The Pin Factory Blog

The public sector strike called for 30 June is just political. It is supposed to be a protest against cuts in jobs, pensions and public expenditure. But real public expenditure is set to fall by just 0.7% this year – a budget cut which most private sector firms and workers would take in their stride. If we don't want to end up like Greece, the government has to balance its books. It's doing just enough to trim its spending, but no more: it is going to keep on borrowing for as long as anyone can see.

As for pensions, public sector pensions are hugely generous and, even after the proposed changes, still will be. Private sector workers don't expect to get index linked pensions at just 60, as some public sector workers do. They may well be in difficult and dangerous jobs: but so are many private sector workers who have to slog it out until 65 (and soon, beyond). The Office for Budget Responsibility reckons that the gap between public servants' contributions and the pensions that are paid out will double to £9bn in the next four years. And we are all living longer. That's why the Hutton Report recommended basic contributions on average (rather than the often-inflated final) salaries, the same as they are in Sweden. It is why public sector workers – but not the poorest – will have to pay another 3%, and work just as long as the rest of us.

It's argued that public sector wages are lower than the private sector average, so the existing pensions are fair. Not so. Yes, there re lots of low-grade jobs in the public sector, which brings down the average. But for like-for-like work, public servants are better paid. They have more generous holidays, a lot more job security, and throw more sickies. And get more generous pensions too.

On jobs, the plan is to shave public employment by 100,000 by 2015. That's not a lot out of a workforce of 6,160,000. And many of those will be entirely voluntary redundancies. Again, millions of private sector workers who have seen their businesses fold, their hours reduced, their pensions and perks cut, or their jobs lost must wonder what the fuss is about. They think it is about time that public sector workers shared the pain.

And it seems that many public sector workers wonder what it is all about too. Yes, 61% of the public service union supported the strike, and over 90% of for the teachers' union – but on turnouts of 32% and 40% respectively. In other words, this strike is being called, when negotiations are still in progress, with the active support of only a fifth of the workforce.

That is unacceptable in the public sector, because most public services are monopolies. If your local Asda workers go on strike, you can always take your business to Morrison's or the Co-op. If coastguard stations, driving test centres, passport offices, and schools close down, you have nowhere else to go. Certainly people should have the right to strike: but in the public sector, perhaps strikes should be feasible only on a vote of more than half the employees.

A 'day of rage' it may be. But rage, I think, against the economic reality that the public sector jobs and spending spree is no longer affordable.

It was only fudged figures that let Greece into the Euro in the first place. But EU leaders were keen to make the Euro a Really Grand Project, and of course nobody wanted to be left out. That would be too humiliating. So the fudge thickened, and Greece was thrown into the pot.

Well, we knew what would happen, and here it is. Greece is going to go bust. There is nothing surer. It owes more than 150% of its annual income. And it's still spending. Five years from now, says the IMF, it will still owe nearly 150% of its annual income. And example after example in the past tells us for sure that when you continue to owe money on that scale, you will – before long – go bust.

There is a huge amount of political capital invested in the Really Grand Euro Project, so EU leaders have done whatever is necessary to keep the facade manned. Relatively rich Germany, in particular, has been pressured by everyone to keep bailing out Greece. And the argument is that Greece is pretty tiny in the scheme of things, so bailing it out – and even bailing out Ireland and Portugal too – is affordable and preserves the Project's credibility. But every day, more clearly, it looks like throwing good money after bad. And the IMF – now that Dominique Strauss Kahn has gone – is putting more stress on getting the economic fundamentals right rather than saving the Project's skin.

Of course there is financial capital at risk too. European banks hold more than $50bn worth of Greek government bonds. Not exactly a secure investment: nobody in their right mind today is prepared to lend to Greece for much less than 30%. All we can hope is that when Greece does default, the situation will be managed in some orderly way. But on the bright side, a Greek default would concentrate the minds of a few others. You know their names.

A fun little piece in The Guardian from a trader at Borough Market. Essentially he's been thrown off his pitch and wants to know why?

Well, the actual "why" is: because they can.

Borough Market may well be run by a trust but that doesn't and won't change the basic actions of those who think that they're able to squeeze a rent out of an asset. And no, I don't mean a rent as in rent for a pitch, but in the larger sense. The very collection of high priced (and possibly high quality) purveyors of comestibles at Borough makes the market as a whole more valuable.

If (as the accusation seems to be) people start moving off the controlled site, still selling such desirable comestibles, then this may well indeed lead to an even greater value for all in the area. More people coming, to take their pick of more traders: this is exactly what led to medieval (and many European still) cities having quarters devoted to certain trades (I recall on arrival in Lisbon asking for tips on a couple of good furniture stores. I was told to simply walk down one street, that's where they all were). However it lowers the power, the rent, available to those who held the formerly exclusive right to grant permission.  

