Now just what would we do without the Resolution Foundation?

This might be my favourite research finding of recent times. It comes from the Resolution Foundation who are worrying themselves over the incidence and persistence of low pay in the UK economy. Specifically, they're interested in working out who starts on low pay (less than two thirds of median hourly wage) and then manages to escape said low pay. At which point they tell us this:

Moving onto a higher wage remains a huge challenge for the low paid. While significant numbers do manage to move up the pay ladder, there are still far too many who remain trapped at the bottom, or who fall back onto low pay having escaped momentarily. Furthermore, many low paid workers struggle to earn more unless they switch occupations, sectors or in some cases move from small to large organisations.

Well fancy that.

One of the examples they use is of cleaners. And their research finding is that people who remain cleaners for a decade do not move up out of low pay but those who do switch lines of work have a better chance of escaping that low pay.

You could knock me down with a wet flounder at this point I tell you.

You mean that people who remain in low skill low productivity jobs don't start to earn higher wages while those who move to higher skill higher productivity jobs do indeed earn more? Are we going to have to rewrite the textbooks here or something?

Or should we accept this as the most mind-garglingly obvious point about how wages are determined in a market economy? Your choice but what a hole the absence of the Resolution Foundation would put in our understanding of the world around us, eh?

We're really not running out of resources you know

Despite what various people like George Monbiot tell us, no, we're really not running out of minerals. He tells us today that:

To service this peculiar form of mental illness, we must wear down the knap of the Earth, ream the surface of the planet with great holes, fleetingly handle the products of that destruction then dump the materials into another hole. A report by the Gaia Foundation reveals an explosive growth in the pace of mining: cobalt production up 165% in 10 years, iron ore by 180%, a 50% increase in nonferrous metals exploration between 2010 and 2011.

So I go and look at the Gaia Foundation report where I am told the following:

As can be seen, the main metals have a remaining lifespan of between 12 and 50-odd years. However, there is no doubt that new technological developments will allow access to new areas in the future, deeper in the ground, and with likely increased consequences for ecosystems and communities – as can be seen with oil and gas. Recycling policies will also largely determine how much reserves are available. One can argue that the huge amounts of metals contained in discarded electronic items constitute reserves in themselves (the so-called “urban mining”). Contrary to fossil fuels, metals are never consumed, they are merely dissipated and they have an endless recyclability.

And this is, to use the precise technical term appropriate here, entire bollocks. For example, they tell us that the mineral reserves of bauxite, the ore from which we extract aluminium, have a remaining life of 27 years. This is true, they do. But this does not mean that bauxite will only last 27 years. For they have entirely misunderstood what mineral reserve means. It is not the amount of a mineral that is left. It is not even the amount of a mineral that we know about that is left. The best definition, in everyday language, of a mineral reserve is the working stock of mines currently in production.

The correct phrase to describe the minerals that we know about, where they are, how we would process them, that we can process them using current technology and at current prices is mineral resources. Please note, this doesn't require new technologies, nor higher prices. This is just the stuff that we know where it is but we've not got around to mining yet. And the really annoying thing is that the Gaia Foundation is indeed using the correct data source, the US Geological Survey, but they seem to have forgotten to read the document properly. After all, it is an entire two pages long:

World Resources: Bauxite resources are estimated to be 55 to 75 billion tons

Or about three hundred years' worth. And even that's not the correct figure of total availability either. As the USGS goes on to point out:

the United States and most other major aluminum-producing countries have essentially inexhaustible subeconomic resources of aluminum in materials other than bauxite.

For example, I could get you alumina (the aluminium oxide that we extract from bauxite) from the fly ash left over from burning coal. And there's even a producer in China that does exactly that.

My apologies but this is something that really does bug me about the ecocatastrophists. They continually use mineral reserves to mean all that is left. That's nonsense: reserves are what is left in the mines we're currently operating. Resources are vastly larger than this and total availability is some orders of magnitude larger than this again. I am unable to identify a single mineral or metal that we have any chance of running out of for the next half a millennium. And I do wish that the environmentalists could grasp this point.

