Ten reasons why the Left should like the ASI, 1: Raising the tax threshold

There are many reasons why most Adam Smith Institute initiatives do not find favour with the Left.  We favour a spontaneous society rather than one planned centrally according to a preconceived idea of what it should be like.  They favour equality where we seek opportunities for everyone.  Many on the Left think in terms of class struggle, where the advancement of one class can only take place at the expense of another.  We do not think in class terms, but treat people as individuals, seeking opportunities for advancement for everyone.  Despite these major differences in outlook, there are some reasons why the Left should approve of some of the positions and policies of the ASI.  Here is the first of ten of them.

1.  The ASI has long advocated raising the minimum threshold for income tax to the level of the minimum wage.  The Left should approve of the way this would raise the take-home pay of low earners.

For over a decade the ASI has urged that the income tax threshold should be raised.  The ASI advocated a threshold of £12,500 when the actual threshold was less than half that figure.  Its case was partly a moral one, in that low paid people find it hard enough as it is to get by, without having the taxman take some of their meagre cash.  The ASI points out that someone on the minimum wage for a normal working week will earn about that figure, which also happens to be roughly half the average wage.

The ASI's case is logical, too, in that it seems absurd to set a minimum wage and then take money from those who earn it.  In some cases this leaves people with too little to manage so they become eligible for benefits.  Much simpler not to take it in the first place.  The coalition agreement contained a pledge to raise the threshold to £10,000 over this parliament, a clause that came from the Liberal-Democrats, not from the Conservatives.  All credit to George Osborne, therefore, for bringing that target forward a year.

Those who campaign for a "living wage" should note that the Minimum Wage minus tax is almost spot on the 'living wage,' with one big difference.  Instead of requiring firms to pay staff at above market levels, cutting the number of jobs, the ASI policy of linking the threshold to minimum wage has the Treasury footing the difference, without the job losses a 'living wage' would entail.

Curbs on migration are curbs on our freedom

Recently, Kier Martland produced an article in The Libertarian attacking Sam Bowman's take on immigration, suggesting an alternative libertarian view on the issue – using Hoppe to back up the position. I think this view is entirely mistaken. Indeed, Anthony Gregory and Walter Block take apart Hoppe's position here and Block again here.

The position taken by Hoppe is that nobody should be able to make a claim on the state without 100% consent from those paying for it, including for goods such as roads. The issue is that the state does exist, so long as there is government we should seek to ensure a policy of least damage done. By having high costs or even bans to hire migrants, the state would be taking away people's right to freely associate and make contracts. Further, by increasing the cost of labour, and doing other such damage to the economy as described in Bowman's article, restrictions on immigration do damage to the taxpayer. Hoppe's “second best” position simply doesn't hold true.

If one group in society objects to immigration, that does not mean migration is wrong because they pay a small percentage of the cost (even though, again, immigrants are a net positive for the tax collector). Indeed, the same argument would hold true for economic nationalists or greens who wished for only local goods to be sold in the economy. By importing foreign products, one would be initiating trespass on the roads by transporting goods unwanted by third parties. The same could be said of any good transported that an individual disapproved of, whether alcohol, meat products or any other “vice”. Similarly, Christian Scientists or others who disapprove of modern medicine might insist that taxpayer roads not be used for transporting any related materials. The position is ridiculous, you cannot support absolute rights to reject immigration whilst not supporting the same absolute right to reject other goods and services people might disapprove of.

By suggesting an increase in government control of migration, both Martland and Hoppe are going the wrong way on this issue – it is not about defending the taxpayer. Increasing the scope of the state, and the cost to taxation in policing it, as the Hoppeans propose, is damaging. What about those who pay taxes that DO want immigrants to use government services such as roads? Are their rights lesser than those who are for government restriction? Even if the costs and size of government are larger to be more restrictive? Should they be forced to fund border forces in this way? The Hoppean position on immigration is illogical; you do not reduce the scope of the state by increasing it and the number of tasks it undertakes. We should be looking at ways to limit the damage and cost of government now, and not sit in ivory towers trying to fudge a philosophical position that takes away the right of free association.

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A breathtakingly silly piece of journalism

The Guardian has published many silly pieces in its time, as have other papers, but today it published a piece by Lynsey Hanley that must rank as one of the most breathtakingly silly of all time. The article claims that raising the income tax threshold to £10,000 patronizes the low-paid. Moreover it "disenfranchises 3 million people":

More fundamentally, it suggests that people on low wages are effectively earning pin money, not "proper" money that requires being taxed, and therefore that the low-waged aren't full citizens. The article goes on to say that if people don't pay towards public resources, they lose their perceived entitlement to them.

