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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Immigration controls are the new Corn Laws. Why don't more free marketeers care?

Written by Sam Bowman | Tuesday 17 December 2013

If you had to name a single government policy that ruins the greatest number of lives, what would you pick? The 45p tax rate? Saver-hurting inflation? Green energy subsidies?

I’d say that the biggest one is the one that free marketeers are largely silent about: migration controls.

In 2011 Michael Clemens looked at the economic estimates of the global GDP growth that would come if every country in the world abolished restrictions on the movement of goods, capital and labour across national borders. According to the papers Clemens looked at, removing all barriers to trade would increase global GDP by between 0.3% and 4.1%; removing all barriers to capital flows by between 0.1% and 1.7%. Those are big gains that would make the world a substantially richer place.

Completely removing barriers to migration, though, could increase global GDP by between 67% and 147.3%. Think about that: simply letting anyone work anywhere could more than double global GDP. And that would be a long-term boost to economic growth, not a one-off. Even the bottom end of that, 67%, is an astonishingly huge figure.

It’s not as far-fetched as it might sound. As Clemens points out, workers can often create wildly different amounts of value by doing the same thing in different places (or doing them with different people). A taxi driver who might expect to make $1,500/year in a city in (say) Benin might be able to make $31,000/year in New York City by doing exactly the same thing. That shouldn’t be a surprise: bringing someone like Sergey Brin to work quickly, saving him an hour, is much more valuable in terms of his opportunity cost than, say, saving me an hour.

The institutions that most successful countries have are extremely valuable too. Corruption, instability and political uncertainty all have the potential to be extremely costly for firms, and they often prefer to pay a higher up-front cost in labour terms to locate their production in stable countries with good institutions. That’s one reason why Nissan still prefers to build some cars in Sunderland than Haiti: the institutions effectively boost Sunderlanders' productivity enough to make their higher wages worth paying. If we let Haitians move to Sunderland, they could take advantage of those institutions and make a living for themselves too.

The counterargument will be that a Sunderland filled with Haitians will quickly stop being like Sunderland: Haitians might vote badly, or might be so culturally incompatible that the social institutions that are so important to Sunderland's success, like trust, would break down and ruin things for everyone. That’s a valid argument and probably the main thing we should be talking about when we talk about immigration. But it’s also ambiguous: immigrants tend to have lower rates of crime than natives, and increased contact between immigrants and their neighbours can mostly overcome the cohesion problem.

But even if these arguments did prove to be true, they would be a case for country-specific immigration controls: even if Haitians proved to be too culturally incompatible to come to Britain en masse without undermining what’s valuable about Britain, that would not necessarily be the case for Chinese or Sri Lankans. If this seems ugly it is much, much less ugly than our existing blanket controls on immigration. Letting more people come to Britain should be the priority, not preserving the appearance of cultural neutrality.

What puzzles me is that my fellow free marketeers are often very indifferent (if not openly hostile) to policies that make it easier for foreign people to work in Britain. They cannot believe the economic claims that immigrants 'steal jobs' in an overall harmful way unless they also think that free trade does. There are many keyhole solutions to prevent immigrants from sponging off the welfare state. The cultural arguments, if they can be classed as such, are worth considering but certainly not so powerful that they invalidate the economic arguments. And free marketeers are usually pretty happy to let society adjust itself rather than try to engineer it to become or remain the way they like it.

Fundamentally, migration controls are not just laws about what foreign people can do, they’re laws prohibiting businesses from hiring people and property owners renting or selling to people who were unlucky enough to have been born in the wrong place. On the fact of it, these laws are so staggeringly invasive that no free marketeer could be comfortable with them; when you realise the economic costs it is amazing that anyone can tolerate them at all.

There are lots and lots of bad things governments do that ruin people’s lives. But few cause as much harm to the poorest people as the state controls of where people can work and live that we call ‘migration policy’. Even a marginal step towards a more liberal immigration policy would allow people to create an enormous amount of wealth, and probably do more good than almost any other possible policy. So why don’t more free marketeers start talking about it?

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The insanity of current green power subsidies

Written by Tim Worstall | Tuesday 17 December 2013

As I have been saying for some time now the basic structure of subsidies to the various green power technologies is insane. Policy Exchange have just released a report making much the same point (although, inevitably, they are rather politer about it than I am).

