and that as long as you're just walking through you should be able to go anywhere you please. And I agree that there are attractions to such an idea. However, the real problem is that we've tried this in this country and it doesn't work here. The hint is in this that George says:

A final objection is the claim that it would be pointless to introduce the Allemannsrett in Britain as it is in Scandinavia, since here we have a much higher population density. But the vast majority of the British population lives in urban areas, and the country has many places of natural beauty and sparse population where greater rights of access could allow much greater appreciation of them.

You see, we did in fact try this. There was the Mass Trespass movement and they went off and demanded that the urban proletariat must be allowed to walk the moors. Instead of the Duke's grouse having exclusive rights to those areas of great natural beauty. The end result of which was, in the words of the National Trust:

“Kinder Scout is one of the most iconic landscapes in the Peak District because of its vast open moorland, the wildlife that it is home to and because it was the setting for the Mass Trespass. However, it is also one of the most damaged areas of moorland in the UK and its future is in jeopardy as a result of catastrophic wildlfires, a long history of overgrazing, air pollution and the routes that thousands of visitors have taken. We’ve decided to take action with our partners to save Kinder for future generations.” Mike Innerdale — General Manager for the National Trust in the Peak District

I'm afraid we're back to the basic point that Garrett Hardin made about the Tragedy of the Commons. No, it isn't and never was that assets held in common cannot be preserved. It's that when demand for a resource is greater than the regenerative capacity of that resource then access must be limited. In some manner. It could be, as with the Grand Canyon, the Park Rangers only allowing so many people down there at one time. Or it could be private property. But there does have to be some method of limiting access. Elinor Ostrom went on to show that communal restriction of access, just people working it out among themselves, can also work. But this breaks down when we've more than a couple of thousand people doing the communalling.

In most parts of the Nordic nations there are perhaps three people and a dog named Colin (Haakon is that in the local lingo?) who want to go tramping over the outside scenery. Here in the UK it's rather different. In fact, there's some 25 million Nordics looking to roam over 470,000 square miles and the UK has 63 million on 94,000 square miles. Now quite where Hardin's limit is I'm not sure but I would imagine it's something to do with the UK having 2.5 times the population on one fifth of the land.

Which brings us back to there having to be a limit. We could have the entire countryside limited by men with clipboards, counting us in and out of the meadows and moors. Or we can have our current system of private property. And even if only on the grounds of the crime rate I think that the second of those two is preferable. For I'd hate to have to calculate the murder rate, as those clipboard wielders swung from the trees, as they tried to stop people going for a walk in the woods on the grounds that 5 other people had already done so that day. "Get Orff Moi Land!" is preferable to that.

Yes, of course Cyprus should go bust: or at least the banks

When an institution, person or country is bust then the obvious thing to do is say, well, yup, you're bust. Then clean up the mess and start again. So it is with the situation Cyprus is in (or at least, that it's in as I write, on Friday afternoon). The place is bust and someone is just jolly well going to have to take the losses that cannot be paid back. Paul Krugman (this is the Good Krugman, the economist, not the NY Times pontificator. Even if the economist is speaking through the NYT) says that Iceland did well when it simply agreed, yes, we're bust, and then dealt with cleaning up the mess:

Like Cyprus now, Iceland had a huge banking sector, swollen by foreign deposits, that was simply too big to bail out. Iceland’s response was essentially to let its banks go bust, wiping out those foreign investors, while protecting domestic depositors — and the results weren’t too bad. Indeed, Iceland, with a far lower unemployment rate than most of Europe, has weathered the crisis surprisingly well.

The Wall Street Journal points out that it doesn't actually have to go quite that far:

The European Central Bank on Thursday gave Cyprus until next Monday to reach a deal on restructuring its insolvent banks. Our suggestion: Let them go bust. Cyprus's two biggest banks, Laiki and the Bank of Cyprus, are deeply insolvent. While the EU, the IMF and Cyprus could spend the weekend trying to negotiate a deal to inject billions into the banks, the time would be better spent arranging for their bankruptcy. Here's how it could work: Shareholders, along with senior and subordinated debt holders, would be wiped out. Deposits up to €100,000 that are insured would be protected. Larger depositors would take a haircut in the range of 40%—somewhat more for Laiki depositors, somewhat less for account holders at Bank of Cyprus, reflecting the extent of the losses and the capital needs at the two banks.

Madsen made a similar point earlier in the week:

The bank levy punishes savers but leaves the bond-holders untouched, violating the principle that small savers should be protected, while the bond-holders who knew they were taking a punt should take a hit.

I was recommending something close to the WSJ solution last weekend elsewhere. And this leads me to two points I want to make.

The first is that all of us making these sorts of suggestions are the capitalist neoliberal running pig dogs (yes, Good Krugman qualifies for that). You know, the people who are supposedly only the apologists for the rich and powerful. And we're all singing from the same hymn sheet here: let the rich take the beating. We're all resolutely opposed to these bad debts being heaped on the taxpayers' shoulders for decades to come. Against small savers getting gouged. Entirely in favour of rich people losing their money. It's yet another example of what is the most underappreciated fact about this capitalist neoliberal running pig doggery: how incredibly, massively, pro-poor it all is. It is, after all, the only politico-economic system that has ever raised the average man and woman up above a subsistence level income. And I really cannot think of anything more pro-poor than that.

The second is still capitalist dog running: the defining point of the system isn't in fact the way that assets are owned, the competition red in tooth and claw. Rather, it's the way that it cleans up the inevitable failures.  For in any structure of human affairs there will indeed be failures. And I take bankruptcy to be one of the most valuable and defining points of this whole capitalist/market system that we've got. When failure does happen, when debts are unpayable, then we all agree, yup, those can't be paid. Oh dear, all you investors, you lost. Better luck next time. It's the quid pro quo that if the investors get it right then they make out like bandits. And if they put their cash into banks which then lend all the money to the Greek Government to default upon (which is indeed what the Cypriot banks did) then they lose large chunks of it.

