Where is David Cameron getting his information from?

It's distinctly uncomfortable to find the country being run by someone who is not well informed. Worrying even. And David Cameron does seem to be remarkably ill informed on the subject of the gender pay gap:

“Today I’m announcing a really big move: we will make every single company with 250 employees or more publish the gap between average female earnings and average male earnings. "That will cast sunlight on the discrepancies and create the pressure we need for change, driving women’s wages up."

For, as we've explained many a time here we don't really have a gender pay gap. There's a motherhood pay gap, most certainly. And men and women do tend to cluster into specific professions and jobs: pay not being equal between all jobs of course. And that's about it. Once anyone takes a close look we can't find any difference at all (perhaps, maybe, a one or three percentage point residual) between wages of men and women simply on the grounds of their being men and women. The rest of the difference is explained by job choices, hours worked, qualifications, education and so on.

We can even show that it's a motherhood pay gap, not a gender one. For there's a point at which women go from earning more than men to earning less. And that point, that age of life, has been advancing pretty much in lock step over the decades with the average age of primagravidae. And let us be honest about this. In a viviparous mammalian species we're really just not that surprised that there's some gender differentiation in the care and raising of the next generation, are we?

And there's something more worrying too:

However, women on average still earn 19.1 per cent less than men - equivalent to 80p for every pound earned by a man.

That is using mean wages and not median. And Harriet Harman was rapped over the knuckles by the Statistics Commissioner for doing that. Medians are what we should be using here, that use of the mean is grossly misleading.

And, well, you know, surely we can expect a Prime Minister to better than Harriet can't we?

The "Helpless" Poor

In 1985, Bob Geldof, struck by the poverty in Africa, produced ‘Live Aid’, an artistic extravaganza designed to invoke compassion, charity and pity for African people living in dire conditions. It branded an entire continent with a single image of pervasive and inescapable poverty created by poor geographical factors, that could be addressed if only the rich Western world wrote a large enough cheque. It may have started with Live Aid but as we saw with Band Aid 30 last year, there is no tragedy that people on the African continent can suffer with dignity.

Some musicians dropped out of the Band Aid 30 Ebola single. Fuse ODG wrote that the Africa which Bono invoked in his lyrics “did not reflect what Africa is truly about”.

These philanthropic efforts have shaped how we perceive the Global South today. In 2001, 16 years after Live Aid, a survey by VSO demonstrated that 80% of British people “strongly associate[d] the developing world with doom-laden images of famine, disaster and Western aid”. 74% of people believed that the developing world depended on the Western world to progress. Live Aid was for Ethiopia, and Band Aid 30 for fighting Ebola, and yet the brand that these efforts used was ‘Africa’ and to consumers, this became ‘the developing countries’.

What impact has this had on the attitude people harbour towards the developing world? According to Shah, Hall and Carr (2014):

“A side effect of this effort, however, is the perpetuation of long-held views of “the developing” as helpless and trapped, awaiting rescue that justify more and better interventions on their behalf.”

This ‘helpless’ poor narrative is wrong, and it’s harmful.

In ‘The Beautiful Tree’, James Tooley writes of his experiences in researching private (fee-paying) schools used by the poor in India and some African countries. Tooley finds that the poor in many nations rebuff the government-run, free, public schools, where teachers often did not turn up to class. International organisations either ignore or dismiss these schools (they are not ‘pro-poor’ and ‘exploit’ the poor, say some). He writes:

“It appeared that these private schools, while operating as businesses, also provided philanthropy to their communities. The owners were explicit about this. They were business people, true, but they also wanted to be viewed as “social workers”, giving something back to their communities. They wanted to be respected as well as successful. A major motivation - many of the owners had a similar story - was their status in society. Khurrum told me: “I have an ambition of running a school, of giving good knowledge, and of building good character, good citizens, good people. We have status, as leaders of schools, people respect us, and we respect ourselves.”

This is aspiration and self-respect - both attributes sorely missing in the current narrative. He gives the example of these private schools offering scholarships as examples of the ‘poor subsidising the poorest’. These are not people waiting for rescue. These are people who work to ensure their children do better - living proof that the ‘helpless’ rhetoric is misguided, at best.

The problem isn’t just the misrepresentation of large swathes of the global population. It’s that this mischaracterisation of the countries is harmful to the countries affected. As Fuse OBG points out, many people who are willing to pay £2 to raise funds for a killer disease will, nevertheless, not visit Africa on holiday. Why? Because we have internalised this image of Africa as dirty, poor, dangerous. It means Africa, as a continent, doesn’t receive as much investment, which is one of the tools by which countries can improve their lot.