Borough Market itself is simply being a capitalist, maximising the value of the asset they control rather than looking to the wider interest. And that's just fine, capitalists should be attempting to maximise the value of their assets. But this is where the freedom of markets comes in: their control should extend only to their asset not to anything else. Borough can indeed throw out traders they don't like: but we should be equally free to set up a market next door, to patronise whichever we like and to purchase our cheeses from the monger of our choice.

If I were in London I'd be knocking on doors in Maltby Street looking for my cheese this weekend. For that's the other lovely part of this markets thing. We get to vote with our pounds as our wishes take us.

The debate over same-sex marriage often rests upon the authority Leviticus. However, the Bible, while filled with heavenly wisdom, sometimes does not provide the best modern legislative guide (see Deuteronomy 12: 11-12, for instance). Esoteric debates on natural rights and Judeo-Christian morality have merit, but nothing is more successful in wooing me in one direction over another than a well-calculated spreadsheet.

A study by the Williams Institute at University of California, Los Angeles, (PDF) does just that. It analyzes the impact of legalization of gay marriage in Massachusetts, then extrapolates the data and applies its findings to California’s economy. What follows is nothing short of an economic justification for gay marriage.

The study forecast the following trajectory: an initial wave of marriages – a result the significant built up demand among pre-existing, committed same-sex couples – followed by the gradual tapering off, with the overall marriage rate showing a lasting increase.

This wedding bubble would have following economic effects: Gay couples would spend nearly $700 million on wedding services over a three-year period’ Over 2000 jobs would be created in the nuptial industry. Allowing economic activity to take place is the key to growth. Another study by the non-partisan Congressional Budget Office reported that the liberalization of marriage requirements across all 50 states would generate an additional $1 billion in revenue annually.

Furthermore, legalization would almost certainly encourage gay immigration. Given the acrimonious debate in the UK over immigration in general, let's take a minute to justify a policy that would specifically increase gay immigration.

People in same-sex unions have higher rates of college education than those in straight partnerships (40% vs. 27%), which is shown to be negatively correlated with criminality. Gay couples tend to be wealthier than their straight counterparts (average household incomes of $80,610 and $73,655, respectively). And of course, gay couple are just cooler (difficult to quantify, but impossible to deny – some would call it cultural capital).

While the debate has so far defined gay marriage as a political issue, it can be framed as a question of market freedom as well. The gender restriction on marriage ought to be abolished. The UK should liberalize its marriage market by removing the moral monopoly that currently exists. 

As regulars will know, I'm generally in agreement that climate change is happening and that we might want to do something about it. However, as said regulars will also know, I disagree vehemently with the generaly received wisdom of what we ought to be doing about it. Stick on a carbon tax and let the markets sort it out, forget all of this planning, targetting and picking technological winners.

My deeps and abiding suspicion of what we are told we ought to be doing seems vindicated. For it turns out that WG3 (in the tangled jargon of the IPCC reports, the "what we ought to be doing" bit) has actually been written by Greenpeace.

No, really: "New IPCC error: renewables report conclusion was dictated by Greenpeace" and that's from Mark Lynas, the bloke who wrote a whole book about how we'll all boil when it's 6 degrees hotter.

It's worse than that actually. Greenpeace and the people who make all the windmills and the solar cells and the.....they wrote the report. What was presented as an impartial, based upon the best science, report was in fact a lightly warmed over report from eco-loons and those who sell the purported "solution".

You may recall a month or so back stories telling us that renewables will be able to power our civilisation and so it's all going to be alright? Yes, it's that report. And no, it's not just that the nutters were asked to write it. There's a much larger problem as well.

For what was released a month ago was just the "summary for policymakers". What wasn't released until just this week was the actual report. It's only now that we can see who wrote it. Further, it's only now that we can see the mindgarglingly stupid assumptions that underlie it. For a start their assumption is that in 39 years time, a world more than twice as rich as it is now, with another 30% odd rise in population, is going to be using less energy than we do now.

Another particular joy was: "That study also assumes rapid technological progress in renewables and none in fossil fuels." This is insane. Not just that we'd obviously assume at least some improvement in fossil technologies: perhaps equal to the sort we've had in the past 39 years maybe. But that it doesn't even make sense as a sentence. If we've two competing ways of doing something, two technologies, then we know absolutely that changes in one are going to spark changes in the other. At minimum, rapid advances in renewables will make fossil fuels cheaper as demand for them falls.