So, the Worstall solution to Cyprus is that we should indeed be pro-poor and capitalist. Those banks are bust. OK, so, the large depositors lose much of their money, the small depositors were protected under law and so should be protected (yes, the rule of law is indeed important) and that's about the best we can do. Because failure really is failure and it has to be treated as such.

The hollow case for bank bonus caps

Members of the European Parliament on the Economic Affairs Committee have agreed to introduce legislation to extend the bonus cap on bankers to fund managers as well. This is an indication of the envy, ignorance and economic illiteracy that drives much European policy.

The supposed purpose of the bonus cap on bankers is to make banks safer by reducing banks' ability to reward people for taking risks. It will have the opposite effect (as nearly all regulation does). Remember when Gordon Brown and the authorities in the United States were flooding the world with cash and a boom was raging? Then, certainly, the banks did reward people for simply doing deals because every deal succeeded. We are far from that situation now, and banks are no longer taking such risks. So why limit bonuses? Pure envy at the thought of bankers earning £1m bonuses.

Well, I know the feeling. But bonuses are how businesses in volatile sectors keep their salary costs under control. In bad years people earn less, in good years they earn more. If firms cannot manage those costs because of politically-imposed caps, and have to raise basic salaries instead in order to retain staff, the policy actually increases the risks that the banking sector takes.

But what about fund managers? They do not actually take the same risks as the banks at all. So why introduce a bonus cap on them? Again, it is just envy, not logic, that motivates the new move. The customers of fund managers are savvy, large-scale, well-heeled investors. Funds played absolutely no role in creating the financial crisis: they actually took much lower risks than the banks. Wealthy customers tend to want to conserve the fortunes they have built up over a lifetime, rather than gamble with them.

It is plain that MEPs do not understand the financial industry, which is largely based in London – much to the irritation of those in Paris, Frankfurt and Amsterdam, who seem to think that if they hobble London, the business would transfer to them. It wouldn't, of course: it would probably go to New York, Hong Kong, Singapore, Shanghai or at best Zurich.

The British government should read Tim Ambler's new ASI paper on financial regulation – and follow his advice to resist this latest, spite-inspired regulation and instead get the EU and other regulators to endorse proper competition in banking and financial services.

Why 'Heavens on Earth' is a very important book

I've just been re-reading Jean-Paul Floru's "Heavens on Earth."  (I should declare an interest in that I am one of two that the book is dedicated to).  It is a superb book, not least for being highly readable and packed with engaging anecdotes.  More importantly, though, it puts its message across with a wall of supporting evidence.  The message is that microeconomics works.  Every single country that has tried to achieve rapid economic growth by cutting taxes and red tape has succeeded. 

The formula is simple.  You don't achieve growth by massive public works and government spending.  You do it by making it easier for private people to innovate, to invest, to spend on what they value, and to build for the future.  Whether it is post-war Germany, the US, Hong Kong, China, Chile, New Zealand, Singapore and industrial revolution Britain, it has always worked.  It achieves all of the choices and the chances that wealth brings with it.  It creates "Heavens on Earth," and you do it by motivating people, by increasing the rewards of success, and by removing the barriers that stand in the way of human achievement.

I really wish that some well-to-do business-person would fund the cost of sending a copy of this book to every Member of Parliament.  If sufficient numbers of them dipped into its pages or told their assistants to read it and summarize its findings for them, the governance of this nation would be much improved.  I am recommending to everyone I meet that they should read it and absorb its lessons.

Allemannsrett in Britain?

Allemannsrett (literally 'All Man's Law') is an ancient custom, most clearly found in Norway, Sweden (Allemansrätten) and Finland (Jokamiehenoikeus), where it has been formally enshrined in law.

Currently, in Britain I am largely restricted in my freedom of movement, despite thousands of miles of footpaths, bridleways and other rights of access,. Furthermore, in England and Wales, I cannot camp in the 'wild' – instead I must pay to use a campsite.

Implementing Allemannsrett in Britain would change this: it allows everyone to use rural, uncultivated land for walking, camping, foraging and other outdoor activities, regardless of who owns it.

An objection might be that this infringes on the right to personal property, but I believe Allemannsrett is in accordance with J.S. Mill's harm principle. The laws of the Nordic countries clearly demand that those taking advantage of the Allemannsrett are respectful to the land they are using: there are rules concerning littering, the lighting of fires and so on. The saying 'take only pictures, leave only footprints' sums it up well. Therefore, those who use Allemannsrett properly are acting within the basic libertarian principle. The rules on foraging, and other more controversial aspects could be adapted as desired.

Another issue is that of privacy: landowners would not want hikers peering in through their windows. The Nordic laws cover this as well: any 'trespassers' must maintain a respectful distance from houses or cabins at all times (at least 150 metres in Norway).

A final objection is the claim that it would be pointless to introduce the Allemannsrett in Britain as it is in Scandinavia, since here we have a much higher population density. But the vast majority of the British population lives in urban areas, and the country has many places of natural beauty and sparse population where greater rights of access could allow much greater appreciation of them.

Allemannsrett in Britain would allow each individual to enjoy the countryside to its full extent. It would out us back in touch with our ancestors, by allowing us to camp 'wild', away from the mod-cons of everyday life. All this could be achieved without infringing on the basic principle of liberty, as clear rules would ensure respect for the land and its owner.