The report says that plans to introduce auctioning to enable all technologies to compete on a level playing field should be brought forward.

The thing is that the system should have been that way all along. Now leave aside all of the arguments about whether climate change is happening and all that. For the sake of argument, assume that it is and also that we must do something about it. OK, what?

We would obviously like to reduce the emissions from energy production and increase and or support the production of energy from non-emittive sources. Clearly and obviously that's what we want to do.

But there's a very important point to be made: we don't actually care what non-emittive technology comes forth. We are indifferent, entirely, between oneshore wind, offshore, tidal, solar, biogas and all of the rest. We care about the amount of electricity we can get from each one, sure, about the price of each of them too, but we really don't give a damn which is used: we want simply to be able to use the cheapest one.

At which point there are two methods of encouraging the development of these alternatives. The first would be a carbon tax. Make the fossil fuel stuff more expensive by whatever amount we calculate the future damages will be. If no alternative can produce at those prices then we're all left the best off we can possibly be by still using fossil fuels. If any or various of the alternative methods can beat that price then again, we're left the best off we can possibly be.

Alternatively, we can fix the price of electricity from these various alternatives: those feed in tariffs. But again, here, we want to have one price. Non-emitting electricity is worth £x to us. Great, so all non-emitting electricity gets price £x. We don't do the damn fool thing that the government has been doing for the past decade which is offer different prices to the various different technologies.

So it's not just that this level playing field should be brought forward: it's that it should have been a level playing field all along. For the current system is indeed insane to the point of absurdity. The worse the technology, the more costs a technology imposes upon us all, the more we subsidise it. What?

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Chart of the week: US broad money still reliant on QE

Written by Gabriel Stein | Monday 16 December 2013

Summary: Tepid US broad money growth still dependent on QE

What the chart shows: The chart shows the annual percentage change in US broad money and in credit to the non-bank private sector. Broad money is the recreation by Stein Brothers of the M3 measure discontinued by the Federal Reserve in March 2006.

Why the chart is important: US broad money growth continues to oscillate around 5%. This is better than the 4% M4 growth seen in the UK and considerably better than the 1.4% recently registered for October in the euro area. Nevertheless, US bank balance sheets – and hence broad money growth – still seem dependent on continued quantitative easing. Since the Fed’s ‘taper terror’ subsided in September, broad money has grown by $135bn, compared with the $160bn the fed has spent on buying assets from the banking system over the same period. Total bank credit has grown by $36bn and loans and leases by $19bn (the difference between total bank credit and loans and leases in bank credit is lending to the public sector). By contrast, cash assets have grown by $191bn. What this all means is that US banks are still stocking up on cash and that credit growth remains weak. The economy seems strong enough to support the beginning of a QE taper; but the development of bank balance sheets over the first two or three months after a taper begins, will be a key pointer as to when it will actually end.

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So who really benefits from this neoliberal globalism stuff anyway?

Written by Tim Worstall | Monday 16 December 2013

This chart comes from this excellent paper by Cristoph Lakner and Branko Milanovic. It shows whose incomes have risen the most (and fallen the most) as a result of this neoliberal globalisation thing we've been having for the past 30 years. The results from the ex-Soviet bloc need to be taken with a real pinch of salt unfortunately, for they use starting figures that most observers consider to be far too high. It's really a stretch to say that Romania today is a poorer place than it was in the dying days of the Ceascescu regime.

However, look over to those who have benefitted.  We'd not be all that surprised to see that many of the Chinese deciles have seen their incomes rise. The growth of China is after all the major economic story of these past decades. But look at that UK bottom decile: 5.5% per annum growth in incomes! That rather gives the lie to the idea that the poor are getting poorer, doesn't it? Ireland's Celtic Tiger growth (note that these figures are up until 2008) similarly seems to have beneftted the two bottom deciles in that country.

The net effect of this neoliberal globalisation thing seems to be that the poor are getting rich. And given that that's what we all want to happen then why is it that so many people complain about it all?

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So that's the gender pay gap solved then

Written by Tim Worstall | Sunday 15 December 2013

We've the release of this year's figures about the gender pay gap and it seems that we'rte pretty much done, we've solved it. The full figures are here. As I've been saying for a number of years now there most certainly used to be gender discrimination in pay. What we want to know now though is whether there still is? And as that chart shows, no, it's very difficult indeed to see that there is. For in the 18 to 40 group pay is indeed roughly equal. It's only in the older ages groups, those who coupld well have suffered from the earlier discrimination, that we are still seeing significant differences in pay.

