A ridiculously silly complaint about the national living wage

We should emphasise here that we are not in favour of Osborne's new national living wage. The correct answer to some people being perceived as having too low an income is not to start price fixing, messing with the market. Instead it is for those who insist that those incomes are too low to put their hands into their own pockets and top up those incomes they perceive as being too low. Yes, it is simply moral that those doing the insisting do the paying.

However, it is also possible for there to be very bad arguments against this national living wage. And wonder of wonders The Guardian manages to find someone willing to make such a ridiculous argument:

The introduction of the national living wage has done two things; it has symbolically detached workers aged 21-24 from the entitlements afforded their older colleagues, and it has added another rung to the ladder that must be scaled in order to achieve financial security and independence. While today the work of a 22-year-old is recognised as adult labour, with commensurate minimum earnings, tomorrow the national living wage will reduce its relative value and the workers’ comparative income.

This is made more desperate by the terrible position young British workers are already in. Despite low levels of overall unemployment, running at 5.1% for the three months to January 2016, the unemployment rate for 16- to 24-year-olds was two and a half times higher, at 13.7%.

That higher unemployment rate for young people is exactly and precisely why the national living wage only kicks in at age 25.

A minimum wage, whatever it is, will bite most upon those who have the least value in the employment market. That is, the young and untrained. That the youth unemployment rate is so high is exactly the evidence we need to show that the current minimum wage is already too high. For a "too high" minimum wage will show up as unemployment, that unemployment will appear among those with the least workplace value, those young and untrained, a higher unemployment rate among the young and untrained being proof that the minimum wage is too high.

But that is not why this complaint is ridiculous, that is just why this complaint is ignorant. What makes it ridiculous is the following. If we now have a higher minimum wage for those over 25 and a lower one for those under, what does this do for the relative demand of workers over 25 and under? Quite, there will be a shift in demand toward those now cheaper younger workers. That is, the very thing that is being complained about, that higher youth unemployment rate, will in part be cured by the very thing that is being complained about, the age limit on the national living wage.

As we've noted before the Daily Mash really does have something with their statement about The Guardian, wrong about everything. All the time.

Obama is wrong about the difference between capitalism and communism

President Obama recently told Cuban kids not to worry about the philosophy of communism or capitalism, but just go with what works. I have little problem with that because most people are indeed not bothered with matters of philosophy, and we know what works – and it isn’t communism. So if they do what works they will end up as capitalists.

But I do get angry when it is suggested that there is ‘little difference’ to choose between these two philosophy. The trouble is, that there is very little difference between communism and what’s called capitalism these days, largely because our politicians do not understand the philosophy themselves.

Maybe it’s just my recent speed-dating of Ayn Rand rubbing off on me, but I think we need to promote a much deeper understanding of the principles underpinning our system, in particular their ethical roots, nature and results.

Obama, for example, is at pains to point out that capitalism is just fine, provided that we make sure it has a proper ethical dimension. Which shows that he thinks that, by itself, it doesn’t, and that it somehow needs to have morality regulated into it.

Yeah, well what about the ‘moral' basis of communism? It’s not capitalism that murdered 3,000 people a day when it was going strong (add them up: Stalin, Mao, Pol Pot’s purges just for starters). And capitalism at least treats people like human beings rather than as tools in someone else’s thinking, and respects their lives, families and property. In Cuba, you have a cow and because your family is starving you kill it to eat. Then you go to jail because it’s not ‘your’ cow, it’s the state’s cow. How moral is that? 

Sure, you have to be nice to communist leaders if you want them to talk to you and maybe then have an impact on them; but there must be ways of letting them know that as a matter of plain fact, it’s communism that stinks, not capitalism, both in theory and practice. The general mass of their own population, of course, already know that.

The TUC has a complaint with reality

The Trades Union Congress has a complaint it would like to make to someone about the reality of our universe. We're not sure they're going to get very far there being no central ruler but they want to complain nonetheless:

In 2014 the UK was home to 2,926 €-millionaire bankers, according to new report published by the European Banking Authority.

This is more than ten times as many as Germany, who come in second with 242.

If we could just draw attention to some of that reality?

London has more than 40 percent of the global market for currency trading. Almost half of the world's interest-rate swaps business takes place in the City, as does a third of European equity trading.