Where to start? First of all, low-paid people pay a great deal in taxation, especially in VAT, and many of them pay taxes on alcohol, tobacco and petrol, plus dozens of other unseen taxes. The £10,000 threshold only exempts them from income tax, which is quite reasonable when you realize it is below the minimum wage. If people are not earning the minimum, it makes no sense to take some of their money away from them. They still pay the other taxes. Secondly, if paying no income tax makes you lose your "perceived entitlement" to public resources, doesn't paying less tax than someone else give you less entitlement to them?

Lynsey Hanley claims that "a fundamental component of citizenship, however, is paying towards the ongoing work of building and maintaining resources for everyone to use." In her disoriented world people on pensions, or disabled people supported by the state would not appear to be full citizens. I disagree.

In her world "Tax cuts are always a sop, no matter who you're giving them to." Again, I beg to differ. When the state takes less of our money it isn't "giving" us anything, certainly not a sop, because the money does not belong to the state. She wants the poor to pay taxes to make them full citizens. "To tax only the rich, or the better off, is madness. It's disenfranchisement by any other name," she says. No it isn't. It is taking money to support public resources from those who can afford it rather than from those who cannot. The rich should pay the taxes for the same reason that gangster Willie Sutton robbed banks, "because that's where the money is." I like it when we succeed, by lowering top tax rates, in having the rich contribute a greater share of total taxation. That's what should happen.

I wonder how many of the low-paid would agree with her that they should be paying more income tax? I suspect you could count them all on the one finger they would use to indicate their opinion.

Preventing town-dwellers owning second homes in the countryside

Sir Andrew Motion, head of the Campaign to Protect Rural England, has called for taxes that will put countryside second homes beyond the reach of all except the very rich.  His motivation is very clearly expressed.  These second homes are:

"… very often lived in by people who scoot down in their cars, see their smart friends, don't join in the life of the community and don't feed into it.  They're townies in the countryside, they make sure they're back in London in time to catch the 10 o'clock news on Sunday night."

Clearly Sir Andrew does not like these people or their lifestyle choices, and does not want them in the countryside of rural England.  The total number of people with 'weekend second homes' is put at over 165,000.  Of the 25 million homes in Britain this represents less than 1 percent of the total.  A somewhat larger number own a second home, but let it out for income instead of using it themselves.

Small though the number is, it clearly represents a problem for Sir Andrew, who does not like what these townies are doing.  For the townies themselves this is not a problem, since they are making the choice to live in this way, and enjoying that choice.  Sir Andrew and his CPRE think it quite legitimate to use the power of the law to prevent others making choices that they themselves disapprove of. 

As times change, so do lifestyles.  Affluence and mobility have given some people the option to enjoy the countryside at weekends or during holidays, and Sir Andrew and his friends want this stopped.  They think it reasonable to use the law to make the world the way they would prefer it to be, rather than the way others prefer it to be.  He doesn't want second homes to be illegal, just "very expensive."  

This calls to mind the CPRE's ongoing campaign to prevent more housing in the countryside, keeping its pleasures confined to those who already enjoy living there.  Sir Andrew and the CPRE should investigate whether it might be a lot cheaper simply to use barbed wire to keep townies out of the countryside.  After all, similar measures have been used before in other countries.

Why you really don't want capital controls even in extremis

There are, to a useful level of accuracy, two forms of capital controls. The first is the type we're seeing in Cyprus today, limited and supposedly shot term controls in order to stave off imminent disaster. Even the OECD and the IMF tend to say that these are OK in the right circumstances. The second sort of capital controls comes from the grottier end of the  fascist economic spectrum. Capital, in some manner, belongs to the country not the individual so it's just fine for the country to deny the individual the right to send it where they wish.

The problem with this distinction is that the former tend to end up transforming into the latter:

The authorities said at the time the controls would be temporary and limited in scope – lasting a few weeks or, at worst, a month or two. Half a decade later, the capital controls are still in place and getting more and more restrictive. This was the second time Iceland had implemented `temporary’ capital controls.

The first time it did so, in the 1930s, led to the controls being in place until 1993. This is in line with the historical evidence; once capital controls are imposed, they are really hard to abolish, and a temporary arrangement usually ends up being permanent.

