Women Drivers & The Counter-Productive European Court of Justice

My car insurance is due soon. I hadn't kept up with all the arcane ways that EU legislation affects UK business, but being curious about whether women still get cheaper car insurance than men on grounds of being statistically safer drivers who have fewer accidents, I looked online and found this:

The European Court of Justice (ECJ) has ruled that the long-established practice of setting insurance prices according to gender is illegal discrimination. The Court's decision forced members of the European Union to introduce a ban on gender-based pricing.

So, in basic terms, car insurers used to yield to market-based risk calculation (using a reliable tool called actuarial mathematics) and offer statistically safer drivers cheaper premiums (perfectly sensibly, in my view). Then the EU decided that it's much better to ignore all this data and assent to a spurious anti-unfair-discrimination policy, while failing to see the irony that in penalising statistically safer people for purposes of parity they are unfairly discriminating against safer drivers. This is beyond absurd. The primary measure of unfair discrimination in actuarial analyses is not treating different people differently, it is treating different people the same. Women are statistically safer drivers than men, which means they are cheaper customers, which means to increase their premium to the same as men is to unfairly discriminate against women.

The reasons why women are safer drivers are well known. Women are, on average, less likely to have fast cars, they drive fewer miles, they drive slower, they take fewer risks, and they are less aggressive than men. Giving women a lower premium based on those facts amounts to a simple and rational statistical evaluation of risk. The same is true of other considerations too - age, post code, miles per year, type of car, and so forth - each of these are important factors in risk evaluation, and the ECJ should leave well alone. The free market is the best tool for eradicating unfair discrimination in business, because pretty much any time a company decided to discriminate against women, black people, gay people, tall people, fat people, or whomever, they would pay for it with a reduction in profits*.

Of course, we know the probable motive in the ECJ's equalisation of gender - it is to guard against people with identical data having different premiums based solely on gender. But that misses the whole quintessence of how competition works in the free market. Suppose we have Jack and Jill, who are the same age, with the same car, same post code, and driving the same miles per year - the ECJ would have it that they should be given equal premiums because to do otherwise would be to discriminate on the only variable factor - gender.

But that is not what happens - while the data picks up facts like age, car type, post code, and miles per year, it doesn't account for those significant differences - speed of driving, risk-taking, aggression and other factors of mentality behind the wheel that make women more likely to be safer and have fewer accidents, and better candidates for cheaper premiums. The ECJ is guarding against the general being applied to the particular - but this is part of what makes competitive business healthy. In a free market we can work under an assumption of cheaper insurance premiums for a safer driving record at the individual level anyway - so it's a law that only actually compounds what already happens.

But we can extend far beyond that too - competing firms can solicit new custom by offering deals to acquire that custom. This proves very effective in the insurance market: some providers specialise in good deals for modified cars (like my modified Subaru), some specialise in good deals for women, some specialise in good deals for the elderly, some for first time drivers, and so on. Insurance companies have asymmetry of information when it comes to those vital premium-changers - they have transparency with data like age, post code, miles per year, type of car - but they don't have anything like the same transparency with things like speed of driving, risk-taking, aggression and other factors of mentality behind the wheel - which is where the actuary matters.

A company that's free to offer deals for women is acting on probability related to those invisible factors - but that also means women are free to look for insurers sensitive to such data, as are Subaru drivers, as are the elderly, and so forth. That's how beautifully the market for insurance rewards this innovation. If women are consistently safer, then they are consistently on average cheaper customers, which rewards those companies that are prepared in response to lower the premium for women. But if the data is spurious and women are less consistently as safe as the premium indicates then those same companies will incur a loss and adjust their women-favoured premiums to accord with that. It's a hugely efficient system that the ECJ hasn't properly factored into its considerations.

