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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

This is not an IQ test

Written by Ben Southwood | Tuesday 03 December 2013

Boris Johnson's recent CPS speech, which among other things discussed intelligence and inequality, has caused such a storm that David Cameron and George Osborne were forced to distance themselves from his comments. There is an interesting point to be made about how distressingly and obnoxiously ugly this "everything is offensive" aspect of modernity is, where people are punished for neo-blasphemy either by the mob, or even by laws against heresy. These heresies needn't be correct, and indeed can often be repellent, but the manner of their repression is so depressing and generally grim. But I don't want to make this point. I don't even want to talk much about how misguided the IQ ignorers are, as Tom Chivers has already made this point, in his excellent Telegraph blog post.

Instead I want to just point out how different the "IQ test" (three trick questions) Boris was given live on LBC radio was to an actual intelligence measure.

"A man builds a house with four sides of rectangular construction each side with southern exposure. A big bear comes along. What is the colour of the bear?"

Supposed answer: white, because you can only have four south-facing walls if you're in the Arctic.

 "Take two apples from three apples and what do you have?"

Supposed answer: two, because you've taken two apples.

 "I went to bed at eight in the evening last night and I wound up my clock and set my alarm to sound for nine o'clock in the morning. How many hours sleep did I get?"

Supposed answer: one, since wind-up alarm clocks do not discriminate between am and pm.

These questions are ridiculous, meaningless ambiguities and the third one might even be incoherent (how can you wind it until 9am if it doesn't recognise the distinction between am and pm?). I'd guess they are more likely to test knowledge of the questioner's intention than anything like g (what scientists in the field call general intelligence).

Have these people seen any actual IQ tests that are used in real research? For example Raven's Progressive Matrices, where one must discern a pattern from matrices of simple diagrams, or any of the many different tests used in Wechsler's Adult Intelligence Scale, or for developing minds, Wechsler's Intelligence Scale for Children.

Funnily enough, I highly suspect that the correlation between answering those "lateral thinking" questions and life outcomes is much weaker than that between IQ measured on the WISC or WAIS. And this linkage, which articles in the Guardian and Observer have not so much disputed (though letters have) as attempted to associate with badness (see Andrew Rawnsley here), is pretty important. In fact, it usually trumps upbringing when it comes to children born out of wedlock, income, number of weeks worked and many other indicators of well-being. Noticing these, and not condemning greed as Worse Than Hitler (TM) should not make Boris himself Worse Than Hitler (TM).

And I didn't even mention what brave and good policies London's mayor has on housebuilding, migration, and London transport!

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On that German legalisation of prostitution thing

Written by Tim Worstall | Tuesday 03 December 2013

A ouzzling little thought prompted by this piece which is describing the campaign to make prostitution illegal again in Germany:

They argue that Germany's experiment with liberalising prostitution has failed spectacularly, turning the country into "the bordello of Europe", with more and more brothels popping up near the border. The 2002 law was trying to make sex work a job like any other. But currently only 44 sex workers in Germany are registered with the national insurance scheme. Social workers say that most prostitutes cannot afford the luxury of putting aside money for a health insurance policy.

Here's what puzzles me. Traditionally we have noted that prostitution pays higher wages than other forms of earning a living. Gary Becker has pointed out that there is a loss of social capital for those who work in the trade as one example. Most of us also think that it's not exactly pleasant (from either side of the trade, most men don't and most women wouldn't) which would indicate higher wages are paid in order to get people to do the work. But here we have a claim that most women working in this now legal profession aren't making enough money to even afford health care insurance.

Which leaves us with something of a puzzle. For that would certainly seem to indicate that the wages are not high. The only way out of this puzzle is that the supply of women willing to do this work must be reasonably high relative to the demand for this sort of work to be done. That's the only way, in something as obviously free market as this, that we can explain those low wages.

But that then brings us to another problem. If there's a decent supply of women entirely willing to do this work then why on earth should anyone try to make it illegal? It might well be that I or you don't wish to do this work. But we don't like Simon Cowell either but some millions do: so why should we take it upon ourselves to stop people doing what they seem quite happy to do?

If prostitution were very highly paid work then that would be an indication that there needs to be a serious incentive to overcome the reluctance to do the work. But low wages do indeed indicate that there's sufficient people who don't really mind at all. At which point we've got to ask why we should be trying to make illegal what consenting adults appear quite happy to be doing?