In the case of Live Aid, the consequences were more pernicious. By framing the Ethiopian famine as one of geography and lack of Western political will, the real perpetrators of the continued famine went unchecked. According to de Waal (2008):

“The fact that the famine was a crime perpetrated by the Ethiopian government under President Mengistu Haile Mariam, and that relief agencies could become accomplices to that crime, were swept aside in a simplistic rush. The Ethiopian rebels, who ultimately won the civil war in 1991, estimate that the indiscriminate supply of humanitarian aid to the Mengistu government prolonged the war by at least a year.”

Yesterday, the third Financing for Development summit started. I wrote about some of the recent literature that supports moving away from development aid. But the other problem plaguing our discussion of development is, simply, the language we use. Sensationalist chat might get the dollars rolling in, but it does nothing for the long-term growth and dignity of the countries we’re talking about.

Why does George Osborne hate women and Northerners?

George Osborne is actually boasting about how it will be women and Northerners who lose their jobs as a result of his national living wage:

The chancellor, George Osborne, will respond to claims his budget welfare reforms hit the poor hardest by saying women and those based outside London and the south-east will be the main beneficiaries of the government’s new national living wage.

The point being, in other words, that a rise in the minimum wage can only affect the incomes of those upon whom it is binding. And a rise in the minimum wage is also only going to cost the jobs of some of those upon whom it is binding. Thus the claim that the incomes of specific groups will rise, women and Northerners, is the same as stating that the rise in the minimum wage will cost someone women and Northerners their jobs.

The general rule of thumb is that a minimum wage of over 50% of median wage starts to have significant unemployment effects. And it's not just the general median wage either: it's of the wages of whichever group is under discussion. Wages in the North are rather lower than they are in the SE: thus the jobs losses will hit harder in the North. Female wages are rather lower than male: so more women will lose theior jobs than men. And this £9 an hour idea is actually higher than the median private sector part time hourly pay (from ASHE) which means that one of the glories of the UK labour market, the plethora of part time jobs providing that life/work balance and flexibility, is going to take one darn great big hit.

As we've been saying, instead of raising the wage a vastly better idea would be simply to stop taxing the working poor so damn much. For we've not in fact got low wage poverty in the UK, we've got tax poverty.

Moving away from aid in development

Today, world leaders are meeting in the Ethiopian capital of Addis Ababa for the third Financing for Development summit. This builds upon the work of previous summits to produce a framework for the funding of development programmes and all that entails. It's an important discussion, not least of all because after decades of hurling cash at nations, growth in recipient nations has been sub par. Clemens et al. indicate that a 1% increase in aid in one year results in a 0.1-0.2% growth in real GDP per capita on average, which emerges in the following 5-10 years from the aid increase. Previous studies have conflicted in their findings of the impact of aid on growth - this paper reconciles the various views by controlling for confounding factors and considering just those factors that tend to have a short-term impact. Such a modest increase (combined with the fact that this is an average figure - many countries would not have benefited from aid at all) indicates that the effectiveness of aid is, from a charitable perspective, suspect. In subsequent posts on this subject, I’ll write on alternatives to aid.

Development aid is often confused with humanitarian aid - and this makes it look much more appealing than it really is. Few people would advocate not donating to emergency causes in other nations to help in the aftermath of a crisis; long-term development aid doesn't have this morally glossy hue. The main reason is simply just that the evidence doesn't show it to be very effective.

The economist Dambisa Moyo has written extensively on this subject in her book, Dead Aid (2010). She puts forward the argument that aid in Africa has served only to entrench aid dependency, and result in market-distorting inefficiencies. The consequence of this approach is one in which donor nations are off the hook but none of the promised benefits have accrued to the recipients. Moyo also indicates some evidence to show that nations that didn't receive aid have done better than those that have. Her research and argument goes further than many mainstream development economists (i.e. Paul Collier, who maintains that the right kind of aid can be helpful) - for Moyo, it's not just that aid has been ineffective, but that aid has entrenched the poverty it sought to cure Africa of.

This provides great context for Lucy Martin's paper on the impact of tax compared with aid. Martin finds from experiments in Uganda that citizens are 13% more willing to punish leaders for misusing tax revenue on average - but those with most experience of taxation are 30% more likely to punish government. The theory is simple: the loss of utility is higher when, not only do you lose earned income, but that income is not put to good use to produce social goods. The fact that in many countries, poor citizens do not pay tax results in less anger and frustration at poor governance. Aid as a substitute for tax revenue hence enables this process to continue and results in less frustration - and less clamour for better governance, without which the institutions that result in development cannot develop.