Gary Becker and Timpson

One of Gary Becker's great points was that irrational, or taste, discrimination is costly to the person doing that discriminating. That then leaves an opportunity to others, in that those being discriminated against are thus cheaper than an objective evaluation of their skills would indicate, meaning that those others can hire workers at less than their likely productivity. It's possible for us to take this idea further too, as we've mentioned before: if you think that taste discrimination is going on then you must also believe that those profit opportunities exist. At which point we've a useful metric to use to see whether we really do think such discrimination is going on. Which brings us to this from John Timpson:

Most of the Timpson drama is provided by the colleagues who run our shops, many of whom have overcome considerable personal challenges to make a success of their lives (10pc of the people on our payroll have a prison record). We pick everyone for their personality, consequently they have some fascinating stories to tell.

We are entirely willing to believe that those with prison records are discriminated against, some fairly, some not. Indeed, one of us, decades ago, deliberately hired a book keeper straight out of his prison sentence for fiddling the books of his previous employer. We knew that his being jugged has scared the Bejayzus out of him and that it wasn't going to happen again. We know, from personal life, of other such cases as well. We would not be surprised at all to find that Timpson is able to profit by taking advantage of that taste discrimination. Or perhaps we might say that it's a matter of asymmetric information here: not everyone who has served time is a lemon in the Akerlof definition, but how do you tell? Get that right and there is an opportunity.

But our deeper point here is that this can be used as a measure of other discriminations. Who does believe that deliberately and specifically hiring women because they are currently underpaid (as Dame Stephanie Shirley famously did with female programmers at FI Group 50 odd years ago) will lead to greater profits? Or insisting upon job shares? Or hiring those of a rather greater melanin blessing than the average of the UK population? For to believe that there is such discrimination is to insist that there is such a profit opportunity. A non-belief in the opportunity is a non-belief in the original accusation of taste discrimination.

We do not, by the way, insist that no such discrimination occurs. We don't think it does, not to any great extent, but that's different. There are those who insist that it does: at which point our question is, well, why aren't you out there making your fortunes by exploiting it?

What a hopelessly mixed up policy the BBC is proposing

The BBC, Britain’s state-protected broadcaster, gets its funding from a tax of £145.50 on every household that possesses a TV capable of showing live broadcasts. That means live broadcasts from any broadcaster, so even if you never watch any BBC channels, you still have to pay. The exception is people over 75, who get their TV viewing for nothing because past governments ruled that television was an important source of companionship for the over-75s, many of whom live alone. This week it has been suggested that since the BBC is short of money, the over-75s should be asked to pay the licence fee voluntarily, even though they do not have to.

What a hopelessly mixed up policy this is. Firstly, Britain should not even have a state-sponsored broadcaster. It might have made sense in the 1930s when broadcast technology was new, and required fabulously expensive national infrastructure, but no longer. Increasingly, the BBC looks like a dinosaur among a growing number of independent and international broadcasters. But it has a near-monopoly grip over Britain’s media sector, of the sort that Rupert Murdoch can only dream of. Plainly, it should lose that protection and operate as a commercial broadcaster, using whatever mix of subscription and advertising it deems fit.

Not only should we not have a state broadcaster, nor should it be financed by what is in fact a poll tax on households. Nearly everyone has a TV, so the licence fee is more of a universal tax to support a state service, rather than a subscription for a broadcast package of your choice. And the same tax is paid by all households, rich or poor (apart from those comprising 75-year-olds, of course). So that is hardly a fair system either.

But if we are determined to keep this unfair license system and we really think it essential that people over 75 should be able to watch television without having to worry about the cost, there are better ways of doing it. One would be simply to raise the state pension by the equivalent £145.50 a year. At least then, the money would go to poorer households, because richer ones pay tax on their pension income. Again, the sate pension is an unfair and poor-value system (and it is also a Ponzi scheme, relying on current contributors to pay current pensioners), but this uplift would be better than what we have now.