So, we can declare victory and go home then. Except, of course, there are those who willfully misuse the statistics to insist that more must be done. As in The Guardian:

More than 40 years since legislation was introduced which outlawed paying men and women different wages for the same work, women still face a lifetime of earning less. New figures from the Office of National Statistics show the pay gap is beginning to widen, after years of slow but steady progress. Looking at mean average earnings

And they should be slapped with a wet haddock for that. Because they have been told, repeatedly, that you should use the median average when discussing these figures. The mean is too distorted with the incomes of the 1%, and the 0.1%. What encourages me is that the comments section is full of people pointing out the faults with the assertions being made.

And as to exactly what it is that we did to get rid of that gender pay gap? At root I think it's simply the way work has changed. The more muscular male physique no longer matters in anything but a tiny minority of jobs. Thus there's no particular reason for men and women to be paid different amounts therefore they're not.

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How hysterically funny about Mazzucato's "Entrepreneurial State"

Written by Tim Worstall | Saturday 14 December 2013

You will recall that a central theme of Marianna Mazzucato's book, The Entrepreneurial State, is that all this gee whizz techno shiny shiny that we see around us really comes from stuff that the government has originally subsidised, invented, come up with or otherwise spirited into creation. And of course, the outcome of this is that all your money belong to us.

And one of the examples she gives is the way that the British government subsidised the work that made Apple's iPhone a possibility. Specifically, on touch capable screens able to understand dual movements (things like "pinch and zoom"), something crucial to the technology.

Ah, sadly no, as my sometimes colleagues over at The Register reveal. In fact, a plucky British inventor did come up with the idea, did indeed go to the government and they screwed around so much and for so long that another inventor got there first and was bought up by Apple.

Fentem submitted a funding application to Nesta in January 2003, while he continued to work on new prototypes. "When I first approached Nesta I was told that I would receive a funding decision within 6 weeks," he says. "However, it took Nesta a year to just write the contract. To put that in perspective, it took Apple only 2 years to conceive, develop and commercialise the entire iPhone."

It's worth reading the whole five pages at Andrew Orlowski has done an excellent job there. And the truth is that Nesta, the British government, did not in fact develop multitouch screens. In fact, they managed to cock up the development process so badly that someone else developed it. An advertisement for government direction of innovaiton this is not.

And it also rather guts Mazzucato's basic contention.

One problem, as I see it, is that it is in fact true that invention doesn't happen in isolation. We're all standing on the shoulders of giants after all. But what that means is that the next incremental improvement in whatever it is is ripe, ripe for the plucking as a result of all of the thousands of years of science and technology that we already have. That in turn means that to pluck it one needs to move quickly. And quick movement is just not something you're ever going to get when the State is involved.

Basic scientific research? Dreaming in ivory towers? Sure, the results will be public goods and there's a good argument for some tax funding there. But it's just not going to work in developing actual products and technologies. As the screens for the iPhone show, whatever the stories that Mazzucato is telling.

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The start of a political meme

Written by Tim Worstall | Friday 13 December 2013

A small exercise in trying to spot where a political meme starts out. For this little story is making its way around the web and I am sure that it will become a standard part of the talking points over the minimum wage in the US. It's this idea that servants today are being paid less than servants were in 1910 America. It comes from this piece by David Cay Johnston:

Consider the family cook. Many family cooks now work at family restaurants and fast-food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed. A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours comes to $290 a week. At first blush, that looks like a real raise of $55 a week, or nearly a 25 percent increase in pay. But in fact, the 2013 minimum-wage cook is much worse off than the 1910 cook. Here’s why: The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his or her income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes. Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $112 in New York City, so bus fare alone runs $17 to $27 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish. The 1910 cook got room and board, while the 2013 cook must provide his or her own living space and food.

There's an amusement at complaining that the cost of government has gone up there.

But given that these numbers are broadly correct what is the problem with the basic argument being made? That servants are now paid less well than their comparators 100 years ago?