In 2006, William Easterly wrote:

The evidence is stark: $568 billion spent on aid to Africa, and yet the typical African country no richer today than 40 years ago. Dozens of “structural adjustment” loans (aid loans conditional on policy reforms) made to Africa, the former Soviet Union, and Latin America, only to see the failure of both policy reform and economic growth. The evidence suggests that aid results in less democratic and honest government, not more. Yet, unchastened by this experience, we still have such absurdities as the grandiose plans by Jeffrey Sachs and the United Nations to do 449 separate interventions to reach 54 separate goals by the year 2015 (the Millennium Development Goals), accompanied by urgent pleas to double aid money.

Nothing much has changed since his time of writing, except we have committed yet more resource to an aid programme which is at best ineffective and at worst harming the prospects of the world’s poorest. The insights of extensive research and leading economists should inform us to proceed carefully and to give more weight to those areas of development that might be more fruitful. Most importantly, when the evidence suggests we might be doing enormous harm to those least able to bear it, our governments should be proceeding with humility and caution rather than hiding behind their cheque books.

Yes, let's take BBC financing out of the political arena

We finally have what looks like a very sensible idea about the financing of the BBC:

Tony Hall, the director general of the BBC, has pledged to ensure that last week’s hasty deal with government to secure stable funding for the corporation will never happen again.

Writing for the Observer, Lord Hall, who has been forced to accept responsibility for the £750m cost of free licence fees for the over-75s, argues that key negotiations about the financial basis of the BBC must now be taken out of the political arena for good.

If one is to use the power of the state to take our money at gunpoint risk of a jail sentence for non-payment then it is right and just that the amount to be extorted and how be part of the political process. For that's what that process is: the series of decisions over who may use that power of the state and how.

So, it would appear that the head of the BBC now agrees that the BBC should no longer be tax funded, but should perhaps charge a subscription, carry advertising, whatever. For that's the only way that BBC funding can righteously or justly be divorced from the political process, by not using that process to gain said funding.

Sadly we're just kidding. What is being meant here is that the BBC should continue to use said state power to extort from us all but that none of those beastly politicians, the ones we elect to decide who may use that state power, should have anything to do with it. Just an open hand into our wallets.

Which isn't, we have to say, quite how we think the system should be working. You can ask for our money and if we like what you're doing then you'll get some of it: as all private sector businesses have to do. And if you demand our money with the weight of politics behind you then you're going to have to put up with being controlled, or at least limited, by the politicians.

What you don't get to do is use the power without accepting the oversight. Not while there's still pitchforks and burning brands available to the citizenry you don't.

Perhaps this isn't really the Greek solution

The assembled professors of the Alma Mater have given us their collective wisdom on the Greek crisis:

The institutions have to agree to a relaxation of fiscal austerity, at least until Greece is on the recovery path. Austerity during a recession is the wrong policy as it deepens the recession. Continuation of the stringent austerity measures implemented by Greece is delaying recovery. More fiscal austerity could fail the creditors too, if recovery is so slow that the fiscal deficit increases. Public investment has collapsed completely and providing more funds for investment projects that can improve the infrastructure and create jobs should be given priority. Although some progress has been made, further structural improvements are necessary, including pensions and VAT, anti-corruption, tax compliance, and institutional reform of product and labour markets. It is important that the Greek government acknowledges that there is still a lot to be done and comes up with credible proposals. The Greek economy is not likely to recover as long as there is still significant uncertainty about the future and there is no credible path towards a situation in which the Greek debt is sustainable. It is essential to achieve an early agreement to get Greek debt levels to sustainable levels, even if it is to be conditional on progress elsewhere. Conditionality on structural improvements is a good way forward.

Well, yes, OK. Greece should do all of those supply side reforms, lower the relative wages and thus get the economy booming again. Or we could heed the wisdom of Milton Friedman in the quote there. Instead of having to have this internal devaluation, this heavy austerity needed to bring down sticky prices like wages, we could just have a change in one single price in the economy, the external value of the internal money. You know, a devaluation.

Amusingly, this is one of the times that Friedman agrees with Keynes, even with the New Keynesians of today: prices are sticky, notably downwards, and wages especially so. Thus an economic policy which depends upon pushing down wages is going to require a great deal of pain to work.

Better, by far, not to have had the euro in the first place.

Yes, your humble writer here is extremely biased on this subject. But also correct.