My personal opinion is that this whole process has become so corrupted that it's just not viable any more. No, not the basic physics of what happens when you pump more CO2 into the atmosphere, but what we do about it. We need to fire them all and hire some new people. Those who understand basic economics perhaps, technological cycles, the capital cycle, possibly even those who grasp the powers of markets and the innovations that us curious shaved monkeys are capable of.

Why, yes I am free (but expensive), why do you ask?

Consumer protection traditionally focuses on the point of sale: the moment when buyers part with their money is the time to ensure trading is fair and reasonable. Now we are told that regulators “should seek to minimise consumer detriment by intervening more intensively at all points of the value chain”.

The logic of this is that when a new car is envisaged by the manufacturer, the regulators should be “working with” the designers to help them with the specifications. No doubt the Department for Business, Innovation and Skills should be involved too. Each stage of production will require approval. And not just at the design stage but also manufacturing, marketing and pricing. Can you imagine anything more certain to stifle product development?

The government has yet to apply this logic to cars, but Lord Turner of Makebelieve says this is just what the new Financial Conduct Authority should do in the financial sector. They have just (FS11/3 14th June) published the feedback to this proposal.

In the feedback (2.44) financial firms objected that this sort of intervention, which goes beyond that demanded in EU regulations, would damage the competitiveness of UK firms – while firms in other EU countries would remain free to sell their (less scrutinised) products in the UK. That is dismissed on the grounds that the Financial Services Authority aims to get the whole of the EU to adopt this intervention strategy.

That’s a contradiction: if Lord Turner really believes that making London the most difficult place to conduct financial business also makes it the most attractive to customers, then he should not be lobbying the EU to follow suit. But then Lord Turner does not believe in the real value of the City, or some parts of it, and would like its size reduced relative to UK manufacturing. Are financial services safe in his hands?

An interesting bulletin came in from my friend Richard Jeffrey, economist at Cazenove Capital Management, on the state of the economy. The conventional (Keynesian) wisdom is that a little dose of inflation will stimulate (lasting) growth. Richard thinks that right, now, inflation is actually undermining our economic growth. But should we counter inflation with a rise in interest rates? Well, our economic masters worry that such a move could flatten our faltering growth even more. A conundrum.

Richard is certainly right to be worried about inflation. Inflation is an evil that makes sensible investment impossible. Who can tell which goods and services are really in demand when the price of all of them is shooting up? The 'noise' of inflation drowns out the 'signal' of the price system.

It now seems that quantitative easing – a smart name for printing money – gave the UK economy a boost, but a pretty brief one. The trouble is that the more money you create, the less people value it. So our devalued pounds now buy less abroad. That means higher energy and commodity prices. And energy and commodity prices have been rising anyway, as many of the world's economies recover from the crash.

So there you have it. Growth is being slowed by rising raw material and energy prices, which are the direct result of quantitative easing. Which in turn pressures the monetary authorities to keep interest rates low and stoke up the same inflation that is causing the low growth. Sounds to me that we are in a downward spiral unless we bite the bullet and move back to money and credit reality soon.

Though known in his lifetime as a family man and hotel tycoon, Peter Smedley will likely be best remembered as the subject of Sir Terry Pratchett’s documentary, Choosing to Die. The film follows Smedley’s journey to the Dignitas assisted suicide clinic in Switzerland. It aired Monday on BBC2, and is available on BBC iPlayer. Since Monday, the BBC has received 898 letters of complaint.

With the Suicide Act of 1961, suicide ceased to be a crime in England. To “aid, abet, counsel or procure the suicide of another”, however, remains punishable by up to fourteen years’ imprisonment. Therein lies the reason why Smedley died in an industrial park in Zurich rather than at home in Guernsey. Because of laws against assisted suicide, Englishmen and women seeking the service must travel to clinics abroad, often at great expense and sooner than they would prefer, owing to the demands of travel. The point of the film is to advocate for the legalisation of assisted suicide in Britain, which would allow people to die at home.

I see two reasons for the 898 angry letters. First is assisted suicide per se. “Life is a gift,” Rt Rev Michael Nazir-Ali writes, “we are not competent to take it”. Second is the idea of a publicly funded broadcaster airing a film about assisted suicide.

The question of whether one should be able to have a nurse administer poison to him or her is a question of individual liberty. Is the individual capable of choosing to take his or her own life? Does this choice harm the rest of society or reduce the value of life? If so, does this matter to whether the choice should be allowed? Most at this institute would come down strongly on the side of individual choice, but there are obviously many Britons who would disagree.

