Young Owen meets the democratic problem

All rather amusing from Owen Jones here. He notes that the Labour Party isn't in fact the working classes en masse it is in fact drippingly right on middle classes deciding what would be good for the hoi polloi. The membership among the AB classes is higher than their representation in the population - and lower among the working classes. Not that anyone who both reads The Guardian and has also talked to an actual working class person would be unaware of this difference.

More interestingly, he comes up against the basic problem of expressed and revealed preferences:

Why is this an obstacle to becoming a social movement? The idea of leftwing middle-class professionals descending en masse on working-class communities to campaign at election time is fraught with issues, mostly arising from contrasting experiences and different priorities and outlooks. But this is merely a hypothetical problem because it simply isn’t happening. Political rallies may brim with enthusiasm, as do many local party meetings when it comes to debates about the party leadership. But some constituency Labour parties have grown three-fold yet experienced little or no increase in door-knocking; some even report a decline. When it comes to campaigning, Labour has a very large paper membership. There is a clear danger of it being reduced to voting fodder and a source of funds.

If Labour is to have a future, that has to change. A mass membership offers immense potential that, as of yet, is untapped. Labour needs to adopt a strategy – led by trade unions – to recruit and give leadership positions to underrepresented working-class people, particularly in the north, whether they work in supermarkets or call centres. There needs to be a concerted effort by long-standing experienced members to get new members to knock on doors.

People will say they want all sorts of things. But when you ask them to actually do those things they become less keen. And thus a rather basic concept in economics - don't look at what people say, look at what they do. If people aren't prepared to spend a few evenings door knocking in pursuit of greater equality then they don't think that greater equality is very important. On the simple grounds that if working for greater equality is worth less than watching reruns of the Royle Family then greater equality is, when it comes down to it, less important to people than reruns of the Royle Family.

Oh well, shrug, that's just what people think important. And we are supposed to be running this whole show so as to maximise what people actually do think is important, not what the urban intelligentsia think they should find important. Something which is even true of a party that claims to represent the working classes.....whether it's dominated by that urban intelligentsia or not. 

What the Hell did anyone think was going to happen?

Something of a facepalm moment here:

When George Osborne announced the introduction of the national living wage, my colleagues and I, who clean the Merseyside offices of HM Revenue and Customs, were pleased. We’re not naive – we knew we wouldn’t be in line for huge pay rises. But we did think it meant the government was taking low pay a bit more seriously – and when you’re on as little money as we are, any increase is welcome. We definitely didn’t bank on the firm we work for cutting our hours to pay for it.

In one sense this is fair enough, we don't expect people cleaning offices to grasp the intricacies of the minimum wage. But we should ask those who advocate such to grasp them and quite clearly, given the furore around this, they don't. And that includes the last Chancellor who is apparently quite as gormless on this as those further to the left of him.

If you raise wages by legislative fiat then employers will purchase less of that now more expensive labour. Yes, even if it's the taxpayers coughing up for that labour - as innumerable home care contracts are finding out. There're no great profit margins here that can be raided.

There really are only two options. Either less labour is purchased or the labour that is purchased must do more:

This isn’t the first time ISS has cut our hours, or the number of staff. In one of the offices in Bootle there are 19 floors and there used to be two cleaners to each floor. Now there aren’t even enough cleaners to take a floor each. This is only going to get worse. We can’t work any harder than we already do, but that’s what is expected of us. When any of us is on holiday, the rest are now expected to cover their work for no extra money.

Both techniques appear to be being used. And do note that this insistence that labour must do more is the same as, definitionally the same as, that "raising productivity" which is said to be how adaptation will happen.

There simply is no surprise here. Grab a passing Martian with no knowledge of economics or humans, explain supply and demand to them, and they would be able to predict exactly this outcome.

Raise the price of something and people will either purchase less of it of sweat that thing harder.

Our only question left is why our own government (and, of course, the Opposition) appears to have less knowledge of labour economics than some random passing Martian?