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Chart of the week: French economic sentiment a cause for concern

Written by Gabriel Stein | Monday 02 December 2013

Summary: French economic sentiment highlights causes for concern

What the chart shows: The chart shows the European Commission’s Economic Sentiment index for France and Germany

Why the chart is important: Recent French data highlight that France is in danger of missing out on the euro area recovery – such as it is. Some numbers are improving, eg unemployment and household consumption of manufactured good. But this improvement is minimal. Admittedly, so too is the deterioration in other series, eg the economic sentiment index. But it is worrying that the weakness is broadly based – four of the five sub-indices showed falling confidence in November – and also that it is there at all at a time when the rest of the euro area is showing some improvement. France is also very much looking like missing out on the general EA foreign trade improvement. One key problem is that successive French governments did little or nothing to reform the economy over the past ten years. What makes this even more worrying is that the current government is, if anything, undoing even the small reforms that have been implemented, hinting that French growth will underperform that of other EA countries over the medium-term as well.

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Both China and the UK are less unequal than many think

Written by Tim Worstall | Monday 02 December 2013

I've long been of the view that inequality is overstated in the UK. For the very simple reason that we measure it by incomes and not by consumption. But of course, if you really are worried about inequality it must be inequality of consumption that you are worried about. And I've also long thought that UK inequality is likely to be much more overstated than the inequality of most other European countries. For our economy is dominated by London in a manner that no other European country is dominated by just the one city. The mechanism here is of course that London property prices are hugely higher than they are elsewhere in the country. And so are London salaries: but that second gets recorded as inequality of income when that first means that that is pretty much evened out by the equality of consumption of housing possible for that greater sum.

Sadly I've not seen any research that details this for the UK. But here's a nice paper that worries away at the same problem for China. Yes, China is unequal, more so than the UK or US. But they look at the variability of housing prices across the country and then take that into account when comparing the variability of incomes. And quite a bit changes:

The overstated inequality if using nominal income data is not as great if inequality is measured with the Gini index (in Figure 2, both the Theil and the Gini have been scaled to equal 1 for real inequality at provincial level). Nevertheless, not deflating for spatial cost of living differences still causes an upward bias in the Gini coefficient of 15-16%. Taking an average of the results for the two inequality measures, in round figures approximately one-quarter of apparent spatial inequality in China disappears once account is taken of cost of living differences, where these are just coming from house prices.

If, as they surmise could be true, the differences in housing prices represent a general change in non-tradeable goods prices then the reduction in the Gini measure of inequality would be greater.

Which brings me back to the UK. We do have high inequality in the UK as compared with other European countries. But I'm convinced that some of this is the effect of the much higher incomes available in London. And those higher incomes are rather offset by the higher costs of living in London: meaning that consumption inequality is a great deal lower than everyone thinks it is.

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Yet more nonsense about corporation tax

Written by Tim Worstall | Sunday 01 December 2013

Yesterday I was muttering about how the lies being told about corporation tax were bending the minds of even respectable establishment figures. Today I find that we've a similar problem whereby we've some deeply uninformed commentary on the tax paid or not paid by Thames Water.

Thames Water sparked fury yesterday when it announced it will not pay corporation tax for up to a decade. Britain’s biggest water supplier has already been berated for racking up more than £1billion in unpaid taxes. But as it reported soaring profits after the summer heatwave, finance director Stuart Siddall said: ‘It will be seven to ten years until we pay tax.’

Hmm. Why is this then?

Thames Water can delay tax payments under government rules as it invests large amounts on new pipes and sewers. Its planned £4.2billion ‘super-sewer’ under London means it will not be due to pay tax for years.

Ah: the complaint is therefore about an obvious and essential part of any tax system that is trying to tax profits. Which is, of course, that you only try to tax profits. Which produces a problem when someone invests in something.

That problem being that you've got to have some method of making an allowance for what has been invested. Say, just for the sake of argument, that £1 billion is invested in something. And there's £100 million in "profit" coming from that investment. can we then decalre that that £100 million is the profit that we should be taxing? Well, no, we can't, because someone has had to put that £1 billion in at the start. That's a cost: there's no real, economic, profit until that £1 billion has been paid back first. Only then, after the costs of doing whatever it is have been paid is there in fact a profit that can and or should be taxed.