There was a time when pensioners were, almost by definition, poor. That was the thinking behind making it universal at age 65 (for men, and 60 for women) when it was introduced in 1911. At that time, most people were in some form of manual labour, and by age 65 there was a fair chance that you were so exhausted by a lifetime of it that you could no longer do much useful work, and therefore could not support yourself. Today, however, pensioners are on average richer than the working population.

So it is certainly unfair to make the younger population pay to subsidise the TV viewing of everyone over 75, many of whom will be far richer than they. The Queen, and Rupert Murdoch, are both over 75: but why should a single mother in depressed Middlesborough pay higher taxes, or a higher licence fee, so they can get free television?

This is the kind of absurdity you get when things like broadcasting and pensions are run politically. Now we are trying to make the over-75s feel guilty for the absurdities that the political process has created. They should not fall for it.

As we've been known to say before, let's stop government doing some things

As our friends over at the IEA point out, close regulation and control might not in fact be the best way of managing matters:

Four in five sets of UK traffic lights should be torn down to reduce travel delays and boost the economy, a leading think-tank has claimed. The proliferation of traffic lights, speed bumps and bus lanes seen in Britain in recent decades is “damaging to the economy”, the report from the Institute of Economic Affairs (IEA) finds. It estimates that a two-minute delay to every car journey ends up costing the UK economy about £16 billion every year. “Not only is a majority of traffic regulation damaging to the economy, it also has a detrimental effect on road safety and the environment,” the report claims.

The full report is here.

There have been a number of empirical proofs of this contention. Traffic flowed better when a notorious set of lights in Beverly failed, a Dutch town has seen better traffic flow since mostly abandoning any detailed control. So, in the specific sense of traffic management, in certain conditions (we would not go so far as to say all) it is better to set general rules and then leave it to individuals to navigate their environment than it is to try and set detailed prescriptions for how each must act. Keep left, yield when necessary, be alert to what others are doing: rather than this file may move forward now, that in 30 seconds and so on.

What interests us is that this does, we are certain, apply in a more macro sense too. Yes, certainly, the economy as a whole needs certain basic rules. Don't cheat, play fair, do the best you can perhaps, but what it doesn't need is detailed rules. Bakers may only start to bake at 4 am, only shops at train stations may open on a Sunday, only those with a two year apprenticeship may drive a taxi in London, only a licenced electrician may change a kitchen plug.

The analogy is pretty direct really: leaving adults to navigate their local environment dependent upon the local conditions leads to smoother flow. Leaving most people, most of the time, to their own devices in navigating the economy leads to a better flow through said economy. And, of course, flow here is what we mean by economic growth: that's what it is to a great extent.

This is not to argue for no regulation: it's to argue for the necessary minimum to produce the flow. Traffic will not flow smoothly if people start to drive on the right in the UK (as the joke has it, odd plates the day before even). The economy will not flow, will not grow, if we do not have rules about what is whose and how exchange takes place and is acknowledged. But once the general rules are set then leave people to it. It is, perhaps, to argue for the common law approach to regulation: anything we've not said you may not do you can. Rather than the Roman Law approach, and yes we know this is over egging the difference a little, which is that only those things we've said you may do may be done.

An analogy rather than a hard and fast comparison, but the underlying point the analogy is noting is that local conditions are much too complex, to changeable, for any centre to be able to provide prescriptive rules for all circumstances for both traffic and the general economy. Thus we should concentrate on producing the decision making rules, simple ones, by which people can navigate those local conditions.

If you prefer, if it turns out that just us normal folk can guide a tonne or two of metal capable of 70 miles an hour and up through the complexities of life better than the bureaucrats can tell us how to do it then we're entirely capable of sorting out our desired toothpaste, sugar consumption, booze quantity, weight, exchange and style of living without their intervention.

Which leads us to something we say quite a lot around here. It's amazing how much better things can get if we just stop government doing some of the damn fool things it already does.