Why conscription means higher taxes

Thanks in large part to the work of free market economists Milton Friedman and Alan Greenspan working for Richard Nixon, in 1973 the United States abolished the draft and switched to an all-volunteer army. The pro-draft Generals debating against Friedman argued that paying patriotic volunteers would be substantially more costly than conscription.

Friedman, of course was able to point out the gap in their logic.

The argument that a volunteer army would cost more simply involves a confusion of apparent with real cost. By this argument, the construction of the Great Pyramid with slave labor was a cheap project. The real cost of conscripting a soldier who would not voluntarily serve on present terms is not his pay and the cost of his keep: it is the amount for which he would be willing to serve. He is paying the difference. This is the extra cost to him and must be added to the cost borne by the rest of us.

Yet sadly many otherwise liberal nations (Norway, Denmark, Finland and Switzerland) remain unpersuaded and continue to compel young men to serve.

A new paper in the journal Public Choice might hopefully persuade them otherwise. It shows that even if you ignore Friedman's point about the cost to the draftee, compulsion is still the wasteful option. Authors Javier Birchenall and Thomas Koch find:

that voluntary enlistments leave more high-income earners in the civilian sector, leading to a larger tax base. When income taxes are set optimally, voluntary enlistments lead to less distortionary taxation than a draft. 

Even though you can pay conscripts substantially less than volunteers, conscription still means higher taxes. This is because voluntary armies tend not to draw in those who have high-paying productive work available. Under conscription, these people will no longer be in the civilian sector paying the taxes that fund the military. That means that shortfall will be made up with higher taxes across the board for civilians.

There's nothing quite as conservative as a Progressive Radical

A common observation of ours here is that there's really nothing quite as conservative as the British left. The more they proclaim themselves to be progressive, radical even, the more they retreat into the world of yesterday. Owen Smith is a case in point. Here the self-proclaimed radical gives us his vision of the Forward to the 1970s movement:

He will propose:

Reintroducing Wages Councils, abolished by former Conservative PM Margaret Thatcher, across different sectors of industry - to boost pay above the minimum wage in sectors such as retail and care
Minimum guaranteed working hours and the abolition of zero hours contracts
Scrapping trade union reforms that curb the ability of unions to call strikes
To establish a Ministry of Labour
Same rights for agency workers as full time workers
Workers to be placed on company remuneration committees
A ban on companies being allowed to recruit only foreign workers

Mr Smith is also expected to call for an end to private provision in the NHS, more spending on public services and higher taxes on the wealthy.

This is one of those Reverse Chesterton's Fence moments. The original is that one cannot decide to remove something until one works out why it was at first inserted. The reverse is that we cannot go about reinstating mythologies from the past until we work out why we abandoned them.

And the truth is that for the British economy the 1970s didn't really work. Which is why we undid many of these 1970s style policies.

But as we say, nothing quite as conservative as the British left these days. Maybe they hope to disprove Einstein by it all working out differently this time?

Why public health initiatives have nothing on Pokémon GO

Pokémon Go is getting people outside and exercising more effectively than any public health initiative in history.

The app has been downloaded 75 million times since it launched two weeks ago and public parks, previously full of wind swept quavers packets and urban tumbleweed, have been overrun by enthusiastic trainers trying to catch ‘em all.

Some number crunching on the Independent revealed the estimated weight loss for Pokémon players, with those catching in the area of 100 Pokémon/24 hours losing a pound every three to four days – the equivalent to five hours of jogging.

Reportedly Pokémon Go is even beneficial to our mental health, with many recounting how it has helped people with depression, anxiety and agoraphobia to venture outside for the first time.

But with all these great health benefits (bar the odd person wandering off a cliff) one point keeps getting repeated. As Larry O’Connor put it: “Pokémon GO got more American kids off the sofa in four days than Michelle Obama’s seven years of haranguing.” So why do million-pound public health initiatives fail to achieve in years what some imaginary animals can do in a week?

An article in The Libertarian Republic last week quoted Adam Smith to highlight how Pokémon GO is the perfect example of why and how the market is better in enacting social change than any government initiative:

“Pokémon Go is not going to solve childhood obesity. It might not even make a significant dent. But it does illustrate how the market is far superior in enacting social change than any government could be. The key is not that the game developer cares so much about the children’s well-being, but that it wants to provide a product for which there would be a demand.