There are various possible methods of doing this, making this allowance, and the law as decided by Parliament does so through the use of capital allowances. Leave aside the details of how it works but this is what is being done. Ensuring that it's only actual profit that is taxed, not the repayment of the initial investment.

And do note again that there has to be some method like this in the tax code: without it there would be very much less investment. And what worries is the following:

Labour’s Margaret Hodge, chairman of the Commons Public Accounts Committee, called it ‘deeply unfair’, saying Thames Water – which is owned by an Australian consortium – had an ‘obligation to pay their fair share in tax’. Tax accountant Richard Murphy, who helped expose tax avoidance by Starbucks, said: ‘The reality is that much of this will never be paid. ‘They are never going to stop spending money on infrastructure, which means they will probably never pay tax. Companies like this have to say when and if they will ever pay tax.’

At least one of these two knows all of this but is still wibbling nonsensically about it. And at least one of these two has also been calling for more infrastructure investment as a method of getting the economy growing. So to complain about the tax structure that encourages infrastructure investment does seem a little odd.

But to my larger complaint. We're being told an ever more fantastical series of tales about tax absolutely none of which have any grounding in reality. There is no possibility of having a tax system on profits that does not make an allowance for investments made. So why is there this spreading of fear, uncertainty and doubt about the tax system which makes this essential allowance?

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Should it be a crime for a business to make a loss?

Written by Tim Worstall | Saturday 30 November 2013

This is an interesting little example of the pernicious effects of the lies that are told in certain forms of campaigning. We've a proposal that there should be something called a corporate ASBO. Sure, it's a personal suggestion but it is also from the head of the Howard League for Penal Reform.

So, I would like government to think about introducing a corporate anti-social behaviour order. ASBOs are in the process of being replaced by various other civil orders by the government but for the sake of simplicity, I shall call my proposal the corporate ASBO. The important point is that individuals and big corporations should be equal before the law. The last Labour government introduced the Serious Crime Prevention Order but this focuses on the more serious end of corporate crime, applying to individuals who have already been convicted of crimes such as money laundering or credit card fraud.

The corporate ASBO could be handed to registered companies engaged in anti-social behaviour. An appropriate threshold, in line with orders pertaining to individuals, would be required to ensure the ASBO is not used in a vexatious manner. The ASBO would be targeted at corporate actions that are deliberately socially harmful, cause distress or nuisance or annoyance.

It would not target legitimate business, even business that some might see as unpalatable (for example pay-day loans or betting shops). The purpose of the ASBO would be preventative – identifying low-level behaviour and seeking to prevent it increasing in frequency or seriousness.

I have no opinion on this and my intention here is not to develop one. Rather, I want to look at what has prompted this proposal:

Contrast a child playing his music too loudly and too often that annoys the neighbours to Starbucks which announced today that it has no tax obligation this year. The effect on the public services and on the social fabric of so many of the biggest companies managing by sleight of hand to avoid paying billions of tax is incalculable.

She's been suckered by the lies being told by the tax campaigners. She's outraged that Starbucks doesn't owe any corporation tax this year. The campaigners have alleged that this is all because of dodgy dealings over royalties, brand names, margins on purchasing coffee from Switzerland and the like. Whereas in fact the reason that Starbucks doesn't owe any corporation tax is that it hasn't made a profit. Even if all of those allegedly nefarious (and all entirely legal too) activities are added back into their accounts Starbucks still hasn't made a profit in the UK. There's no tax due because there's no profit to tax.

And very much the same is true of all of the other stories we hear about as well. There never was a £6 billion tax bill at Vodafone: that was entirely made up by Private Eye. There never was a deal over it either: the company simply paid the normal corporation tax due on remittance of overseas profits into the UK parent company. Barclay's did not dodge a tax bill on selling off a subsidiary, Gordon Brown specifically changed the law so that no tax would be due on the selling off of a subsidiary. Boots has not dodged tax by loading up with debt: the tax paid has simply moved from being corporation tax nominally paid by Boots to income or corporation tax being paid by the recipients of the interest.

Each and every one of the stories being peddled falls apart on any sort of detailed examination. But enough of these lies are being told that we've thoroughly respectable members of the establishment like Frances Crook insistent that new offences must be invented, new punishments devised, in order to punish those being lied about. Just goes to show that if you lie loudly enough and often enough then you'll be able to convince people of what just isn't so.