The Modern Slavery Bill is going to be absolutely appalling

I know that I shouldn't giggle over such things but the revelation that the three "slaves" recently found were in fact the remnants of a Maoist commune well known to social services (indeed, housed by the local council) does provide a certain amusement as we see various leftish types suddenly running away from the story. However, now onto something a great deal more important. Theresa May and various campaigners are going to use this to try and pass an extremely bad law about modern slavery. And it's worth our all complaining very loudly about this now, as the bill is being drawn up, not later when it is too late.

That May is going to use this story as a basis for her new law is obvious here:

We still don’t know the facts behind the case in London this week. Details are still emerging, the investigation is ongoing and must be allowed to take its course. Whatever the outcome, the one positive is that it has raised awareness of the issue of slavery in the public and media mind. The first step to eradicating the scourge of modern slavery is acknowledging and confronting its existence. The second is accepting it is the responsibility of us all to abolish it once and for all. Because modern slavery is an affront not just to the dignity and humanity of the individuals crushed by it, but of every single one of us. Tackling this abhorrent crime is a personal priority for me.

As well as improving the way victims are identified and supported, I want to prevent future victims. And the best way to protect and reduce the number of victims is to disrupt, convict and imprison the criminal gangs behind much of the modern slave trade. That is why I have made combating trafficking central to our Serious and Organised Crime Strategy and a priority for the new National Crime Agency. And it is why I am introducing a Modern Slavery Bill to consolidate and strengthen legislation. The Bill will be the first of its kind in Europe. It will increase the maximum sentence for trafficking offences to make sure the worst perpetrators get a life sentence. It will introduce trafficking prevention orders to restrict the activity of offenders when they are released so that they cannot cause further harm. And it will create an Anti-Slavery Commissioner to hold everyone involved in stopping this crime and helping victims to account.

The link is not just obvious it is explicit. And given that all of us are indeed against slavery why would anyone at all complain about the idea of a Modern Slavery Bill?

Well, allow me to introduce myself, Tim Worstall, someone who is very much against what I am certain will happen to this bill. For what is going to happen here is what happened with the Poppy Project and their research into sex slavery. What led to Dennis MacShane's absurd claim that there were 25,000 sex slaves in the UK. They're going to lie to us to bring in the most draconian laws.

Yes, I know, strong stuff but bear with me a moment. As I've mentioned elsewhere there are two meanings to the word "trafficking". Here I explained them in the context of sex slavery:

...the two meanings of “trafficking” that are used in the debate. Those two meanings are as follows:

1) The transport of unwilling people (usually women, but of course can at times be either men or children) into forced prostitution. This is of course illegal everywhere: it’s repeated rape just as a very start. It is also vile and we should indeed be doing everything possible to stamp it out.

2) The illegal movement of willing people across borders to enter the sex trade. Strange as it may seem there really are people who desire to be prostitutes. People would, other things being equal, similarly like to be in a country where they get a lot of money for their trade rather than very little. Given these two we wouldn’t be surprised if people from poorer countries, who wish to be in the sex trade, will move from those poorer countries to richer countries. And such is the system of immigration laws that many of them will be unable to do this legally: just as with so many who wish to enter other trades and professions in the rich world. You can make your own mind up about the morality of this but it is obviously entirely different from definition 1).


We might paraphrase the two definitions as the “sex slavery” definition and the “illegal immigrant” one. I would certainly argue that the first one is a moral crime crying out to the very heavens for vengeance while the second leaves me with no more than a heartfelt “Meh”.

In terms of slavery of the first type, whether sexual or not, of course I'd be, along with everyone else, delighted to have strong and effective laws to fight it. Something we do actually have of course: slavery is illegal and anyone caught enslaving anyone will indeed go to jail. However, I'm entirely unhappy about having strong new laws about the second type of trafficking. Sure, people who smuggle illegal immigrants can be and should be punished as and when caught. But that's the crime there, not slavery.

My worry is that they will use everyone's instinctive hatred of that first definition to impose horrendous punishments for that second definition. As an example, here's one of the things they are planning:

The Home Office announced that powers will be introduced to help police ‘hunt the assets of traffickers’ and give some of the money to the victims. The money will be used to help victims of modern slavery return home. This measure might end up in the modern slavery bill announced early in August by the Home Secretary, Theresa May. The modern slavery bill is expected to increase the conviction rate for traffickers in the UK, which is currently one of the lowest in Europe. Powers to recover overseas assets already exist in the Proceeds of Crime Act but they are not effective and the amount of seized money is very low compared to the scale of serious and organised crime.