The reason is that when a country implements capital controls, it signals the authorities have lost control over the economy, needing to employ desperate measures. That is does not exactly build confidence, so anybody with money will seek to abandon the sinking ship as quickly as they can, persisting in that desire until things look better. While the controls last, however, it is unlikely that things will look better because the abolition of the controls can become a necessary condition for improving economic conditions. This is why the official pronunciations on the duration and the scope of the capital controls in Iceland were always too optimistic.

If you look around the UK at present you will see the usual suspects quite slavering over the new consensus that the short term controls are OK. For exactly this reason: they know that short will become long. It even popped up in the Green New Deal from NEF and other economic ignorants. The idea was that if British capital could be stopped from leaving Britain then there would be more capital to invest in their lunatic plans. This doesn't really work for:

The Icelandic capital controls have proven to be highly damaging for its economy; investment has collapsed and is just about the lowest in Europe at 14.4% of GDP in 2013, compared to the EU average of 18%. The reason is that foreign direct investment almost completely dried up...

It most definitely wouldn't work in the British situation. You may have noticed that we're running a trade deficit. We have been since, ooh, the early 80s I think? What often gets missed is that if you're running a trade deficit then you are, by definition, running a capital account surplus. That is, more foreigners have been investing in Britain than Britons have been investing in foreign. This is simply an identity, it's not an arguable point.

So, institute capital controls in order to increase the amount of capital available for investment and.....suddenly Britain has less capital as Johnny Foreigner no longer sends his capital here for people to enjoy.

We really don't want to let them reimpose capital controls you know. It's not just the vileness that accompanied them, the having to ask permission before taking more than £25 out of the country and all that. It's that capital contols would be hugely damaging to the economy of the country. Because, just for those who are in the Green New Deal and thus too stupid to notice, we import capital in Britain. And if we have capital controls then we cannot do that, can we?

Trade increases female education levels

As you all well know we tend to like trade around here. For it was indeed Adam Smith who pointed out that it was the division and specialisation of labour followed by the resultant trade in production that made everyone richer. That said trade is currently leading to the greatest reduction in poverty in the history of our species is also true as globalisation roars on.

However, an intriguing little piece of research shows that trade also increases female education.

The intensification of international exchange throughout Europe came with a progress of mercantile science and practices, which forced merchants to acquire considerable skills in arithmetic, bookkeeping, reading, and writing. In merchant communities women played a special role, since they were often in charge of business operations, especially during their men’s year-lasting travels: therefore, women needed to be literate. Accordingly they received more (and better) education, both formally and informally, as documented by a vast historical literature on abacus schools open to girls and on female epistolary writing. The fact that commerce, contrary to other occupations, did not require physical strength reinforced this pattern.

What the authors are doing is tracking how Italian areas which were plugged into the trading routes and system in medieval times had, and continued to have, greater education rates (and for longer) than those which were not. The effects lasted centuries too.

What interests me here though is not quite just being able to say that trade leads to the desirable outcome of greater female education. There's a rather deeper point. It's a standard mantra of development economics these days that female education is one of the vital things that leads to development. Certainly, those places which educate more girls (and have a smaller gender gap in education) do perform better on all of the usual measures of human advancement. But the thing is I'm not quite sure that this mantra is correct. I think it might be putting the cart before the horse.

I don't doubt that greater female education can lead to greater growth mind. I'm just positing that it's the growth that leads to the greater female education. For two reasons.

1) The aim of this life is to have grandchildren. That's true whether you think biblically or in a Darwinian manner. When there are very high child mortality rates then many children are required to ensure grandchildren. Thus in a poor society much of a woman's life will be spent in pregnancy and child rearing.

2) A poor society is, almost by definition, one that works on human muscle power. It is inevitable that men in general have more of this than women.

If we put the two together we can see (OK, posit) that a richer society will have lower child mortality and also will be less reliant upon human muscle. Thus the incentive to educate girls will rise. They will not need to be wombs on legs in order to ensure grandchildren and also the value of their (educated or not) labour will rise relative to that of men as other forms of energy enter the society.

This is nothing at all to do with whether we should have gender equality in anything at all. Of course we should, 'uman beans are 'uman beans and we've all the same rights. Rather, this is about how to trigger this desirable outcome. And I have a very strong suspicion indeed that the greater education and rights of women come as a result of the beginnings of economic growth, not produce it. Yes, I'm sure there's a feedback going on as well. But the logical policy outcome of this would be that we concentrate less on "gender issues" in development and more on development itself as the gender stuff will largely solve itself given the incentives that development produces. Women's labour becomes more valuable as development proceeds leading to greater education of that potentially more valuable labour.