“To quote from economist Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Many do not understand that as society’s desires and values change (healthy living, environmentalism, etc.) the market must find solutions to meet the demand of those values.

“Pokémon Go is an interesting combination of satisfying a demand (that of a new video game), while providing a perceived social good of physical activity. I would bet a good deal of money that most children would take an afternoon outside with this game over Mrs. Obama’s program any day of the week.

“The market creates goods like this all the time, but people often fail to notice. Take for example the USB drive, or even more recently, cloud servers. Environmentalists and the EPA have been fighting for government protection of the planet for decades – and have made little difference. Yet, these free market innovations have done more for their “cause” than government ever has.”

The UK’s biggest public health initiative of recent times, Change4Life, may have beaten its modest launch targets but that translated as just 400,000 people signing up to the site in its debut year, with only 44,833 still engaging with it six months on. When an action is based on ‘ought to’ rather than ‘want to’ it’s never going to be as sustainable.

Pokémon GO has already released information about new upgrades, including Pokémon GO Pro, coming down the line to keep interest fresh. Big government (tax payer) funded campaigns just can’t move that quickly to keep peoples interest and maintain demand.

It’s also worth noting that these public health initiatives are pretty expensive in terms of return on investment. Although originally budgeted in for a whopping £75m over three years, the Change4Life campaign actually only racked up £11m or so a year due to government cuts. But that’s nearly £250 per user at the end of six months, an absurd figure.

If you were going to directly incentivise every overweight and obese adult in the UK (64% of us, scream!) at a rate of £250 then it would cost £10,400,000,000, rather more than the £4.2 billion that obesity is claimed to cost the NHS each year, although of course it doesn’t.

In contrast Pokémon GO makes $1.6 million a day from in app purchases. People are paying to have fun and getting fitter in the process, not paying to have a nurse give them a six-page leaflet on the bleeding obvious.

Of course interest in Pokémon GO will eventually drop off and the furore will die down, but people won’t stop playing mobile games that bring them outside. The technology to bring the virtual into the real world on your mobile is out there, and people will simply move on to newer, shiner and more engaging apps which meet demand.

So while the NHS can tell you to walk 10,000 steps a day, let’s leave it to the market to make you want to.

In praise of Britain's flexible labour market

We would not say that the overall picture here is desirable - no one does actually want to have a close rerun of the Great Depression. But the specific response of the British economy here is excellent. And this specific response is something that we've been working toward for some decades now. It's a result of Britain's hugely flexible labour market and it's one of the reasons why we made all those reforms in order to gain a hugely flexible labour market.

But of course, some don't understand this or, perhaps, would just like to find something to complain about:

Britain has suffered a bigger fall in real wages since the financial crisis than any other advanced country apart from Greece, research shows.

A report by the TUC, published on Wednesday, shows that real earnings have declined more than 10% since the credit crunch began in 2007, leaving the UK equal bottom in a league table of wages growth.

Using data from the OECD’s recent employment outlook, the TUC found that over the same 2007-2015 period, real wages grew in Poland by 23%, in Germany by 14%, and in France by 11%. Across the OECD, real wages increased by an average of 6.7%.

The TUC found that between 2007 and 2015 in the UK, real wages – income from work adjusted for inflation – fell by 10.4%. That drop was equalled only by Greece in a list of 29 countries in the Organisation for Economic Cooperation and Development (OECD).

If you look only at that then of course that is terrible. Signed sealed and delivered - an appalling outcome. But of course we should not look only at that, we also want to look at unemployment.

And there the British economy has done quite startlingly well. Unempl;oyment here is 2.5 percentage points lower than in Poland for example, well under half that for the eurozone as a whole and in Greece it's well over 25% compared to our shade under 6% (according to those OECD numbers which are not entirely up to date).