Under that first definition of trafficking I'd have no problem. Under that second a great big girt problem arises. Because "trafficking" now means illegal immigration we thus end up with a law whereby the government can take the financial assets of someone who employs an illegal immigrant. You think this won't happen? Believe me, this is exactly what will happen. Such an extension of confiscatory powers will indeed lead to that sort of thing: it's inevitable.

At this point of course I need to show that they are indeed going to be using that wider, more inclusive, definition of trafficking rather than the one that really does mean slavery. Ms. May:

I have asked Anthony Steen, chief executive of the Human Trafficking Foundation, to undertake a series of overseas visits to look at how we can improve our approach both domestically and internationally.

That foundation says this about sex slavery:

Trafficking for Sexual Exploitation: The scale of trafficking for sexual exploitation remains largely unknown worldwide since its very nature demands secrecy and reliable statistics are therefore not forthcoming. In the UK, there are some clues as to its scale. For example, in a recent ACPO report, 2,212 brothels were identified in London alone, and the police estimate that up to 50% of those working in the brothels may have been trafficked. Traffickers take virtually all the earnings from their ‘slave’ and move them around the country so they are not associated with any particular area.

This is at the Dennis MacShane, Julie Bindel end of loonieness on the subject. As Operation Pentameter found out, after every police force in the country tried to search out and find sex slaves they found not one single case in the entire country that they were able to prosecute for the crime.

That is, the police went looking for slavery, type 1 definition of trafficking, while this foundation is using the type II definition of illegal immigration (or, to get to that 50% number, simply of immigration, legal or not).

Oh, and Eaves is involved. They were the people behind the Poppy Project. Which, laughably, claimed that evidence of foreign born women working in brothels in London was evidence of trafficking. Guess all those foreigners working in The City are slaves then, eh?

Just to make this entirely clear here. These campaigners (and that includes May here) are going to use our revulsion of the type I trafficking to pass extraordinarly severe laws against the type II stuff. Up to and including life imprisonment and confiscation of all financial assets. Yet it is only type I that is in fact slavery. Type II is more normally defined as the employment of an illegal immigrant.

Anyone really want life imprisonment for employment of an illegal immigrant? Someone who, entirely of their own volition, tried to make their lives better by breaking the law to come to this country is now going to be defined as a slave?

OK, by now everyones' certain that Worstall has lost it. Seeing something that just isn't there. Ms. May again:

Some victims do not even recognise that they are victims or have been trafficked.

She's certainly arguing for a pretty extensive definition of trafficking if there are people who don't actually realise that they have been enslaved.

Fortunately, there is in fact something we can do about this. We can insist that the law, whatever it actually says will be done to the modern slavers, should in fact only refer to slavers and trafficking. We can do this by insisting that the bill use the United Nations definition of trafficking:

Article 3, paragraph (a) of the Protocol to Prevent, Suppress and Punish Trafficking in Persons defines Trafficking in Persons as the recruitment, transportation, transfer, harbouring or receipt of persons, by means of the threat or use of force or other forms of coercion, of abduction, of fraud, of deception, of the abuse of power or of a position of vulnerability or of the giving or receiving of payments or benefits to achieve the consent of a person having control over another person, for the purpose of exploitation. Exploitation shall include, at a minimum, the exploitation of the prostitution of others or other forms of sexual exploitation, forced labour or services, slavery or practices similar to slavery, servitude or the removal of organs.

That will restrict everything to the type I definition of trafficking and I think all of us are reasonably happy with the idea that people who enslave others should indeed have the book thrown at them. And, of course, by their actions we shall know them. The more those preparing this bill whine and bitch about how it's all more complicated than this, that the definition needs to be wider, the more we shall know that they're not in fact talking about either trafficking or slavery at all, but instead about illegal immigration.

The ideal welfare system is a basic income

The British government spends more on welfare than it does on anything else apart from healthcare. The benefits system is arcane and unwieldy, a mish-mash of disparate attempts to address different social problems in a piecemeal fashion. It creates perverse incentives for those on it, such as people stuck in a ‘benefits trap’ where they lose almost as much money in benefits by working as they are earning, and distorts entire markets by inflating prices, as housing benefit does to the housing market.