And so is the biter bit: serves them right

One of the more bizarre points of Osborne's budget is that renewable energy generation technologies will be subject to the Climate Change Levy. Given that the levy is meant to be one of the clumsy, kludgy, ways in which the UK begins to have a carbon tax this is pretty odd really. And as Guido points out, the boosters of renewables are having conniption fits:

Caroline Lucas: “We’ve seen yet another example of reckless short-term policy making that prioritises the profits of polluters over the public interest in a safe and habitable climate”

RenewableUK: “It’s another example of this government’s unfair, illogical and obsessive attacks on renewables”

Greenpeace: “This will make it more expensive for business to buy electricity from renewable power. He is man out of step with the times”

Friends of the Earth: “This is totally bizarre, making renewable electricity pay a carbon tax is completely counterproductive — like making apple juice pay an alcohol tax”

Friends of the Earth does have it right there: non-carbon energy generation shouldn't be paying a carbon tax, that's rather the point of it all.

Except, except, the nuclear industry has been subject to the Climate Change Levy all along. And there are no "no carbon" technologies at all, there's always some emissions, from cement for windmill footings, the energy to purify silicon, the rotting of vegetation at the bottom of a reservoir behind a dam. And nuclear has rather lower emissions than some of those forms of generation.

Which is where the biter is bit of course. They all were perfectly happy that the low carbon system, nuclear, that they didn't approve of had to pay the levy. Now that the hunger of a Chancellor for revenue is coming for them they don't really have a logical point to stand on.

Oh dear, boo hoo, eh?

Government to eliminate extremism by passing law against it

Being somewhat conventional, my parents brought me up with conventional views and being stuck in Norfolk, I have not got around to changing them.  I was therefore a little surprised to discover I am now an extremist. The Home Office considers that 1950s opinions are “extremist” in 2015. Obviously most of us want to make life difficult for terrorists but the briefing for the new Counter-Extremism Bill goes far beyond terrorism.  The Home Secretary says “we are determined to eliminate extremism in all its forms”.  One has to wonder what kind of home the Home Secretary is living in if she imagines a parliamentary piece of paper will cause all terrorists to throw down their weapons and speak peace.  And ensure the rest of us invariably use language that our neighbours, and the thought police, consider inoffensive.

What is normal for Norfolk might be considered extreme in Brighton and vice versa. Luckily for Mrs May, UK mental health care is so underfunded, the white coats are unlikely to call.

The ludicrous fantasy of the objective is only worrying insofar as it reflects the mental state of our leaders.  The far greater concern is the scope being given to the police, Ofsted inspectors and all our other guardians to penalise us for a word out of place.

The Home Office spinmeisters will reassure us that the key words are “extreme” and “hatred”.  Norfolk turnips can relax, we will be told, because we are not extreme in the meaning of the Bill, nor do we hate anyone.  But of course that is not true.  We hate terrorists and especially those who kill our neighbours on Tunisian beaches.  We will have to reform.  If we go on hating them, the coppers will be calling.  This is the new policing: if you catch someone burgling your home, as someone did recently in Newmarket, and hold him down until the police arrive, you are the one prosecuted, not the burglar.  Now one will be prosecuted for the hatred as well as common assault.

Much of this is political cant.  Theresa May said (ibid) “As the party of one nation, we will govern as one nation, and bring our country together. That means actively promoting certain values. Freedom of speech. Freedom of worship. Democracy. The rule of law. Equal rights regardless of race, gender or sexuality.” This is nonsense because if we really only had just one set of values our culture could not develop, and no one could say anything beyond the established creed.  Catholics would not be able to argue for marriage being heterosexual.  The whole point of a civilised society is being able to promote one’s point of view in whatever way one wishes.

Yes, there should be some limits to that but not many.  Overstating one’s position is counter-productive and that by itself brings moderation.

The truth of the matter is that the Home Office wants to draw the Counter-Extremism Bill as widely as possible to make prosecutions, however incompetent, stick.  It should be cut back to the Counter-Terrorism Bill and properly thought through.

An alternative for Greece

Three years ago I led an ASI team to compete for the Wolfson prize on leaving the Euro in an orderly manner. We got “close but no cigar”, hearing informally that we made it into the top dozen out of over 600 entries. The current position is more chaotic than anything imagined at the time of the competition, with several overlapping institutional problems.