The point being that when the economy crashes, when GDP falls, there will be one of two reactions. Either wages are flexible and fall, or wages are inflexible and unemployment soars. Under models of previous versions of the UK economy the GDP fall that happened would lead us to expect unemployment to balloon out to 4 million, 5 million. And many people did so predict.

Instead, what happened? Wages took the hit, not jobs.

Of course, the GDP fall is not desirable in the least. But it having happened which would we prefer? Wage falls or mass unemployment? And the reason we worked so hard, starting under Thatcher of course, to have a flexible labour market was so that we could gain this result. Perhaps a crude calculation but better that 100% of us lose 10% than that 15% of us lose 100% of our incomes.

Thus this result can be seen as a surprise, yes, but a welcome one. We have managed to alter the economy so that if, as and when, there is that undesirable economic pain we now spread it, share it, rather than dumping it upon those who lose their jobs.

Isn't it lovely when a plan works?

The EU: It’s not too late

David Cameron rightly claims successes, Free Schools and Gay Marriage for example, but posterity will regard the main outcome, the EU, as a failure. Cameron began with a switch to an EU political party with no clout; potential allies were not cultivated; the UK was isolated in the wrong fights and lost in European courts.  The EU’s lack of accountability, both financial and democratic, was not exploited. The pre-referendum “re-negotiation” was John Cleese in the Specsavers advertisement.

The UK civil service, notably the FCO, and EU ministers exacerbated his difficulties, acting as a Brussels Fifth Column.  Even the House of Commons EU Scrutiny Committee under that notable EU sceptic, Sir William Cash, failed to have a single EU Regulation or Directive rejected by Parliament.

The new EU minister, David Davis, will, on past form, show more vision, backbone and imagination. Or let us hope so.  The key weapon is “subsidiarity”.  Sir John Major deserves more credit than ever received for the Maastricht Treaty which, confirmed by Lisbon, stated that all legislation should be left to member states unless there was a really compelling reason , such removing trade barriers, why the legislation must be pan-EU.  The Commission did not like that one little bit and has ignored it ever since but it remains EU law.

Subsidiarity is equally ignored in Whitehall which prompts legislation at the EU level - less work for them and Brussels gets the blame.  But Cameron should have been better briefed:  much of the sovereignty he was demanding is already on the EU statute book, even though Tony Blair, perhaps in a bid to be EU President gave away the social part of the Maastricht Treaty and increased the UK’s share of the budget without any improvement in Brussels’ financial control.

To secure a favourable Brexit, Davis needs a stronger bargaining position.  Saying the UK buys more from the EU than it sells to the EU is negated by the argument that we are only a small share of EU trade, i.e. they can afford to do without us more easily than vice versa.  The EU strategy for dealing with Brexit (they had one; Cameron did not) is to insist of Article 50 being triggered and a list of UK “demands” before negotiations begin.  Then those demands can be treated as Cameron’s were and we depart with the worst possible deal.

If the UK insists, however, that subsidiarity is put into effect, as we are entitled to do, before Article 50 is triggered, we play to Germany’s worst fear: indefinite delay.  Thousands of directives and regulations would have to be amended or Brussels would have to show the EU courts, for each one, why their pan-EU status is justified.  The alternative would be a quick and dirty deal satisfactory to the UK.

A common market, as has been shown in other parts of the world, no more requires free movement of people than equalising wages or taxes. Only gross distortion of competition should require EU intervention. Subsidiarity and a truly common market, still not achieved forty years on, are the keys to prosperity for for the EU and the UK.

If your enemies define you, Pokémon Go is doing something right

The Pokémon franchise is a testament to the brilliance of consumer capitalism. An innovative and seemingly absurd concept delivered by a multi-national corporation to fulfil desires that consumers did not know they had, spawning a hugely entertaining, and profitable, franchise. 

As someone who grew up in the 1990s, the games, cards, toys, and anime of Pokémon made up much of the wallpaper of my childhood. Amazingly, it continues to fulfil a similar role for subsequent generations as new Generations of games, and the nineteen year-old anime, continue to consistently attract children of any sex and age and, increasingly, adults.