Most people agree that the system is broken, though solutions differ. The Universal Credit is a fundamentally good idea that is failing because of the difficulty of implementing successful piecemeal reforms to a system as complicated as benefits in the UK, and will ultimately probably not succeed in the way its architects intend because it doesn’t go far enough. Other aspects of the government’s welfare policies, like the work programme, are completely wrong-headed – telling other people how to live their lives is a bad idea because the government is extremely ignorant. That ignorance doesn’t change just because the person being told what to do is on benefits.

The ideal welfare system is a basic income, replacing the existing anti-poverty programmes the government carries out (tax credits and most of what the Department for Work and Pensions does besides pensions and child benefit). This would guarantee a certain income to people who have no earnings from work at all, and would gradually be tapered out according to earnings for people who do have an income until the tax-free allowance point, at which point they would begin to be taxed.

For example, we could set a basic income of £10,000/year by using a cut-off point of £20,000/year, and withdrawal rate of 50%. The basic income supplement would be equal to 50% of the difference between someone’s earnings from work and the £20,000 cut-off point. A person with no earnings would get a basic income of £10,000/year; a person who earned £10,000/year would get a supplementary income of £5,000; a person on £15,000/year would get a supplementary income of £2,500; and a person on £20,000 would get nothing (and begin paying tax on the next pound they earned).

These numbers are representative: no need to tell me that £10,000 is too low or too high. What matters is the mechanism.

This has also been called a Negative Income Tax, usually by advocates on the right like Milton Friedman, but language aside the concepts are basically the same. As a side-note, I think basic incomes that are not tapered out are a complete waste of money, redistributing lots of money to people on high and middle incomes unnecessarily. It amazes me that this anti-progressive approach seems to be popular among some on the left. The exception would be if this flat-rate payment replaced the entire welfare state, as Tim Harford mentions in his column today and Charles Murray proposed some time ago.

Like the current benefits system, this would provide a safety net. But ‘benefits traps’, where people lose as much in benefits as they earn from work, would be eliminated. A basic income system like this would be at least as clear as the PAYE income tax system is, and substantially clearer than the current benefits system. The dog’s breakfast of welfare schemes that currently exist – all to address the symptoms of poverty, rather than the root – would be abolished, and with it the jumble of unanticipated and often undiscernable interactions between schemes that lead to perverse outcomes.

Best of all, a basic income is the least paternalistic welfare scheme possible. Instead of pushing would-be computer programmers into work as Poundland assistants, a scheme like this would leave decisions entirely up to the individuals involved. The discovery process that each of us is engaged in would continue, and now without mass decision-making by a central state authority.

I don’t know what amount a basic income like this should actually be set at. That would be an interesting and useful debate — what do we need for a basic standard of living? What appeals to me is the principle. Ditching most of the DWP, creating a welfare system that never discourages work, and letting people live their lives as they choose? Now that’s a welfare programme I could get behind.

Chart of the week: RBA attempts to talk dollar down, markets push it up

Summary: RBA attempts to talk dollar down, markets push it up

What the chart shows: The chart shows the Australian dollar exchange rate against the US dollar as well as on a trade-weighted basis

Why the chart is important: Over the past few years, central banks have taken a renewed interest in exchange rates. This is partly because of concerns that other central banks may be engaging in what the Brazilian Finance Minister Guido Mantega in 201 called ‘currency warfare’, ie, attempts to drive down their own currencies in order to gain a competitive advantage; and partly because they try to do it themselves. In theory, a central bank can always push down the exchange rate of its currency, since it can print and sell unlimited amounts. In practice, it is somewhat more difficult. Over recent months, Governor Stevens of the Reserve Bank of Australia, and other RBA spokesmen, have tried to talk down the Aussie dollar. The currency has come down from 96.7 US cents per Aussie dollar in late October to 91.4 (and from 73.3 to 70.2 in a trade-weighted index). However, and the exchange rate has shown itself more resilient than the RBA would like, showing that there is a limit even to what central banks can do against the market..