For this certainly isn't something we would expect to see at all. Inequality now is no higher (at the very least it is no higher) than it was then and the median and mean wages have very definitely risen over that time span. So, given what we do know about wages in general of the past century how can we reconcile this?

The answer is of course that in looking at a cook Johnston is not looking at a fast food worker now. Yes, they both prepare food but a cook in 1910 was a senior and important part of the servant household. It was a position reached only after many years of work at a lower level. The cook was, along with the housekeeper and the butler, very much part of the management of the household and part of, to use a very strange phrase indeed, the servant aristocracy. You would also only find cooks in a grander house. To compare such to current day fast food workers is just being historically obtuse.

The correct comparison for a current day fast food worker would be to the sort of serving jobs that an untrained teenager might hope to get in 1910. And in the cooking side of things that would, in 1910 terms, be scullery maid. Who would, in London, have been paid perhaps £10 a year, or at the exchange rate of the time, some $50 a year.

And yes, I do think we can support the contention that today's fast food workers do make more than that $50 a year as adjusted for inflation.

But there we are, of such tricks are political memes created.

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Should Britain have a written constitution?

Written by Dr. Eamonn Butler | Thursday 12 December 2013

Should Britain have a written constitution? Actually, while there are unwritten bits such as royal prerogatives and parliamentary conventions, most of it is indeed written. There is the 1215 Magna Carta, bits of which are still in force (though limitations on the monarchy started earlier, with measures such as the 1100 Charter of Liberties). And there is the 1689 Bill of Rights that limited the monarch’s ability to raise arbitrary taxes and interfere in justice and elections. There are various Acts of Parliament that are accepted as constitution, such as the 1689 Act of [religious] Toleration, the 1689 Habeas Corpus measure, the Reform Act of 1832, and more recently, the devolution measures. Not to mention various EU laws.

But no Parliament can bind its successor, so in theory any of these measures could be ripped up at any time. That is hardly a constitution at all: one of the points about a constitution is that, once it is agreed, it should be hard to change. Yet simple majorities in Parliament have proved enough to change our fundamental relationship with the EU, to change radically the composition and powers of the House of Lords, to reorganise local government, to limit access to trial by jury (too bad, Magna Carta), regulate free speech in newspapers (sorry, Bill of Rights), to hold suspects for prolonged periods (ho hum, Habeas Corpus) and much more.

It is an old but true adage that hard cases make bad laws. Until recently, we have maintained the principle of free speech, reckoning that even though it may be abused, on balance we gain more from people being able to speak their mind. But nasty cases such as racial abuse and phone hacking have torn up that long-held part of the constitution, and in the blink of an eye.

Some 95 members of the House of Commons (and 45 members of the Lords) are part of the payroll vote – ministers, whips and other government officers. Another 95 would probably love to be part of it, and there are equal numbers of aspirants for office on the Opposition side too. Parliament was originally set up to protect the public from the Executive, but now at least half of it is part of the Executive, or the shadow Executive. How can we then expect Parliament to limit Executive power over our lives?

Or limit itself, for that matter? There are no limits on government spending, deficits, debts, or on the ability to create new and arbitrary taxes (such as the 50p top income tax rate, which proved to be not just an envy tax, but a counterproductive envy tax)?

Answers on a postcard please. We could probably start by moving the Executive out of Parliament entirely. After all, we have set up a Supreme Court across the square from the House of Commons (another change in governance that the public were not asked about), so why not confine ministers to their ministries and only allow them out to be grilled by Commons committees? Then perhaps Parliament would revert to its original role, of protecting us from government power, rather that extending it.

Dr. Eamonn Butler is author of Foundations of a Free Society.

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Raise wages, perhaps, or possibly lower benefits

Written by Tim Worstall | Thursday 12 December 2013

We have one of the usual arguments here about immigration. An employer, in this case Dominos, says that they could hire 1,000 people immediately if only people could be bothered to to do the work they are offering. The response was that perhaps they should try paying a little more in order to encrouage people to apply:

The immigration minister, Mark Harper, has hit back at employers who say they have to recruit foreign workers from outside Europe to fill low-paid jobs by telling them they should offer better wages. Harper said that Lance Batchelor, the chief executive of Domino's Pizza, should reflect on the salaries he was offering if he could not fill 1,000 vacancies without recruiting unskilled staff from outside Europe. The immigration minister told the Commons home affairs select committee: "He should probably pay his staff a little more and he might find them easier to recruit. It's a market."

