We're already seeing the effects of minimum wage rises

That, at some point, high minimum wages cause job losses is both obvious and generally held to be true. The question, always, is when? And the truth of the matter is that we’re already seeing those losses at current levels of the UK minimum wage:

Young people and part time workers are bearing the brunt of the UK jobs slowdown,

The minimum wage is, obviously, enough, most bringing upon those with low wages. Who get lower wages than others? The young and part timers. So, who would we see losing out from a minimum wage that is “too high”? The young and part time workers.

From the ONS:

The number of part-time workers fell by 164,000 to 8.54 million in Quarter 3 2019, while the number of full-time workers increased by 106,000 to 24.21 million.

It’s not the same people either:

The decline in part-time workers was driven by women (down 106,000 in the quarter) and the increase in full-time employment by men (up by 93,000 in the quarter).

Thus, if we’re seeing the young and part time losing out to the older and full time then what might we conclude? That the minimum wage is already too high.

Death and Taxes

It was on November 13th, 1789, that Benjamin Franklin wrote in a letter to Jean-Baptiste Leroy a phrase that has reverberated ever since:

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.”

The thought had been expressed by two earlier writers. Daniel Defoe in “The Political History of the Devil” (1726) had said “Things as certain as death and taxes, can be more firmly believ’d,” and even earlier in Christopher Bullock’s “The Cobbler of Preston” (1716) appears the line, “Tis impossible to be sure of any thing but Death and Taxes.”

However, time and chance have awarded the honour of authorship to Franklin, and there is no suggestion that he plagiarized those who expressed the sentiment earlier. It reverberates because everyone thinks it encapsulates two truths. Everybody dies. It might not always be true in future, but it has been thus far. It is also true that the essential services of government have to be financed, and it has nearly always been the case that this has been achieved by levies on some of those for whom these services are provided.

Adam Smith proposed four canons of taxation. First was equity, meaning that it should be levied on people proportionate to their ability to pay. Second was certainty, in that it should be fixed and known in advance. Third was that it should be charged at a time when it is convenient to pay it, and fourth was that it should not be over-costly to collect compared with its yield.

People have suggested other canons, of which I think simplicity has much going for it, and I myself would add that no tax should be levied whose damage to the economy is disproportionate to its yield.

Franklin was right about death and taxes, but he had them in the wrong order. Taxes nearly always come before death, with the exception of Inheritance Tax, sometimes called the death tax, which comes after death, not before it. Many oppose the death tax because it is almost always levied on funds that have already been taxed. Avoidance of double taxation is desirable, but it is by no means always followed. Earnings on which income tax has been paid are usually taxed again when they are spent, either on VAT, or on alcohol or tobacco duty, or on insurance or airline flights.

Corporation tax is charged on the earnings of companies before profits are distributed to investors, then those dividends are taxed again on the recipients as income tax. The rule to be aimed at is that the state should receive its cut once.

Other ways of financing government have been tried, but they usually put costs indirectly onto individuals. The sale of monopolies by Stuart monarchs was unpopular because it put up the prices of things such as salt and soap. More recently, the auctioning of bandwidth to raise revenue has made calls and content more expensive for consumers.

One of the strangest taxes has been the National Lottery. It is very largely paid by poor people, and much of it is spent on the pleasures of rich people who patronize operas and art galleries. And it is entirely voluntary. Yet of all taxes it is probably the least unpopular.

To make our ritual living wage point to John Sentamu

We’ve spent more than a decade making this one same point each year. If we wish the poor to have more money we should stop taxing their incomes. Some people, like John Sentamu, still haven’t grasped this simple point:

Today, the Living Wage Foundation announced that the living wage has increased to £9.30 an hour UK-wide and £10.75 in London, to reflect higher living costs in the capital. If the living wage were paid, that would be hundreds of pounds a month back in the lowest-paid workers’ pockets.

Employers are bound by law to pay a notional minimum wage, but that’s not the same as the living wage. The living wage takes into account actual expenditure. Enlightened employers know this and I’m pleased to say there are now almost 6,000 accredited living wage employers that have chosen to pay all their workers a decent day’s pay for a decent day’s work. These companies also report significant business benefits, with higher levels of morale and lower levels of absenteeism.