The bird choppers finally get fined for killing eagles

Interesting news from across the pond:

The U.S. government for the first time has enforced environmental laws protecting birds against wind energy facilities, winning a $1 million settlement from a power company that pleaded guilty to killing 14 eagles and 149 other birds at two wind farms in the western state of Wyoming. The Obama administration has championed pollution-free wind power and used the same law against oil companies and power companies for drowning and electrocuting birds. The case against Duke Energy Corp. and its renewable energy arm was the first prosecuted under the Migratory Bird Treaty Act against a wind energy company. "In this plea agreement, Duke Energy Renewables acknowledges that it constructed these wind projects in a manner it knew beforehand would likely result in avian deaths," Robert G. Dreher, acting assistant Attorney General for the Justice Department's Environment and Natural Resources Division, said in a statement Friday.

There is no possible method of having vast structures like these spinning away on the tops of hills without slicing up some number of birds. Which brings us to one of the great lessons that economics has to offer us.

There is no such thing as a solution: there are only a number of trade offs. You might indeed think that littering the countryside with bird choppers, with the attendant avian deaths, is a decent trade off to gain expensive electricity. Other might think that coal fired plant, with its mercury and radioactive pollution is a better bargian for cheap electricity. Or natural gas for slightly more expnsive but less polluting. Or nuclear, which has zero pollution except when things go very expensively wrong (although we should note that nuclear, even when it goes wrong, kills fewer than either solar or coal in normal operation). Or....well, or whatever.

Given that we always face trade offs it is the complete set of trade offs that need to be considered in any decision making process. Meaning that, yes, we do need to consider the impact of wind power on bird populations. The only regret is that that full set of trade offs wasn't considered before everyone started to build the bird choppers.

There's a much simpler way to solve this housing shortage thing you know

I'm always amused to see our rulers tying themselves into ever greater knots to avoid having to admit that the problem they're trying to solve is in fact just terribly simple to deal with. The latest is this idea that those who cannot afford a house should have a free building plot given to them by the State:

Young people who cannot afford to buy a home should be given land by the state so they can construct their own houses, the planning minister has suggested. Nick Boles said it would be a way of reaching out to a generation of young Britons who want to be “given the opportunity to get on and help themselves”. Instead of renting or applying for council housing, young people should be able to “put themselves on the list for self-build,” he said.

What we really have here is an admission that it isn't the cost of building a house which is the problem. It's the scarcity value of the planning permission to be able to build on a certain plot that is. It's most certainly not the cost of land itself: even in SE England this is rarely above £10,000 an acre and you can get five or six houses on that. It's not the cost of the land nor is it the cost of building a house (£120k or so for a nice three bedder). It's that chitty from the State that allows you to marry the two together that makes housing unaffordable where people desire to live.

As, of course, is being admitted here by the suggestion that a solution is to give people one of those chitties for free.

Which is a very complicated and in some senses appallingly stupid way of trying to solve the problem. For I'm deeply unsure that the country actually needs more houses put up by self-building bodgers. Nor does it need the local commissars being able to gift a couple of hundred thousand pounds to favourites by controlling the allocation of those chitties.

Why not, instead, simple reduce the scarcity value of those chitties by issuing more of them? We get to the same end point, housing becomes the cost of building plus the cost of the underlying land. No artificial pumping up of the price at all through "planned" scarcity.

We've even a blueprint for you, Land Economy by Mischa Balen.

But there's a much more basic point here too. When the original problem is government screwing things up the solution is not yet more levels of complexity but rather vying to get the government to stop screwing things up. In this case housing is expensive because government doesn't let people build houses where people would like to live. Why not get government stop doing that and the rest of us can then get on with our lives?

It can't be a tax cut for fund managers because tax incidence

Hurrah for someone in government having a bright idea at last but the reporting of this is appalling:

A tax cut for City fund managers will leave the typical worker £11,000 better off on retirement, the Treasury has said. The Treasury has promised to abolish “Schedule 19” stamp duty reserve tax, which applies to some investments sold by funds. The tax cut, worth £145 million a year to the fund management industry, is politically controversial and Labour has promised to reverse it.

That's simply ludicrous. If it's a tax cut on fund managers then fund managers will benefit. If it's actually future pensioners who will benefit then it's a tax cut on future pensioners, not fund managers.