It is, of course, wholesale finance that pays the big money. And it wouldn't be all that much of an exaggeration to state that London's part of the global wholesale financial industry is some 10 times that of Germany. Nor that London is home to the majority of the EU's wholesale financial industry.

Wholesale financial services is just something that Britain does rather well, thus the number of people here who are highly paid to do it. The complaint is akin to shouting about how the UK and France have almost all of Europe's highly paid rugby players. When, to a significant level of accuracy, they are the only two countries with paid rugby players.

That international playing out of comparative advantage has just left us doing the high finance and Germany doping the dumpling making. The bulk of highly paid dumpling makers being in Germany, the bulk of highly paid bankers being in Britain. To complain about this is to rail against the universe. And to no very great end either.

The liberal case for 'Leave'

The EU referendum campaign is presenting us two competing choices. On the one hand a vision of Britain as part of a steadily-integrating EU (at whatever speed) or a vision of Britain completely outside it.

For the Remain side, we are required to anticipate what may happen over the next generation which, if the last 40 years are anything to go by, will mean a gradual growth of EU power into more and more areas of competence - the ratchet towards “a country called Europe”.

The vision of Britain outside generally uses a number of arguments employed over a long period: of the need to regain our sovereignty and become a self-governing democracy again; to have the flexibility to deregulate; to spend the UK’s EU contributions on something better inside the UK; to drive forward better trade deals with countries beyond the EU; and to constrain immigration.

However let’s take this from a different angle and set out a third vision - a Leave proposition that rejects some of the arguments outlined above. In short, a liberal case for Leave.

Read more.

There's more to the minimum wage than 1998

One of the difficulties in economics is isolating the effects of particular actions in a very complex world. If we cut income tax this year and next year tax revenues are a little higher, it’s tempting to attribute that to the tax cut. But maybe it’s actually because oil prices fell, or because growth was picking up anyway.

To get around this, economists try to aggregate large numbers of data points – that is, look at lots of different times when we cut income tax and see what the effect on revenues were, ideally adjusting for things we know might affect growth, like the price of oil. Using lots of different data points helps us to cancel out ‘noise’ and focus in on the effects we really care about.

Another example: If oil prices rise, and consumption of oil doesn’t fall, we don’t throw out our model that says people use less oil when prices rise—we acknowledge that oil’s price isn’t the only factor. Perhaps it was particularly cold just after oil prices rose, so people needed more for heating; perhaps there was a big national holiday and everyone used their car more. Similarly when the price of labour jumps and employment doesn’t fall, this doesn’t mean that employers don’t take wages into account, it might mean there are countervailing factors: employers can pass some costs on; employers can reduce other benefits; or employers are going to reduce hiring to take account.

This is why it can be foolish to point to a single example of a tax cut appearing to raise revenues or to point to a single example of raising or introducing a minimum wage not causing unemployment. The latter has been very common recently. We didn’t see unemployment rise in 1998 when we introduced the National Minimum Wage, so people saying the new National Living Wage will hit jobs are on thin ice.

The LSE’s Prof Alan Manning, who is an expert on minimum wages, does this in the FT today, being quoted as saying that “prophecies of doom … turned out to be wildly inaccurate then; I suspect they will be this time as well.” I guess Prof Manning is being glib – he knows all the literature and that a single event isn’t indicative of very much, but it’s misleading to most people reading who do not.

The graph above, via Menzie Chinn, shows a meta-analysis of the impact of minimum wage rises on employment from 1,424 data points – an elasticity of -0.5 means that a 1% rise in the minimum wage is associated with a 0.5% fall in employment for the affected group. The red line is the mid-point of a range (-0.1 to -0.3) suggested by David Neumark. The graph above seems to suggest that the effect is negative but small; Neumark argues that the international evidence points to a clear disemployment effect.

Other research, which is again based on data from large numbers of events, not a single event, suggests that minimum wage rises tend to slow down job creation rates over time. The effect here seems to be that employers are reluctant to actually fire workers (perhaps for the same reasons they are reluctant to do so during recessions) but become less willing or able to hire new ones. Another paper suggests that job losses are avoided by passing the costs on to consumers.