Watch the Somali pirates and the process of state creation

That's not exactly a terribly flattering picture up above there but it is a typical one of the process of state creation. Yes, this is how polities are born: men with guns enforcing it. as the newspaper says:

Somali pirates who raked in millions of dollars in ship hijackings have developed a lucrative new racket - acting as armed "escorts" to foreign trawlers that steal the country's fish. In a striking case of poacher-turned-gamekeeper, the same armed gangs who once preyed on the trawlermen are now acting as their bodyguards, earning huge "protection fees" in return for letting them poach Somalia's rich fishing stocks.

this is not poacher turned gamekeeper so much as the transition from Mancur Olson's roving bandits to stationary bandits. Olson's point being that it always has been the men with the weapons who decide how things get done and who gets what. But for the general population it's rather better when those men with guns decide to farm the population or a resource on a continual basis, rather than simply steal whatever and everything. For, eventually, it will click that slicing a bit off the top while growing the pie increases the amount that can be stolen. Thus even though the ruling class might be robbers, even robber barons, it is still possible for things to advance.

The way to look at this particular story is that this process is just starting in that part of the world. The other way to look at it is of course that it wasn't all that long ago that it was happening in our part of it. 1066 was most certainly exactly the same and there's various incidents since that we could say very much resemble it. Government isn't therefore just the name for what we do together. It is, rather, what is imposed upon us and the best we can hope for is an enlightened stationary bandit. Or, as we might also put it, one with enough guns to stop others imposing upon us but with not enough other powers for that very government to impose upon us.

Google's tax bill is nothing to celebrate

Google is to pay the UK £130m in back taxes. This has been hailed as a great victory against international corporations, which make profits in the UK but 'do not pay their fair share' of taxes'. Many others, like Amazon and Facebook, have also been cited as delinquents. A great victory for the UK Treasury? A boon for UK taxpayers? Hardly: by my calculations, £130m will keep the UK government going for just 91 minutes. If governments spent (and overspent) a lot less, individuals and firms might be more willing to pay tax to fund them.

The fact is that economic reality has changed (as it necessarily does) and companies are no longer as rooted to the land, in their factories and plant, as they were. Many, particularly in IT and services, can locate just about anywhere on the planet that they choose. And of course a number of enterprising countries are delighted to host them.

Moreover, with increasing volumes of trade done internationally over the internet, supplies sourced from many different countries, and semi-manufactures created in yet others, it is by no means clear where such companies' profits are actually made. A government might claim it is theirs, but they will be competing with others who think differently. If we are going to tax international corporations, we need to find a better way of doing it.

In any case, the tax that is supposedly paid by corporations is in fact paid by people. Studies show that three-fifths of the impact of corporation tax falls on the workers, reducing their wages. Of the remainder, some falls on shareholders by way of reduced dividends, making it harder for enterprising firms to attract new capital and create more jobs. Some is borne by customers in the form of higher prices.

Remember also the enormous benefits that firms such as Google, Facebook and Amazon bring to ordinary people. They have become successful international companies precisely because they offer people goods and services that they pay for quite willingly. In other words, they add value to our lives. Indeed, these companies add a lot of value to our lives. It would be well worth having them operating in one's country even if they paid the government no tax at all. Worth it solely for the benefit they bring to the public.

If only one could say that governments were equally valuable....

Isn't this the point of the NHS in the first place?

We're sure it is you know, the point and purpose of the NHS. At least, whenever we suggest introducing a bit more competition into the system we're told that this is the reason we shouldn't. For, you see, if we avoid the chaos and inefficiencies of competition, of the wasted capacity that must be there to allow competition, then the NHS will be a cheaper method of providing health care than alternative systems. And when we've looked at comparisons like those done by the Commonwealth Fund we find that the NHS is rated very highly because it's cheap, despite the fact that it's not all that good at actually curing people. But then we get this complaint from King's Fund:

Britain’s spending on its health service is falling by international standards and, by 2020, will be £43bn less a year than the average spent by its European neighbours, according to research by the King’s Fund.