I can't help feeling though that there's got to be a better way to run a country than this.


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Digital Conversations

Written by Charlotte Bowyer | Friday 29 November 2013

Last week I went to an event put on by the Meetup group 'Digital Conversations'. Hosted by the digital agency Reading Room, the theme for the night was "Society, Government and Public Life". Six speakers gave a range of short but varied and interesting talks, bringing together people from digital design, non-profits and the government.

The topics ranged from software design to government snooping via community engagement and smarter government services. It has become cliched to talk about these last two, especially alongside phrases like 'the data revolution' and 'people power'. What's less clear is if these ideas really mean something and in practice help forge better outcomes. In this way it was interesting and encouraging to see what people in a range of different jobs were doing within the intersection of technology and government.

Despite the breadth of topics, certain themes ran throughout the night. One was the use of digital technology to amplify the 'soft' power which citizens posses through traditional civic engagement.
Will Perrin from gave his experience of holding government to account using methods from the humorous - sticking council logos on dog mess and blogging them - to the serious - using freedom of information requests to spark a corporate manslaughter investigation into TFL. The ability to use digital to empower citizens was shown to be even stronger within less developed and transparent states. For example, a basic app of the Nigerian constitution has allowed citizens to learn and assert their rights, and has been downloaded over 8 million times.

The event also highlighted the importance of the micro and designing for humans. Websites such as 'What Do They Know' and 'They Work For You' are popular because they take chunks of information and display them in a way which is easy for people to understand, informing and empowering them.

Designers should make sure the systems they create are designed with the user's habits and needs in mind, instead of forcing them to tackle rigid and unintuitive systems. Similarly, whilst the concept of big, open date may be brilliant, it is essential that this data can be manipulated by all. Many potential users aren't programmers or statisticians, and giant datasets which need APIs to navigate them can hinder as well as help analysis.

Government services benefit from this re-imagining. Dominic Campbell spoke about the Patchwork app designed to provide better collaboration within child protection services, and which was designed in response to Baby P's case and the total failure of the incumbent ContactPoint system to prevent it. Despite retaining huge swathes of data on every single child from birth till 18, the expensive system raised serious privacy concerns, failed in its objectives and was ultimately scrapped. In contrast, Patchwork allows professionals to 'group round' children and share information only when necessary and in a way which is clear and intuitive.

It was interesting to see what attendees and speakers thought the future would hold for government. Some ideas were rather libertarian-friendly- for example, the goal of efficient 'invisible' government, which would do things like automatically create and process visa applications with the purchase of flight tickets. It was also encouraging to hear a speaker insist that a world in which 14% of the health budget comes from the sale of narcotics on a government version of Silk Road is not inconceivable!

However, some other ideas - such as government gathering social media data to create a 'community hive mind' -were rather more alarming. Most remarkable was the level of complacency of the organisers and attendees regarding mass government surveillance. One speaker's entire presentation was summed up by a slide saying "NSA am I bothered? Not really LOL :)" Of course, not everybody is going to find the recent revelations earth-shattering, but it is unnerving to hear people working within these sectors have such little regard for civil liberties and privacy concerns.

When those responsible for designing government systems (and ultimately the use of citizen's information) seem not to perceive potential abuses of state power and trust, it is hard to be enthusiastic about new government initiatives. With tech companies tightening security and encryption in response to Snowdon's revelations, I don't want well-meaning and forward-thinking designers to be asleep on the job, and dismissive of questions about the proper power balance between citizens and the state. This aside, it was really good to see such smart and engaged people talk about the exciting work they do. 

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This is all so depressingly obvious about censorship of the internet, isn't it?

Written by Tim Worstall | Friday 29 November 2013

It was only last week that I was musing, elsehere, on the subject of the censorship of child pornography. Not that I'm against such censorship but rather than the methods that David Cameron insisted on using were somewhat dangerous. For he was insisting that ISPs and search engines had to be the people who barred people from finding such images. Rather than the more freedom loving and liberal process of hunting down and punishing the little scrotes who create, distribute and consume such imagery. I worried, gently, that at some future time perhaps this same tactic would be extended to other subjects. Oooh, I dunno, political extremism perhaps, racism, depending upon who is in power perhaps feminism or, if the House goes the other way, anything deemed anti-feminist.