The right is guilty of the kind of error I'm criticising, too – the OBR disputes the claim that cutting the 50p tax rate really raised revenues, suggesting that the increased revenue came from people deferring income until the rate was cut. I don’t hear many supporters of the 50p cut acknowledging that.

It also needs to be pointed out that the level, not just the rate, of the rise in the minimum wage matters too. In 1998 the NMW was introduced at £3.60 per hour, or £5.71 in today’s prices; the new National Living Wage will be £7.20 per hour. A comparably small rise may still raise the level to a high enough point that it does cause serious problems in terms of job losses.

It may be that the NLW does cause job losses, which are masked by other positive effects. It may be that it doesn’t, but the economy dips anyway and it looks as if it does. It will be impossible to say either way if we just look at this one event. The trick is to look at many events and test our hypotheses against the aggregate, not to cherry pick single events to make a point.

The difference between France and a liberal nation

We would not say, ourselves, that we are greatly in favour of the burkini and other such manifestations of Islamic prurience. Yet we would, as with people saying things we might not agree with, insist that the populace should be allowed to dress themselves in any such manner that doesn't actually frighten the animals. This is rather the point of a liberal polity in fact: although that seems not to be a view shared by parts of the French state:

Learning of the quintessentially British brand’s decision to release the burkini, Laurence Rossignol, France’s women’s rights minister, slammed the move as kowtowing to misogynists and religious conservatives, adding that women in favour were like "negroes who supported slavery".

Speaking to RMC radio, Ms Rossignol said: “What’s at stake is social control over women’s bodies. When brands invest in this Islamic garment market, they are shirking their responsibilities and are promoting women’s bodies being locked up.”

“You cannot pass off as trivial and harmless the fact that big brands are investing in a market that puts Muslim women in a situation of having to wear that.”

We can and would pass off as entirely trivial that such garments are being produced, even for the purpose of making money. For it is not, except with that animals exception, for the State to detail how the population may dress. Nor even for said authorities to determine how modest women may or must be.

A liberal society lets people decide for themselves. Sure, people might get some very odd looks, a bit of social pushback, wearing a burkini, same as a thong and some dental floss at the beach might garner excessive attention. But it is for those who dress this way and those around them to sort out, not for those who collect the tax and control the men with guns.

After all, it is entirely legal for a woman to uncover her breasts on a French beach but no one has ever said that it's mandatory. So too with unveiling or covering up any other part of the body.

The clothing ode of the populace is for said populace to determine and no, not through the tyranny of the majority either. In, that is, a liberal polity.

Why not get all Marxist about the libraries?

We've another of these dirges about how the libraries are under such great threat:

Nearly 350 libraries have closed in Britain over the past six years, causing the loss of almost 8,000 jobs, according to new analysis.

In a controversial move that sparked protests by authors including Philip Pullman and Zadie Smith, councils across the country have shut their reading rooms in an effort to make deep savings.

Children’s author Alan Gibbons warned the public library service faced the “greatest crisis in its history”.

All of which brings out our inner Karl Marx. Who did insist that the forces of production (ie, technology) determined social relations. And if we're to be a little more narrow about this, technology determines, or at least should, how we go about doing certain things. The economic historian Brad Delong has long pointed out that the university teaching style of a lecture is really just a hangover from medieval days. When books were vastly expensive (a scholar might hope to accumulate a library of perhaps a score volumes over a lifetime) then having one person reading that very expensive product to 200 made some sort of sense. When a copy of the book costs less than the hourly wage of the reader perhaps less so.

So it is with libraries. When books were much more expensive than they are today then increasing the Solow Residual (in exactly and entirely the manner that Uber and so on do today, the sharing economy) through reuse and lending made great sense. But technologies change, relative prices change. It may or may not be true that we have reached that tipping point just yet, where the value of the books being lent is less than the cost of running the lending system, but we think we can all see that that is going to happen at some point.

The point is thus not that libraries are closing, nor that we should all fight the power to prevent it. What should actually be the discussion is, well, do we need libraries any more? And if we still do then when won't we?

But of course, as C. Northcote Parkinson pointed out, there's nothing as conservative as a bureaucracy considering its own existence.