The UK is devoting a diminishing proportion of GDP in health and is now a lowly 13th out of the original 15 EU members in terms of investment, an analysis for the Guardian by the thinktank’s chief economist shows.

But isn't that the point? The NHS is the Wonder of the World precisely because of its method of organisation? The one that allows us to have equitable and above all cheap health care as the state simply provides it? So how can lower funding than in other countries, with their less efficient systems and structures, be a problem? Isn't this supposed to be a sign of how marvelous the NHS is? That it does better on less?

Then again, we're not sure all that many arguments about the NHS are all that informed by logic: hysterical emotionalism seems to be par for the course.

We're against regulation because it keeps the poor poor

There's a certain absurdity to the regulatory state around the world. In some US states they insist that you go get a 3 year cosmetology degree in order to be allowed to legally work as a hair braider. We here in Britain shouldn't laugh too loudly: We've told that one of us broke the law by doing a bit of simple electrical work in our own kitchen just recently. That is reserved to those who have the correct chitty from government. But why is it that we are against such regulation of who may enter an industry, who may offer their services? Because, quite simply, it keeps the poor poor:

We examine the relationship between entry regulations and income inequality. Entry regulations increase the cost of legally starting a business relative to the alternatives—working for someone else, entering illegally, or exiting the labor force. We hypothesize that such regulations may cause greater income inequality, because entrepreneurs at the bottom rungs of the income distribution may have relatively greater difficulty surmounting costly barriers to entry. Combining entry regulations data from the World Bank Doing Business Index with various measures of income inequality, including Gini coefficients and income shares, we examine a pooled cross-section of 175 countries and find that countries with more stringent entry regulations tend to experience higher levels of income inequality. An increase by one standard deviation in the number of procedures required to start a new business is associated with a 1.5 percent increase in the Gini coefficient and a 5.6 percent increase in the share of income going to the top 10 percent of earners. Although we cannot eliminate the possibility of reverse causality, we are unaware of any theory that posits that income inequality causes entry regulations.

We're happy enough with the idea that a lorry driver should have some proven ability to drive a lorry before being let loose with a 40 tonne behemoth. But much less certain that we need quite as much restriction on who may do what as we currently have. And why not decide to provide that ladder up out of poverty and inequality by making it easier for people to get those first and entry level jobs?

Or, as we never tire of saying, it's surprising how often the solution to government identified problems, like poverty and inequality, is to stop government doing the damn fool things it already does.

It's time to start the Brexit contingency planning

There were reports this week that civil servants are thinking about what happens if the UK votes to leave the EU (‘Brexit’) – but are not writing anything down in case they get a Freedom of Information request. Sounds more as if they are not thinking about it at all. But if the UK is to succeed in its bargaining, it must have a credible alternative. We should start by creating a small group of advisers and civil servants, led by a (Eurosceptic?) minister, to draft an exit plan that can be put to Parliament very soon after the referendum in the event of a NO vote. If it is a NO vote, we should be prepared to serve immediate notice to leave the EU, under Article 50. We should offer to give up the UK’s presidency (for the second half of 2017) and cancel the UK’s participation in EU elections (2019) while negotiations are going on, and cease appointing UK officials to EU bodies. To be taken seriously in Brexit negotiations, we would need to appoint a tough (Eurosceptic) Foreign Secretary, and a tough Eurosceptic Ambassador to the EU. The Foreign Secretary will need a slick team of negotiators, with skills in trade law, economics, and EU politics.

We would have to reform the existing Economic Affairs Committee (EAC) of the Cabinet, bringing it under the Foreign Secretary and charging it with supervising the withdrawal. It would need to move quickly to identify the economic and legal issues arising from Brexit and establish the UK’s objectives in the talks. We would also need a dedicated communications team to promote the UK’s case and negotiating demands, and to show that it has a future outside the EU. That means identifying genuine free trade as the future framework for the UK’s trade, economic and foreign policy.