It is well over a decade since we first pointed this out. Sure, the numbers change each year but the underlying basics don’t.

Assuming a 37.5 hour week that “real living wage” is £348.75 a week. Upon which employee national insurance, at 12% above the threshold, will be paid of £21.93. Income tax of 20% is charged on the amount over £12,500. This takes £2,267.36 off that £18,135 annual income.

Someone paid the “national living wage” gets £16,009.50 for the same hours.

As we’ve been pointing out if you insist that it is just and righteous that the working poor get more then the correct answer is to raise the income tax and national insurance allowances.thresholds to whatever it is that you’re defining as the minimum righteous and just wage.

If we didn’t tax the national living wage then those working poor would be gaining more income than if all were paid the real living wage. Because we’d not be charging the cost of government to those poor.

Which is why we’ve been arguing for more than this past decade that whatever the minimum wage should be that should also be starting point for taxation being levied. We even had some effect on this point. The current £12,500 allowance for income tax is a direct result of our making this case back when the minimum wage was that amount per year.

For, as all too few understand, we’re pro-poor around here. So, if you want to increase the incomes of the working poor then stop taxing them so damn much.

1989 and the march to integration

The fall of the Berlin Wall in November 1989 was a victory for liberal values over socialist ones. As the Institute of Economic Affairs’ Kristian Niemietz points out, East Germany was a huge socialist experiment. Western socialists argued that Russia, being largely rural and backward, was never a promising ground for socialism, which explained why its brand of socialism seemed so far from the ideal. East Germany, however, despite the wartime damage, was an industrial state with technological know-how and an educated middle class—a much better proving-ground.

During the Cold War it was very hard to see what was actually going on behind the Wall. Western experts pointed out that the official statistics emerging from the East could not be trusted. Despite ‘record grain harvests’ there were still famines (often because the distribution system was so hopeless that what grain there was simply rotted in the field). And if we believed Romania’s year-on-year tractor production figures, they would have had to have started with negative tractor production. When the Wall fell, the dire and dismal nature of life behind it became all too apparent.

The ripping down of the Iron Curtain revealed something else too. It showed just how strong the national affiliations that the Second World War had disrupted. Germans rushed to reunite; while Czechoslovakia and Yugoslavia, countries created by forcing others together, started to fragment again. This mostly happened peacefully: no force was necessary, again illustrating the strength of national ties and the fragility of coerced confederation. 

The French, under President Mitterand, were alarmed at the speed of the changes, especially Germany’s rush to reunify. And the economic strain of millions of East Germans heading West was a problem for Germany too. To defuse matters, Kohl agreed to an inter-governmental conference on European currency integration, and then on deeper political integration. By 1993 the Treaty of the European Union propelled member states towards the EMU, common foreign and security policy, cooperation in justice. The requirement for unanimity on such measures gave way to Qualified Majority Voting, with opt-outs for those, like Denmark, who could not keep up. The ‘project’ of ever closer union thus took a huge leap forward.

There was pressure to expand the union as well as deepen it. France and other member states were doubtful about admitting a group of economically backward Eastern countries. But those countries looked to the West, not to Russia, for their salvation and were in general internationalist, even siding with Britain and America in conflicts. The UK, for its part, wanted to bring in the Eastern countries, and others like Malta and Cyprus, as a way of diluting the planned political and monetary union that it felt no part of (the UK also worried that it would end up bankrolling many of the resulting policies). There was a moral case, too, for supporting near neighbours, many of whom, like the Baltics, were very European in character even after forty years of Soviet socialism.