Recommended books – the other list

Almost everyone on the libertarian free-market side recommends a similar top  ten books, including the classic works of Hayek, Popper, Friedman and the others.  They are in my top ten, too.  However, I have drawn up a second list, one of books less celebrated, but which sustain, if more obliquely, a similar philosophical outlook.  The message running through is anti-systems, anti-centrism, anti-despotism, pro-freedom, pro-spontaneity and pro-individual choice.  Of my new list, two are history, two philosophy, two economics, two politics and two science fiction.  It's an eclectic mix, but there is much there to stimulate to reinforce and to reward.

Everyone will have their own 'other' book list.  This is mine; I hope you enjoy it.

Ooooh the outrage over Tesco and the other supermarkets

That Tesco's brands a few of its products with the names of fictitious farms is amusing, as is the outrage that this has brought forth from the usual suspects. But then matters take a turn for the worse as we get a question of such driveling stupidity as to potentially make our brains leaks from our ears. Or possibly to ponder whether this has already happened to the questioner. We refer to this from Yvonne Roberts:

How have we allowed a system to emerge that squeezes the whole supply chain in the name of profit and seduces us into ignoring our carbon footprint for that dubious consumer privilege called “choice”?

For this is the point and purpose of having an economy in the first place. Both Adam Smith and Frederic Bastiat tell us that we must always look at economic questions from the point of view of consumption. And we can and do go further than that ourselves: the point of this whole economy thing is to maximise the consumption possibilities of the population. What is to be consumed, how such consumption is to be valued, being the choice of said population. If choice is what said people value then an increase in such choice is an addition to the value they gain from consumption: which is, again we insist, the reason we have this whole structure of markets, exchange, production and all the rest. This is the very purpose of our efforts: to increase consumption opportunities.

Profit is simply a method of keeping score along the way. If you make a profit in your production process then that means that you are adding value. The value of your outputs is greater than the value of your inputs. More accurately, the alternative uses of those inputs would produce less value added for consumers to enjoy. Thus profit is a good thing, losses bad, for losses indicate that you are subtracting, rather than adding, that value which can then be consumed.

If growing a pig in Belgium, slaughtering it in Germany and eating it in England produces more value for the consumers to consume than to grow, slaughter and consume a similar pig in England then so be it: this is the very point of it all, to produce the greatest value of output that may be consumed from the limited resources at our disposal.

Choice, consumers, consumption, these are not things to be disdained from the comfort of an Islington eyrie, they are the entire damn point of having a society or an economy in the first place.

Take the Easter egg. The salt may have come from China; palm oil from south east Asia; whey from New Zealand; sugar from the Caribbean; cocoa from South America, on and on. Britain imports food from more than 180 countries.

Ain't it just fantabulously wondrous?

Yes, this is how school competition works

School competition works in exactly the same manner as other forms of competition that is. It's something that happens at the margin, that margin then dragging up the performance of others:

There is no evidence that academies perform better than council-maintained schools. The white paper highlights impressive improvements in primary schools – 85% of those are still maintained. 82% of maintained schools have been rated good or excellent by Ofsted, while three times as many councils perform above the national average in terms of progress made by students than the largest academy chains. Where a school is failing, there is no question that action must be taken – but converting every school to an academy will not tackle those issues.

Think of a different arena to study the effects of competition. We know very well that the firms who export are those at the productivity boundary: exporting firms are near always significantly more productive than the other domestic firms in that same sector. Now think of the flip side of that statement: imports from Germany into Britain expose British companies to the finest and most productive German forms. This is one of the major channels by which trade improves productivity. Domestic firms must compete against those imports and near by definition those imports are coming from firms with greater than average productivity. Thus the domestic firms have to pull their socks up.....or be replaced by those who do.

Imports are not, of course, a majority of the UK economy: but that exposure to the best does improve matters over the whole economy. Now back to academies and schools: that some small portion of the education system are academies is exactly what, entirely analagous to that effect from trade and imports, is improving the non-academy state sector. To state that non-academies are improving too is not some symptom of a failure of the program, it's evidence of the success of the program: competition works.

At which point, turning all schools into academies. If it works, as it does, if it's working, as it is, then why not? After all, we do all believe in evidence based policy making, don't we? Good, academies, the competition and freedom to experiment that they bring, are improving the school system by their existence. Thus let's do more of it so as to have an ever better education sector.

Unless, of course, we'd prefer to return to the policy based evidence making of yore which insisted that competition was a bad thing....