Which brings us back to the whole subject of tax incidence again. Who nominally hands over the cheque to the Treasury can be very different from who bears the economic burden of the tax. As we can see here. Nominally the tax is on fund managers buying and selling shares. But actually, the tax falls on the pension pots of savers. It must do: otherwise how can reducing the tax increase pension pots?

Fortunately this has all been well studied. The IFS looked at exactly this question a decade ago and their report is here. The conclusion is that stamp duty is, in the end, paid by pensioners in lower pension pots and also all workers in the economy as it makes capital for companies more expensive.

So, Hurrah! Investment capital becomes cheaper thus boosting the amount of it that will happen and savers gain better returns on their pensions. Hurrah! indeed.

Ed Miliband, the Labour leader, in September suggested that Labour would reinstate the tax, describing the Coalition move as a “tax cut on hedge funds”.

Yes, yes, I know this is a democracy and all that, the very ability to get elected meaning that you are indeed qualified to be elected. But please, can't we hope for a few more people who actually understand the real world? For example, Schedule 19 doesn't apply to hedge funds in the first place, only to unit trusts and open ended investment companies.

The foundations of a free society

I have just published Foundations of a Free Society with our colleagues at the Institute of Economic Affairs. It was intended to describe the working principles of a free society to those who, unfortunately, don't live in one. Trouble is, that as I started sketching out all the essential foundations of a free society – freedom, property, trade, justice, toleration, moral rules, incentives, rights, and limited government – it became obvious to me that none of us really lives in a free society, and that very few of us understand it.

We all accept that democracy is a good thing, for example. And so, we are told, we should have more of it – that more and more of our lives, right down to what we eat, drink and say, should be prescribed by law. And how we run the rest of our lives and businesses should be regulated too. We simply forget the joy and necessity of human diversity and the power of competition to regulate business.

Trouble is, as readers of another of my IEA monographs, Public Choice – A Primer  know full well, political decisions are in reality interest-group decisions. They call the shots in elections. And politicians and officials have their own self-interest too. So off we go, ambling down the Road To Serfdom, imagining it is all being done for our own good, when it is done for theirs. And most of us do not know enough about the underpinnings of the free society to dig in our heels before it is too late.

The free society is not a random collection of selfish individuals. It is something complex and organic, and based on deep values – not values that challenge other moral systems but values that make cooperation and social harmony possible.

It is no easy task to build a free society out of an unfree one. The institutions of today's free (or more-free) societies have grown up over hundreds or thousands of years and reflect local history and circumstances. There is no blueprint we can give people to build their own. But we can at least give them a rough outline of the sorts of foundations they need to build freedom – or, in the case of those of us in the supposedly free West, to rebuild it.

Foundations Free Soc web cover.jpg

Another point about Mazzucato's entrepreneurial state

As we know, Marriana Mazzucato's idea, that the State is at the heart of all entrepreneurial activity, is storming the weaker minds over on the left side of the political aisle. I've pointed out before that invention can indeed be done by the State: but that's not what entrepreneurialism is, not at all. And the innovation that it is is something that is done appallingly by the State.

However, here's another problem with the idea. This comes from the obituary of Frederick Sanger:

This idea was controversial at the time as, although the 20 or so amino acids that can go to make up proteins were known, most scientists believed the arrangement of different amino acids in a protein to be random. One professor had even produced a complex mathematical formula that would express this random function. Thus, when Chibnall tried to get Sanger a grant from the Medical Research Council to work on protein structure, the grant was refused because “everyone knew” that the pattern of amino acids in a protein was random.

Yes, this was basic science but the same point still stands. To explore the possible space of ideas, whether scientific or entrepreneurial, requires a multiplicity of funding sources. It cannot be just the one organisation because if there is only one then only those ideas the organisation is interested in, or believes feasible, will get funded.

That is, if we leave science or innovation to the State then we'll only get the sort of science or innovation that those who run the State either desire or consider feasible.

Ms. Mazzucato's poster child for her idea is Apple's iPhone. And we do all recall how the bureaucracies of both the US and the UK were doling out grants to people to develop such don't we? For it was indeed obvious to them that this is what 300 million people wanted to buy. Well, wasn't it?