It is interesting how, thirty years on from 1989, the political structure of Europe is still shaped by the events in Berlin. The EU remains firmly integrationist—an integration that the UK (mostly) continues to struggle against. National identities have restored themselves back from the artificial boundaries drawn up by the Allied powers, and nationalism has become stronger in many places. The case against socialism still has to be made, over and over, just as it always had. After all, anyone under 40 is unlikely to remember the Berlin Wall and the horrors behind it—socialism holds no terror for them—while the socialists over 40, who should know better, continue to blame other factors for the failure of their ideology, whether in Russia, East Germany, or now in Venezuela. The world is better without the obscenity that was the Berlin Wall; but the world’s liberals still have a vast job to do.

Voting for Norway's king

On November 12th, 1905 (continued into November 13th), a referendum was held in Norway to decide whether the country should invite a foreign prince to become its king, or should become a republic. The background was that the Storting, the 169-member supreme legislature of Norway, had approved a dissolution of the union with Sweden. King Oscar II of Sweden renounced his position as monarch of Norway, and refused to allow a Swedish prince to become King of Norway.

The Storting asked Prince Carl, the second son of Denmark's Crown Prince, if he would assume the Norwegian throne. The prince accepted on condition that a referendum be first held to assure him that a majority of the population wanted this. He was a good choice, widely liked and, as a Scandinavian, would mesh with Norway's culture and understand its language. Furthermore, he already had a two-year-old son, Alexander, to continue the succession.

The November 12th referendum put one simple question to the people of Norway:

“Do you agree with the Storting's authorization to the government to invite Prince Carl of Denmark to become King of Norway?”

There was a large turnout of 75.3%, with 78.9% voting in favour, and 21.1% against. Parliament therefore chose Prince Carl to be King, and its Speaker sent him a telegram to make the formal offer. The prince accepted and moved with his family to Oslo. He immediately took the name Haakon, and gave his son the name Olav, to link the new royal family to the Norwegian kings of old. In June of the following year the coronation took place in Nidaros Cathedral in Trondheim.

It was a wise move on Norway's part. Looking at the various systems of government in different parts of the world, it seems to be the constitutional monarchies that provide the best guarantees of civil liberties. They tend to have an independent judiciary, a free press, free speech and access to legal redress. On the whole they respect property rights and uphold the rule of law.  

The monarch is usually head of the armed forces, the judiciary, and sometimes the church, thereby denying these positions to ambitious people who might otherwise exercise the power these posts could entail. The justification for an hereditary monarchy is that it works in practice, and is nearly always very popular with the people. It gives countries a non-factional head of state, rather than someone from a political party. It gives countries a symbol of their national identity that is non-divisive, an institution around which the whole nation can unite, regardless of differing political views.

To a revolutionary motivated by a desire to have society conform to some rational plan, a constitutional monarchy seems archaic and messy, a throwback to the Middle Ages and earlier. In practice, though, the constitutional monarchies have evolved to keep pace with the developing views of their peoples, and given them a firm anchor of national identity to support them in changing and sometimes turbulent times. The institution has lasted because it has staying power, and the Norwegians were wise to vote for it.

Yet economic freedom is different from political freedom

The Guardian hosts something of a moan about the two reports which attempt to measure economic freedom around the world.

Two of the “freest economies” in the world are on fire. According to indexes of “economic freedom” published annually separately by two conservative thinktanks – the Heritage Foundation and the Fraser Institute – Hong Kong has been number one in the rankings for more than 20 years. Chile is ranked first in Latin America by both indexes, which also place it above Germany and Sweden in the global league table.

....

The rage may be better explained by other rankings: Chile places in the top 25 for economic freedom – and also for income inequality. If Hong Kong were a country, it would be in the world’s top 10 most unequal. Observers often use the word neoliberalism to describe the policies behind this inequality. The term can seem vague, but the ideas behind the economic freedom index help to bring it into focus.

All rankings hold visions of utopia within them. The ideal world described by these indexes is one where property rights and security of contract are the highest values, inflation is the chief enemy of liberty, capital flight is a human right and democratic elections may work actively against the maintenance of economic freedom.

Well, yes, in a manner. Economic freedom and political such don’t map over each other exactly. They are measurements of different things - height and width are not always correlated either.

The underlying complaint is really that such indices argue against voting to take everything off one group and give it to the other - you know, that democratic control of the economy.