That's a fine answer as far as it goes: but it's not really a complete analysis of the situation. For what it's leaving out is the rigging of that market by government itself. We're all aware that we have a serious problem with the tax and benefit withdrawal rates on the low paid in this country. There are millions who face marginal rates above 60% and even tens of thousands facing them of over 100%. And it is indeed the change in disposable income which is the incentive to work or not, not the wages that you are nominally being paid.

OK, now think of this same problem from the other side. Say Dominos is paying £7 an hour (I've no idea what the correct number is) and they cannot get the labour at this price. Sure, perhaps they should offer more to get what they want. But precisely because of the high tax and benefit rate they have to offer much more to change behaviour. If they offer another £1 an hour then only 40 p to nothing of that gets through to the disposable income of the worker they're trying to incentivise. So part of their problem is indeed that the government taxes the working poor too highly. A rise in hte personal allowance would help here.

But there's one more thing. Recent immigrants are not given access to hte full panoply of the welfare state and its subsidies. Therefore, as they work they face lower benefit withdrawal rates and thus greater changes in their disposable income from taking work or not. We've thus a rather perverse set of incentives built into how we do things. Recent immigrants are always going to be more likely to take low paid work than indigenes are, simply because we've structured the welfare system to create the incentives this way.

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The Internet Watchmen

Written by Charlotte Bowyer | Wednesday 11 December 2013

As Tim Worstall notes, new government plans to block online terrorist and extremist content are extremely worrying. Along with the introduction of default 'opt-out' porn filters and the criminalisation of rape porn, they are another example of Cameron's politicised censorship of the web. Whereas reducing the proliferation of child abuse images is a good thing, this new measure results in the censorship of ideas. Furthermore, whilst it is relatively straightforward to identify child abuse imagery, it is much less so (and arguably impossible) to decide which ideas are 'too dangerous' to viewed in the UK.

Aside from these issues there is also the question of how such a content block would work in practice. In many ways, how to block can be as problematic as the censorship itself.

The government has said that it wants to model the new blocking unit on the Internet Watch Foundation: a part-EU, part internet industry-funded UK 'hotline' for child abuse imagery. The IWF assesses material submitted by the public and flags up UK-hosted content to be removed by service providers. Content from outside the UK is added to a URL 'blacklist' which ISPs then block UK access to.

There are a number of issues with this model. First, there is no guarantee that what the IWF flags up is actually illegal. With no legal clout, the IWF acts on content it deems 'potentially illegal' - and there is little to stop legitimate content getting wrongly marked. One controversial case saw a picture of an album cover on Wikipedia getting blocked until the backlash forced the IWF to reverse their decision. Appealing against the IWF's decisions can be a difficult and opaque process, not least because of the difficulty of appealing against the illegality of an image you can't even see.

Despite the IWF's lack of legal authority, the Open Rights Group claims that their blacklist has never been assessed by a court or legal body. This makes their actions rather murky. Given its sensitivity ISPs can't see the content of the blacklist to make their own judgement; they must either block all of it or none.  On top of this, there are also problems with the technology ISPs use to actually block the URLs - which can be unreliable and block too broadly.

In addition, from April 2014 the IWF will shift from a being reactive body -acting only on content sent to it - to a proactive one, actively seeking out images of abuse behind pay walls and on peer-to-peer networks.  This approach is another step in the active policing of the web, and is also likely to be followed by the new anti-extremist unit.

Issues of political and religious censorship are much more complicated than that of child pornography. The unaccountability of the IWF and its lack of judicial oversight  therefore make it a poor model to copy for what is an incredibly controversial (and dangerous) policy. Since the new unit will be publicly funded, its decisions may come under greater legal scrutiny. On the other hand, a government-funded body could become politicised and overzealous in its mission. In any case, a clear due process and a rigorous appeals system will be absolutely essential.

Crime & security minister James Brokenshire says an update on the proposals will arrive shortly, though the fact that civil liberty groups claim not to have been consulted on the matter is rather worrying. The sensible thing to do would be to scrap this idea altogether. Since this is unlikely to happen, both the politics and the technicalities of the initiative are bound to prove difficult indeed. 

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