Little did I know:

The government is to order broadband companies to block extremist websites and empower a specialist unit to identify and report content deemed too dangerous for online publication. The crime and security minister, James Brokenshire, said on Wednesday that measures for censoring extremist content would be announced shortly. The initiative is likely to be controversial, with broadband companies already warning that freedom of speech could be compromised.

Ministers are understood to want to follow the model used to crack down on online child abuse. The Internet Watch Foundation, which is partly industry-funded, investigates reports of illegal child abuse images online; it can then ask service providers to block or take down websites. The prime minister, David Cameron, is understood to favour a similar model for terrorist content. A government-funded body, possibly within the counter-terrorism referral unit, will order companies including BT, TalkTalk, BSkyB and Virgin Media to block websites, according to industry sources.

Could somebody please remind me why we don't rise up and slaughter them all? It's only taken them a week, a short 7 days, to go from finding a method to control something we all abhor, that child pornography, to applying that method it to an Englishman's birthright, that free speech that insists he's allowed to make a fool of himself by expressing his most deeply held prejudices. And yes, extremists do indeed have free speech just as us more moderate types have. Subject only to the usual two caveats, those of libel and of incitement to immediate violence.

And the reason we run the system this way is because there is no possibility of determining what is allowable extremism and not allowable extremism that is not just the outcome of personal prejudice on the part of that person doing the determining. Thus the only possible method of preservig any semblance of freedom and or liberty is to allow all speech, in all its glorious cacophony, and prosecute those who are either libellous or incite immediate violence.

And what really worries is that you'd expect Tories to understand this sort of point. But apparently not....



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UK growth: Nice, but unreal

Written by Dr. Eamonn Butler | Thursday 28 November 2013

Britain's Chancellor of the Exchequer, George Osborne MP, is smiling like a Cheshire Cat. Today the Office for National Statistics (ONS) said that the last quarter's economic growth in the UK was the strongest in more than three years,  with expansion in services, construction and manufacturing. It is the third quarter in a row that output has grown; in the last quarter of 2012, output fell by 0.3%, but in the first, second and third quarters of 2013 it grew by 0.3%, 0.6% and 0.8%. It seems easily probable that over 2013 as a whole, the UK economy will have grown by a healthy 2%+.

The figures are likely to boost confidence, and that itself may stimulate recovery. And a growing economy makes it much easier for the government to balance its books, or at least to reduce its annual borrowing, even if the prospect of actually repaying Britain's record peacetime debt is still remote. And we should remember that, thanks to years of stagnation, the UK economy is still 2.5% smaller than its 2008 peak.

I am not sure I believe the figures – growth estimates are notoriously unreliable and survey data suggest that things are growing a good deal more slowly. But whatever level it is, this growth is the wrong kind of growth. It is not growth based on getting the fundamentals right, and on people actually investing in thriving businesses or selling exports of greater value. Not growth based on 'rebalancing' as the economists and politicians rather obscurely call it. Rather, itt is fake growth based on government and household borrowing, and shoring up what Tom Papworth, in an ASI paper this week, calls 'zombie' businesses that are living of subsidies and low interest rates, rather than contributing much of value to the economy.

House builders, for example, have been boosted by the government's Help to Buy Scheme, and by several other fiddles designed to make mortgages more easily available. Indeed, the days of the 95% mortgage – one of the symptoms of what got us into this mess – are back. That is one reason why construction soared by 2.5% in the third quarter. The services sector expanded at a healthy 0.7% in the quarter. At least part of that is genuine, created by the resurgence of Britain's important financial services industry. But a lot of it is services bought in by a government that spends half the nation's income – and by households that are borrowing more again. When interest rates are rock bottom, borrowing makes perfect sense. Saving, of course, does not. But without savers, there are no funds available for rational investment  in the viable businesses of the future.

It was low interest rates, loose money and excessive borrowing that created the boom-bust cycle that burst in 2008. Is anything different now? Rather than enduring the hangover after the party and picking ourselves up, we have opted to down a few more pain-killing doses of money and credit. We all want the recovery to be true; and we can all think up reasons why it might be. But we wanted the pre-2008 boom to be true, and look what happened then.

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Now just what would we do without the Resolution Foundation?

Written by Tim Worstall | Thursday 28 November 2013

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?

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