Except that’s not what they do argue in the slightest. Looking at the Fraser and Heritage indices gives us a quite different conclusion. It’s true that Chile and Hong Kong are up there in the top 20. But then so are Sweden, Norway, Denmark, Iceland and Finland. The Scandinavian social democracies are up there that is.

It is possible to have that greater equality if that’s what you want. But it matters how you do it. None of the countries that attempt to have detailed government management of the economy make it into the upper reaches of that listing. Places which run with that free market capitalism do. The equality bit then being achieved by taxing that system.

We aren’t that worried by equality or inequality. We also argue that whatever inequality exists today is simply not of any comparable form to that of yesteryear. But if you are worried about it the lesson to draw here is that achieving the equality is a bolt on extra to an efficient and free economy. It’s not something to be achieved by trying to limit or direct that initial creation of human wealth.

In fact, when one burrows down into those numbers the finding is that the Scandis are rather more free market and capitalist than we are - they tax more too.

The whine here is the complaint that the indices show that the directed economy doesn’t work. Which is actually a useful thing to point out as it doesn’t.

Remembrance Day

When the armistice that officially ended the First World War came into effect on the 11th hour of the 11th day of the 11th month, the anniversary was originally commemorated as Armistice Day, marking a time of tribute to and a remembering of those who died in that war.

On November 11th, 1919, one year after the war's end, King George V asked the public to observe two minutes of silence at 11am. He asked that "the thoughts of everyone may be concentrated on reverent remembrance of the glorious dead."

Following the Second World War, the day is now commemorated as Remembrance Day, though many of the ceremonies now take place on Remembrance Sunday, a day off work for most people that gives a chance to participate for those who wish. It now honours and remembers all members of the armed forces who died in the two World Wars, and in subsequent military and naval actions.

Most analysts think, with hindsight, that the First World War was not fought appropriately, and some think it should not have been fought at all. Leaders on both sides greatly underestimated the destructive firepower of modern weaponry. It is a source of regret that they did so, because there was an example they might have learned from. The US Civil War of 1861-65 had shown what artillery and modern firearms could do, and left over 600,000 dead. Had European leaders and generals taken more interest in its course, they might have learned its lessons.

The few commentators who think the UK should not have fought World War II seem to overlook the probability that Hitler might well have succeeded in conquering Soviet Russia if he had not had Britain and America to deal with. Had he done so, the horror of Nazi death camps would almost certainly have been even more widespread. They overlook, too, the fact that Japan would have drawn the UK into a far East war by attacking the British Empire there as it did US territories and bases. As it was, took two intercontinental powers to overcome a Germany that was a small country by comparison. And it took atomic bombs to bring Japan to surrender.

We remember their sacrifice and we honour those who died, not least because they enabled us to enjoy the freedom we have today. They fought off our enemies. Since then it was our armed forces in NATO that enabled us to resist Soviet aggression and prevent all Europe falling under a malevolent tyranny. It is our forces today who protect us from attack by being equipped and ready to strike back. Their readiness to fight for us deters those who might otherwise invade or undermine our interests.

Wars, they tell us, are often slipped into by uncertainty, by people thinking there is a chance that the other side will not respond. It is a tribute to those who died that we keep the peace they won, and stand ready to fight, as they did, to secure it.

Why is this a problem?

The Observer tells us that there’s a certain tension between the European Union’s thoughts on what the City should be and what some others think it should become.

The second aim is to keep London as close as possible to the EU’s evolving rulebook. In this way it would be prevented from branching out to become the western equivalent of Singapore, which has become wildly popular with bankers and investors after adopting a simple, laissez-faire set of regulations.

Shouldn’t a market be wildly popular with the people who are involved in that market?

If no farmers, bakers nor flour millers were happy with the structure and operation of the wheat market we’d think that a failing of the structure of the wheat market. If all the people who use cars and all the people who produce cars thought that the market for cars was an over-regulated, constipatory, mess we’d think that we’d got the regulation of the car market wrong.