• The Greeks need relief and devaluation. Neither is possible under the Eurosystem which they also say they want. They are going to have to choose. Meanwhile, it is unrealistic to expect Tsipras or any Greek government to reverse 170 years of political dysfunction and collect income taxes from tomorrow morning. They can, however, place asset sales with an outside body and (more or less) collect VAT.
• The Eurogroup (to simplify divergent inclinations) wants to keep the Euro immaculate, that is free of defection or conspicuous violations of its own rules, where they’re fast running out of wiggle room. Policy-makers also fear that further concessions will inflame populism in the other PIIGS, especially Spain where Podemos is leading the pack into the autumn elections. All in all, these objectives contradict each other, leaving the Eurogroup rudderless.
• The ECB and other official European creditors fear a “haircut” (reduction) on the “principal” (headline sum borrowed). This couldn’t be airbrushed off their balance sheets - unlike grace periods, reduced “coupons” (interest payments), extended payment periods and so on. This makes it hard for creditors to take a lead.
• For much of the Greek crisis, the IMF has given the impression of dancing to the ECB’s tune. At long last, it now seems to be manning up – none too soon, as it has risked its standing in the face of future defaults in “sovereigns” (state issued debt). It still needs to establish clear policy distance from the Bank, which should be taken to have relinquished its standing as an official creditor by “enabling” (as they say in AA) a defaulter.

This adds up to a catastrophic failure of leadership. Thus the following proposal, an exchange instrument which enables the IMF to take back the lead it should never have relinquished, grants Greece relief, and spares the creditors the worst by giving them a share in recovery.

1. First, the IMF must reinforce its recent shows of independence, seeing off the ECB’s claim of pari passu priority as an official creditor. It must insist that the Bank joins with other creditors in a 50% plus haircut on the nominal value of its holdings of Greek debt or “old paper”. The Greeks themselves have spoken of 30%, following the Fund last week. This is unlikely to be enough for medium-term sustainability. There may also be some malarkey as between private and official creditors. The pain for official balance sheets is less than the nominal haircut as they bought much of their holdings at market discounts; it will be also abated by (4).
2. Old paper is to be swapped for an exchange instrument or “new paper” with a nominal value reflecting the haircut. This is to be denominated in hard currency, unregistered and negotiable at par for tax payments to the Greek Government. This makes for a liquid secondary market and sets a floor for the value.
3. New paper is to be undefeased (guaranteed by a third party); but is part-collateralised by (and part-redeemed by the proceeds of) early sales of Greek publicly owned assets under the control of a body answering to creditors. No guarantor is available for defeasement, with the US Treasury uninvolved and the ECB compromised. The asset sales would be the €51bn identified in 2010, of which less than €5bn has been realised; and would underwrite between one quarter and one third of the new paper.
4. The coupon is to vary with increases in (and defrayed by a first call upon) VAT receipts above a threshold. This follows the precedent of the Paris Club (ie, for private holders of defaulted sovereigns); guarantees the coupon and offers upside to those taking the new paper.

This proposal enables the IMF to resume its proper role after sovereign defaults, that is leading the workouts. It also gives Greece and its people the breathing space they need and helps out the country’s creditors with a share in the improvement in Greece’s economy.

If you want to know why rule by the Great and the Good doesn't work

Consider this from Simon Jenkins as an example of why rule by the Great and the Good doesn't work.

But such is the political arthritis now afflicting Europe’s “technocratic” rulers that they ignored the fact. They concentrate on their one concern: somehow extending Greece’s repayments so German, French and British banks could have even larger loans underpinned. It is bankers, not Greeks, who are being “bailed out”. They want Greek taxpayers to go on paying interest even if the principal is as beyond reach as a tsarist bond.

No Sir Simon, just no.

Of Greece's some €320 billion in debt a couple of percentage points is owed to foreign banks. That's actually what the problem here is: there's no bankers that anyone can go and steal the money from.

The debts are owed to: the IMF, which in effect means the governments of the countries that own the IMF. The ECB, which means the countries that own it (ie, the eurozone governments). The EFSF, which is guaranteed by the eurozone governments. Then there's bilateral loans from ...yes....the eurozone governments.

The Greek banks do own Greek Treasuries, both bonds and bills: and these are all pledged to the ECB as collateral for the cash they need to remain open. This is actually what the problem is in the negotiations. If there were any rapacious capitalists holding any appreciable amount of the debt then they would be haircut without anyone caring in the slightest. That near all of the money is owed to taxpayers of other countries is the problem.

This would have been a valid criticism of the 2010 to 2012 actions, where the banks' debt holdings were largely unloaded onto those taxpayer guarantees. But it's simply incorrect to claim that banks have anything beyond the most minimal exposure today. Whatever this is this isn't a crisis about protecting bankers.

And that, of course, is why that rule by the Great and the Good, by the wise Solons, by a technocracy, doesn't in fact work. For the obvious reason that all too many of them haven't a clue about whatever it is that they're supposed to be managing or making public policy upon.

This is not to say that they're all idiots, of course it isn't, but rule by the ill informed isn't a great step forwards now is it?