Hurrah and trebles all round of course. But get the development going first.

Set Sunday free

Easter in Britain is one of the busiest shopping days of the year, with garden centres and DIY stores in particular full of people stimulated by the spring weather – well, when we are not having an Arctic spell – to bring a bit of a new look into their homes and gardens.

But larger stores, like those same garden centres and DIY stores, will be able to open only six hours on Easter Sunday – like every Sunday. Convenience stores can stay open longer, but retail premises larger than 280 square metres are allowed only six hours.

That alone should make us question the Sunday trading hours. It is a completely arbitrary number: why not 250 or 300 or 350 square metres? Laws should apply to everyone, or to nobody.

Since limited Sunday trading was introduced, Sunday has become an important shopping day. It gives families in particular a little more time at the weekend for those large purchases that they want to make together. It used to be hard to do that and get in the weekend food shopping at the same time. It has actually made things more relaxed.

Remember too that other important shopping days often fall on a Sunday – Christmas Eve and Boxing Day, for example. Retailers right now could really use the boost of a proper day's trading at these times, especially those who are  losing trade to online alternatives.

The Sunday trading laws were relaxed for the Olympics and the world did not come to an end. Subject to reasonable planning restrictions to prevent local nuisance, we should relax them entirely. Why should the government decide whether people can and cannot shop, or can and cannot open for business?

The law states that employees can refuse to work on a Sunday without fear of retribution. That should really apply to other days too – not everyone has Sunday as their religious day of rest. And of course, nobody has to shop, or open their shop, on Sunday if they do not want to. Why should those who do not want to be able to force the rest of us to comply with their choices?

The mass employment in manufacturing just isn't coming back you know

I'm always rather puzzled by those who shout that we've got to bring manufacturing back to the UK. Apparently this will solve all our problems over what to do with dim Northern lads or something. Once they're all hammering out whippet flanges then we just won't have a problem with unemployment ever again. The problem with this idea is that modern manufacturing simply doesn't provide many jobs. And if it were to provide mass employment it would be very badly paid employment too:

Americans working to produce traded goods and services earn, roughly, according to their productivity. If low-skill workers in America aren't much more productive in manufacture of traded goods and services than low-skill workers in China, then they can't earn much more than workers in China while being employed in manufacture of traded goods and services. They can earn a rich-world wage in production of non-traded goods and services, like sandwiches and haircuts, so long as there is sufficient local demand. In other words, the only way to get less-skilled Americans a good wage in a manufacturing industry is to significantly raise their skill and productivity level. If that can't be accomplished, they can only hope to find good wages in non-traded industries. At least, that is, until wages of less-skilled workers across the developing world come much closer to converging with those in America.

Of course, that's all about America but the same logic pertains here as well. Chinese manufacturing wages are around $6,000 a year at present. Meaning that if we had mass employment in manufacturing, as they do, then wages would need to be around that level. Or, alternatively, UK based manufacturing would have to be much more productive to support higher wages. And "more productive" is the same as saying "uses less labour". Thus you can have few well paid jobs (in the Rolls Royces etc of this world) or you can have many badly paid jobs (Shenzen). It isn't actually possible to mix and match between the two.

It's also worth noting that UK manufacturing output peaked in 2005. Oh sure, manufacturing employment has been falling for decades as has manufacturing as a percentage of the economy. The first because manufacturing has become more productive, the second because other parts of the economy grew faster. But manufacturing output did indeed rise from the 1940s all the way through to 2005 (with wobbles for recessions of course).

It's also worth noting that manufacturing has been falling as a percentage of the global economy. No, really, it has, and manufacturing employment has been falling globally too. Even as manufacturing output continues to rise. And the UK's share of the economy that is manufacturing is around and about the norm for an OECD country too. What's happened to our manufacturing sector is nothing special at all. It's happening everywhere, to everyone.

What's actually happening in manufacturing is what happened to farming 80 years ago. It mechanised, as manufacturing is now. The sector is simply using ever less labour as it uses ever more machines to keep on pumping out things we can drop on our feet. Then it was tractors, now it's robots but the effect is much the same. We're going to end up with, as we did with farming, 2 % or so of the population doing the manufacturing. Everyone else is going to be one or another form of services. Perhaps whippet flanges are essential, perhaps Britain should make its own but whatever we do about it we're simply not going to see mass employment in manufacturing ever again.