This widespread success probably has something to do with the variety of Pokémon (some powerful, some cute); the distinct goals (you can ‘catch ‘em all’ or create the strongest team); the harmony of continuity and development; and the multiple mediums. 

The release of Pokémon Go, an augmented reality app that allows you to catch and fight Pokémon ‘in the real world’, has been a huge success even by Pokémon’s standards. Downloads in the UK exceeded 5 million in its first week and Nintendo’s stock price has exploded (until new guidance suggested Nintendo won't make quite the revenues they expected from Go). In particular, the game has been popular among adults, such as myself, who played Generation I twenty years ago. 

Although fundamentally based on a simplistic gimmick of throwing balls at small Japanese monsters, Pokémon Go is great fun. This is partly due to accessibility and the ease of play, contrasting with many contemporary games, which develop hardcore cult followings but lock out normal people. Nostalgia value and Pokémon’s inherent mass appeal are also factors. And the fact that the app is free doesn’t hurt. Mostly, though, it is the familiar (Pokémon) being used in conjunction with the novel (augmented reality gaming) that has made the game an explosive success. 

Not unexpectedly, with great success has come great resentment. A legion of rag-tag undesirables has lined up to express their fear and loathing of Pokémon Go. Every species of misanthropic misery-merchant, including religious fanatics, anti-capitalist clowns, creepy paternalist regulators, busybodies, and envious nobodies, has come out of the woodwork to attack people for having fun.

This is nothing new. All of the worst people hated Pokémon from its inception. It has long been accused of being Satanic/Masonic/Jewish (as, I believe, is the ASI in some circles). Saudi Arabia issued a fatwa in 2001, which has been renewed for Pokémon Go to emphasise that they’re still ridiculous in 2016. Fundamentalist Christians hated its promotion of evolution and Satanism. Moral guardians panicked over violent content. And left-wing pseudo-intellectuals frowned upon its competitive and consumerist ‘gotta catch ‘em all’ ethos. 

Pokémon Go has proven an even greater ire-magnet. Gaming purists are sneeringly disdainful about AR technology taking off with something as trivial, mainstream, simplistic, and lowbrow as Pokémon. Conspiracy theorists are convinced that the Illuminati/government/corporations have sinister intentions for the data it accesses. Nanny-statists have jumped on exaggerated safety concerns to strangle the game with red tape. The far-left are making vague, vapid noises about AR vindicating nonsensical concerns about alienation and capitalism. And Internet identitarians are desperate to prove that Pokémon Go, like everything else, is racist and classist.

I suspect that most of the swivel-eyed hatred towards Pokémon Go stems from bitterness over the benefits it provides and the enormous potential it merely hints at. For puritans, the idea of people actually being happy is offensive. For luddites, the idea of technology making people happy is horrifying. For nanny-statists, the notion that the market can solve ‘social issues’, such as obesity, is terrifying as it makes their existence redundant. And for the hard left, any evidence that capitalism provides any kind of benefits to anyone needs to be explained away and smeared. 

AR can only be increasingly important, innovative, and profitable. Any trial run deserves interest and respect. Pokémon is an ideal fit because it is simple, user-friendly and a tried-and-tested formula. A previous attempt at an AR game, Ingress, was less successful, despite near-identical technology, due to being more complex and lacking brand recognition.

The fact that it is played outdoors and requires players to move around promotes exercise and exploration. The technology could be one of the best ways to keep people fit. It also gets people talking: strangers on the street and the bus have engaged me in conversation about catching Pokémon. Asides from the boost to Nintendo’s stock, other businesses are benefitting, with many attracting customers by becoming Pokémon hotspots. 

And, most importantly, people enjoy it, directly undermining the agendas of most of its critics.

We think that BHS report is rather biased against Sir Philip Green

Or at least that it is possible to think that Sir Philip might have a point here:

Sir Philip Green has broken cover to complain that a highly damning report by MPs was a “biased and unfair process”  and is considering a legal complaint against the co-chairman of the Commons select committee responsible for the inquiry into BHS.

Aspects of this have been mentioned elsewhere but we think it important enough to repeat.