The Bank of England should also have plans in place to deal with any financial turbulence following a NO vote. It needs to coordinate with the financial authorities in EU to manage abnormal capital movements. And the MoD will have to revisit how it patrols UK fisheries.

Arrangements also need to be put in place for bilateral talks with countries remaining in the EU, and especially Ireland and our maritime neighbours. And we need to move very quickly on negotiating free trade deals with non-EU countries. At the end of the Brexit talks, we could usefully have not only a Secession Bill, but also a Free Trade Bill – inviting all-comers to trade freely with the United Kingdom. Indeed, drafting that Bill now might and implementing it earlier might just show our negotiating partners in Brussels that we really are deadly serious and that the trade gains will be ours.

That is a lot to think about. If the civil service daren’t put it all on paper, somebody else will have to.

Small Business Medicine is Poison

My teenage neighbour knows that good GCSE grades are better than bad ones. She has an idea that will help all students at exam time. Introduce a minimum grade level of C, so that no student, however bad, can be sullied with D, E and F grades as they enter the job market. Only joking. My teenage neighbour is not that silly. Apparently though my local council hasn’t got this point – having just advertised for a job vacancy in the department that subsidises small businesses. Unfortunately, the idea that it’s a good thing to subsidise small businesses extends far further than my local council – it is a nationwide misapprehension that needs correcting.

Most teenagers could work out that misleading students, parents, exam boards and prospective employers about pupils' scholastic abilities won't help anyone in the long run, because artificially altering GCSE grades to Cs and above gives a distorted picture of academic ability and employability.

Why can't politicians on the left work out similar logic when the case is small business subsidies? The answer, I suspect, is simple: competing parties are not primarily interested in logic, they are interested in securing votes - in this case, the votes of people that think too lazily to realise that small business subsidies are no better than GCSE grade subsidies - as both distort the market in which they operate.

The problem is, small business subsidies amount to the government taking taxpayers’ money and giving it to businesses that may or may not be viable enough to survive in a competitive market dictated by supply and demand. If taxpayers wouldn't voluntarily spend their money in these businesses then they are being artificially propped up against the majority of people's will. If taxpayers would voluntarily spend their money in these businesses then no subsidies are needed. The success of a business is not measured by the state's ability to prop it up, it is measured by whether it generates enough profit in a supply and demand market.

If demand for Jean's Knitwear falls, then prices may fall to increase demand. If Jean’s Knitwear can no longer generate a profit to live, the signals are there that her business is inefficient or that her products are low in demand. Prices in a free market are the signals that make what is being supplied adjust to the demand of those supplies. Alas, prices no longer provide this signal when politicians interfere with subsidies or controls - they stop prices exhibiting changes in the supply or demand for goods and services.

It's easy to see why small business subsidies are popular with voters. They make any party that endorses them seem caring, and mindful of struggling companies, as well as giving the impression of being supporters of the underdog against the often maligned multi-national corporations. In fact, I'd wager that most of the public like the sound of small business subsidies - so public support for them is a bit like pushing on an open electoral door. But like most things that sound too good to be true, the medicine is poison, because nothing comes for free.

The visible benefits are obvious - the beneficiaries are small businesses. But the losers are taxpayers who are having their money spent in places in which they wouldn't do so voluntarily. But more than that, the other losers - the invisible losers - are those missing out on opportunities to enter the market. Thanks to subsidies, Jean's Knitwear may now be staying afloat - but as well as taxpayer costs, the cost of such subsidies is the forgone opportunities for others goods and services suppliers trying to enter the market or stay afloat on their own merit. It's a shame when small businesses go under. But you cannot fix the problem by distorting price signals and forcing taxpayers to support them as if they were successful businesses. Only an fool would do that; well...that is, a fool, or someone who saw a popularity-winning policy and flaunted it to secure votes.