Which is why it always confuses me to hear the incessant claims that we must have more manufacturing. Why?

 

Why yes, we are being lied to. Why do you ask?

A continual theme of mine is the way that the various numbers we're presented with in the political arena aren't entirely, exactly and strictly, quite true. Nothing new in this of course, the lies, damned lies and statistics line is well over a century old already. The latest, how shall we put this kindly, misdirection is on the subject of energy prices. Ed Davey tells us that we're all saving money by spending vast amounts of money on renewables.

Our analysis shows that, taken together, these policies and others mean household bills are already lower – by an average of £64 – than they would have been if we’d introduced none of our policies.

This is exceedingly difficult to believe. For energy produced by renewable means is still more expensive than that produced by fossil fuels. This is why we actually have a climate change problem: if renewables were in fact cheaper then we'd all quite naturally be using them. And it's not really possible to make the system cheaper as a whole by moving from a cheaper component of it to a more expensive one.

An excellent thrashing of this contention is provided here, at The Register:

Thus we see that the consumer price of 'leccy overall stands approximately 25 per cent higher today than it would have been if Whitehall and Brussels had left the UK energy market alone.

Mr. Davey then goes on to tell us that government action will really save us all money in hte medium term, you just wait and see:

In 2020, bills will on average be around 11 per cent lower, than they would be if we were doing nothing. Let’s be clear - bills will still be higher. But they will be £166 lower than if we sat on our hands.

The problem here is that they've made an assumption: that natural gas prices will rise by 70% in the next few years. The only reason they've made this assumption is because they've not bothered to talk to anyone at all who knows what they are talking about as the FT makes clear:

The UK’s Department of Energy and Climate Change is about to publish forecasts suggesting that gas prices could rise by up to 70 per cent over the next five years. This is scaremongering nonsense, and shows just how out of touch the Department is with the realities of the international energy market. Officials appear not to have consulted the industry or the traders. In reality the odds are that prices are just as likely to fall as to rise for three distinct reasons.

Those three reasons are shale (even if we don't produce much ourselves, there's still going to be US exports), demand has fallen because of all the renewables that everyone is being forced to use and the pricing structure of the material is about to fall over. Traditionally gas prices were linked to oil prices and it's increasingly becoming true that they are not: gas prices are linked to gas prices now.

Regular readers will know that I'm generally onboard with the idea of climate change, think it's happening, we're doing it and that something must be done about it. However, this doesn't mean that we all have to wander off into LaLa Land in our discussions of what to do about it.

I agree that a certain amount of smoke and mirrors is inevitable in politics: but what worries me is that DECC has been repeating this guff to itself so often that they actually believe it.

They really are not saving us all money on our energy bills by making energy more expensive. And it would be very nice indeed if they stopped misleading us about their doing so.

Incoherent bank regulations

The Bank of England’s Financial Policy Committee has announced an increase in capital ratio requirements for banks and the FSA announces a reduction.  The former is, of course, for existing banks and the latter for new banks.  Higher capital ratios are intended to stop banks going bust so, on the surface, it is odd that those that are unlikely to be at risk now their days of profligacy are over, at least for the time being, are having further bolts applied to the empty stable door whereas those banks most at risk, namely the small new ones, are being encouraged to expose themselves further.

Maybe handicapping the big banks in this way is good, in the long run, for competition. Perhaps we should not care if small banks go under and worry only about the systemic banks.  That shows a misunderstanding of the economic cycle.  Cyprus was the last domino in the 2008 crash, not the beginning of a new one.  Whatever happens in Cyprus will not put large British banks at risk.

Some economists, and the Bank of England, fail to grasp an elementary piece of accountancy.  Capital adequacy ratios decline if cash is replaced by loans to small businesses. New small banks are going to have an insignificant effect, in the short term, on lending to small business and we need those loans to rebuild the UK economy.  It is the clampdown on lending by the big banks which is mostly to blame for the UK’s sluggish economic recovery.

The Chancellor nearly got it right when he arranged for big banks to borrow at subsidised rates.  He hoped they would pass it on with more lending at lower rates.  Instead they put the money in their pockets, widening their margins and bolstering their capital ratios.  Instead of sending them to gaol for defrauding the rest of us, the Bank of England is now patting them on the back.