The essential set up of the report is that BHS paid substantial dividends to its owners then some years later there is a substantial pensions deficit. That is quite obviously true.

However, there're three points which really should have been investigated further.

1) As the report itself notes low interest rates play merry havoc with investment returns on pension funds. Assumptions of low interest rates out into the future blow out that deficit in a major fashion.

2) The pensions funds were slightly in deficit in 2006 and vastly so now in 2016.

Both of those points are to be found on page 3 of the report.

3) What is not found in the report is that interest rates have, under the monetary policy of the Bank of England (something we fully support), fallen from 4.75% to 0.5% over that period of time.

We are not pensions actuaries but would and do assume that some, perhaps a rather large, portion of that pensions deficit is due to that move in interest rates rather than anything which was happening internally to the company.

Further, we think that we would all be rather better informed if the report had pointed this out and attempted to quantify it. It didn't - therefore we think that it would be fair to say that there could be thought to be some bias in this report.

How much bias would depend upon someone doing that calculation. If anyone would care to inform us we'd be most grateful. As, obviously, so would Frank Field and friends as they become better informed.

Corporations are the backbone of capitalism

Legal distinctions between things are important. The ability to sign different sorts of contracts for different areas of life opens up a wide range of extra choices. For example, an employer can feel more secure about an employee if they are under contract and can plan on this basis, and it is very similar from the employees perspective. If we were unable to sign employment contracts this would significantly reduce the range of things we could achieve with our lives individually, and that society could achieve collectively.

This is as true for complex multilateral interactions as it is for one-on-one bonds. Allowing people to incorporate into a company has many benefits and has independently evolved around the world. This doesn't just apply to limited liability business firms, or even to profit making firms generally; traditionally towns were run as a corporation with specific legal rights and duties. Today their role and structure are mostly homogenised from above. The most recognisable now is the City of London corporation, which retains a lot of its old traditions but without many of the traditional functions that once gave it meaning.

Constant decision-making by multipolar bilateral agreement has very high transactions costs. We do not subcontract employees for every individual task we need done; we do not usually sell our labour by piece but agree in advance to a very large range of outcomes that might occur, so long as they're arrived at by known rules, consented to in advance. The same is true for city corporations: making decisions for spatial areas is prohibitively costly if always done on a case-by-case basis: everyone can raise their welfare by agreeing on decision-making systems in advance.

The same is true with modern incorporation. Is it possible to trade as a non-corporate in the UK, as a sole trader or a partnership. Most firms (by count, though not by value or employment) are of this sort. In one sense, you have more flexibility this way: you are bound by fewer rules and regulations. But in another more important sense, you are bound: it is very hard to convince lenders that you will use their money well, or that you will still be around to pay it back, precisely because you are flexible. By contrast, corporates, forced to reveal more information, have more options precisely because they are bound by the strictures of their legal form.

This is borne out by a large empirical literature. Firms that incorporate grow faster, increase their productivity and employment quicker, and contribute more to the economy. One of the main costs of corporation tax is levying a higher tariff on the corporate sector than on the non-corporate sector. This distorts firm structure to be less corporate than it would otherwise be, and thus drives capital away from where it can be used more efficiently, or even reduces the total amount of saving and investment.

A new paper (pdf) from Li Liu and Michael Devereux, of the Oxford University Centre for Business Taxation quantifies this cost. They find that a 2006 UK reform that reduced the number of unincorporated firms choosing to incorporate by 4.5% thereby cut investment. Unincorporated firms, without the ability to credibly show investors info, were credit constrained, and could only use funds they'd built up themselves—a £1 reduction in internal funds meant a full 90p reduction in investment.

There's two ways of interpreting this result, both of them valid. One of them is that taxes, particularly capital taxes, have large economic costs. This is true. But I think the most important conclusion to draw is the importance of legal structures for economic success. It might seem trivial to require, for example, shareholder votes to pass important firm decisions, but in fact most firms in the most economically successful countries arose with the freedom to choose from a much wider range of corporate forms. Banning the freedom of people to engage in free association which involves binding themselves often reduces their ability to achieve as much as they might.