If the providers, users and market middlemen in the market for capital find laissez faire regulation to be wildly popular doesn’t that mean that we should be instigating laissez faire policies in the market for capital?

No, not anarcho-capitalism, Singapore has a strong and firm insistence upon such things as property rights and the rule of law.

So why is it a problem, something we have to avoid, that a market be wildly, teemingly, popular with the participants in that market? What is it that we’re trying to achieve by regulating it into not being so? Other than the imposition of that haute bourgeois disdain for trade that is?

The prosecution of Lady Chatterley

On November 10th, 1960, the book, "Lady Chatterley's Lover" by D H Lawrence, went on sale in Britain. This was after a sensational trial at the Old Bailey that took six days between October 20th and November 2nd, 1960, when the publishers, Penguin Books, were prosecuted under the 1959 Obscene Publications Act. That Act, introduced by Roy Jenkins, had introduced a defence of 'literary merit' that would allow publishers to escape conviction for works that might otherwise have been deemed obscene. The public good section of the Act allowed a work that was "in the interests of science, literature, art or learning, or of other objects of general concern."

The book, first published privately in Italy in 1928, had only been published in expurgated versions since it told the story of an intense (and sexual (relationship between an aristocratic lady and a working class man, with explicit descriptions of sex, sprinkled with four-letter words that were until then regarded as unprintable. The trial, making front-page stories in newspapers was followed avidly by the general public.

The defence mustered various people of repute to testify as witnesses to the book's worthiness, including E. M. Forster, Helen Gardner, Richard Hoggart, Raymond Williams, Norman St John-Stevas, and the Bishop of Woolwich, Dr John Robinson. The latter was asked if Lady Chatterley's Lover was a book that Christians ought to read. He replied "yes," despite the prosecution's objection that the ethical merits of the book were a matter for the jury. The newspapers went to town on this, with one headlining, "A Book All Christians Should Read."

The evidence of Richard Hoggart, senior lecturer in English at the University of Leicester, was reckoned to be crucial. He described the book as "highly virtuous if not puritanical," and was asked by an incredulous defence counsel to help him by defining the word 'puritanical.' Hoggart replied that although it was often used to mean someone opposed to pleasure, to a literary man or a linguist it meant "someone with an intense sense of responsibility for one's conscience," its original meaning.

At the end of the trial the jury took only three hours to return a unanimous verdict of not guilty. The result not only vindicated the book, it also ushered in a wave of liberalization of what were then quite struct censorship laws. At that time the Lord Chamberlain censored the scripts of stage plays, and the British Board of Film Censors sometimes insisted on scenes being changed or cut. When I was a student at Edinburgh, the local Watch Committee would occasionally ban movies they thought had too-explicit sex scenes.

Some attributed the rise of what was later called "The Permissive Society" to the Lady Chatterley verdict that acquitted Penguin and allowed the book to go on sale. It certainly sold, rapidly selling over 3 million copies. It was a watershed moment, and heralded the gradual ending of the paternalistic censorship that had been a hallmark of British culture. People were in future to be allowed to make their own minds up about what to read and watch.

The poet and librarian, Philip Larkin, now commemorated in Westminster Abbey, referred to the trial in his 1974 poem, Annus Mirabilis:

 "Sexual intercourse began  In nineteen sixty-three  (Which was rather late for me)— Between the end of the Chatterley ban  And the Beatles’ first LP."

A strange defence of the minimum wage

We’re told that an increase in the minimum wage raises productivity:

The labour market needs to be rebalanced. For wages to rise, workers need to take home a larger share of national income – through a higher minimum wage, more security for workers in the “gig economy” and a higher proportion of sectors in which trade unions engage in collective bargaining. As other European countries show, this helps, not hinders, productivity improvement.

The proof is this, details in this paper.

OK, let us accept the contention for a moment. Raise the minimum wage, this raises labour productivity. So, for any given level of output we need to employ less labour then. That is, in the absence of a boost to economic growth we have just proven that a higher minimum wage creates unemployment.

We agree, it probably does. It’s just that we think it’s a strange argument in favour of a rise in the minimum wage.