Perhaps more complicated is the latter question, of whether it is appropriate for a public broadcaster to finance and air a film about an illegal and controversial practice. Let us leave aside libertarian objections to the existence of a public broadcaster. Given such a broadcaster, what should it air? Alistair Thompson, spokesman for the Care Not Killing Alliance, calls the programme “propaganda”. The BBC denies this, but Pratchett is a vocal advocate of legalising assisted suicide, and the film is hardly neutral on the subject. The other BBC response is that it always seeks to promote public discourse, which has certainly been achieved.

What is the mandate of a public broadcaster? Must it show all sides of every issue, or is prompting debate sufficient? Should it serve as vehicle for the expression of political views?

Conservative MP Philip Davies has been widely criticized today for saying that the minimum wage hurts disabled workers. His argument is that employers prejudiced against disabled people are less likely to hire them for a job over a rival applicant, other things being equal. This prejudice is unacceptable and we should fight it. But it is impossible to deny that it exists and harms some of the most vulnerable members of society. Minimum wage laws make this harm even worse.

If you impose a price floor above the market price for something, you will usually end up with a surplus that can’t be sold. That’s true of labour too, and a major meta-study of minimum wage papers supports this. The argument usually made against this is that the market for low-skilled labour is a monopsony – in other words, that individual firms can set the wages of the people they hire without competition from other firms driving that upwards. There is very little evidence that this theory applies in Britain today. Some say that the price of low-skilled labour is elastic. The tight margins and high labour costs of most SMEs are good refutations of this claim.

Other groups of people disproportionately excluded from employment by minimum wage laws include young people and immigrants. Anybody who is seen – however wrongly – as a risk or additional cost to an employer will find it harder to get a job than someone of equal abilities who is not seen as being an additional cost. This is bad and wrong, and we should try to stop it, but it is reality. If we pretend that it isn’t, and make policies that ignore reality, then we will make things even worse for victims of prejudice. Perversely, people who dismiss the downside of minimum wage laws are doing the greatest disservice to the disabled, because they ignore the unjust reality of employment prejudice in favour of a utopian policy that does real harm.

Davies was wrong to suggest that disabled people alone should be excluded from minimum wage laws. (If that is indeed what he said: though it is being widely reported that Davies said that the disabled "should offer to work below minimum wage", I cannot find that comment anywhere on the Hansard website. Has he been misquoted?)

In any case, partial exclusion for the disabled would be a poor solution. Critics have been right to point out that to exclude them would be a tacit acceptance of employment prejudice. But minimum wages do price people out of work, and disproportionately affect people who are wrongly discriminated against. To stop this, the minimum wage should be abolished or voluntarized for everybody, not just a select few.

Prejudice against the disabled exists and negatively affects their employment opportunities. It should be resisted by all peaceful means available, like boycotts of prejudicial firms and other firms that do business with them. These methods have proved to be remarkably successful in the past. But they will not work overnight. Government policies should be based in the real world and seek to do as little harm as possible. Policies created for a world that we aspire to, in which there is no prejudice, can have very negative real effects when applied to the world in which we do live, where there is prejudice. However much we aspire to the ought, we cannot escape the is.

Professor David Blanchflower has a post on the New Statesman blog today arguing that David Cameron's credit card analogy for the national debt is wrong:

Cameron shows no understanding of basic accounting. I guess that isn't surprising for someone who has never run a business and had to file basic accounts. Folks with silver spoons don't need to do that. Let me explain. There is an asset side to the balance sheet and a liability side. The national debt is not analogous in any way to a credit card. The debt has been used to pay for the infrastructure, roads, schools, ports, the Houses of Parliament, and even Downing Street.

Basically, Prof Blanchflower's argument is that government expenditure isn't analogous to credit card spending because, if done right, government spending would buy assets that would deliver higher long-term growth. Well, maybe. But the problem with this argument is that most government spending isn't capital expenditure – roads and new schools – but current expenditure. That's things like wages, welfare payments, pensions, debt interest, and other things that don't deliver an increased economic return.

As far as I understand Prof Blanchflower's blogpost, David Cameron is an economic simpleton because his maxed-out credit card analogy doesn't account for capital spending. But this implies that most (or much) of the government's expenditure goes on capital projects, which is simply untrue. Total Managed Expenditure (TME) was around £696.8bn in 2010-2011. Of this, capital expenditure was £59.5bn – just £9.5bn higher than the total interest on government debt that year.

In other words, the capital investment that Prof Blanchflower is talking about accounted for just 8.5% of total government expenditure in 2010-11. That's not quite the picture you'd get if you read his post by itself, and it gives the lie to the notion that we don't have a debt problem.