Let's just not count how effective government spending is, eh?

We have a report that a particular government program managed to spend a considerable amount of money and not achieve anything very much. According to The Guardian therefore we should not be asking to measure government spending by results.

Err, what?

According to Newsnight, the Ecorys report examined data from 56 local authorities and concluded there was “no discernible impact on the percentage of adults claiming out-of-work benefits either 12 or 18 months after starting on the programme” and “no obvious impact on the likelihood that adults were employed 12 or 18 months after starting on the programme”.

“Participation did not have any discernible impact on adult offending” seven to 18 months after the family was booked into the programme, it said.

Ecorys added: “Whilst it was more difficult to match the treatment and comparison groups when looking at child outcomes, the findings suggested that the programme also had no detectable impact on child offending.”

£1.3 billion of our money spent in order to show that David Cameron was a caring sort of chap. We think that there might be better uses of the cash squeezed out of the populace than that. However, The Guardian takes a different tack:

The troubled families scheme has failed – this is the folly of payment by results

No, that really is what they say:

It is time to call time on awarding public contracts which pay out for results, especially when the evidence for those results is so easy to manipulate .

Not really we feel. The time has come to insist upon only when paying out when results have been demonstrated.

 

The airport liquid ban is a damp squib

It is ten years to the day that strict liquid restrictions were imposed on travellers through UK airports. Even though there's very little evidence that these rules have stopped a single attack, they continue to have huge economic costs.

According to The Times:

"One in five security trays scanned by airports still contains drinks, aerosols, sun creams, perfumes or cosmetics which breach the regulations, according to research published today.
More than 140 million tonnes of bottled drinks were confiscated in the past 12 months as passengers went through scanners, Manchester Airports Group (MAG) revealed. It said that confusion over liquids remained the biggest single cause of delays at security queues during peak times."

As security expert Bruce Schneier points out:

"There are two classes of contraband at airport security checkpoints: the class that will get you in trouble if you try to bring it on an airplane, and the class that will cheerily be taken away from you if you try to bring it on an airplane."

The bottle ban falls into the later category. When travellers are stopped by security for having the wrong kind of bottle, they aren't then brought aside for questioning. That'd be too time consuming given the sheer number of accidental rule breakers. In fact, most security officers seem indifferent to what's actually in the bottle. The bottles are simply discarded and the passenger is waived on through. A wannabe attacker could take that risk over and over again.

Indeed, the very basis of the restrictions seem weak. Even if a would-be terrorist wasn't able to bring enough of an explosive on board as part of their liquid allowance, they could still buddy up with a couple others troublemakers and simply mix the explosive liquids together in a bigger bottle bought in duty free. 

You may point out that since bringing the rules in there have been no major terrorist attacks on airplanes coming out of UK/US airports. But Matt Ygleisas raises an interesting question. Why don't we see liquid explosive attacks on buses and trains where these strict rules aren't enforced? When a restriction is opposed on one activity, you would expect an increase on activities that are close substitutes. For example, if the Government banned e-cigs we'd expect to see sales of old fashioned tobacco cigarettes up. Yet, for terrorism in the UK we just don't see that substitution effect.

Regardless of their actual safety benefit, "Security Theatre" measures such as these may at least make passengers feel safer. But, ten years on, with millions of passengers ignoring the rules, long waits, and unnecessary waste, it's time to ask – is it worth it?

How excellent, the student loan system is working

Some people going to university to study certain subjects is an economically good thing for the country as a whole. All people going to university to study any subject is not. Therefore what we'd like is some system which determines who are the economically rational people and what are the economically rational subjects.

The answer to this is to charge the people who do the degrees for their degrees. And lend them the money in the meanwhile as the average 18 year old is not obviously a good credit risk.

Thus the student loan system and here is the proof that it is working:

And there is another chilling prospect to face. The number of British 18-year-olds going to university has dipped. Increasingly, savvy school leavers are beginning to realise they are being treated as gullible customers rather than potential Nobel prize-winners or even competent linguists or mathematicians. Whatever the incentives offered, do they really want to go to university any more?


According to a report this month by the Intergenerational Fund think tank, student debt payments wipe out the benefit of higher salaries for most graduates. Politicians who use more lucrative earnings to argue for higher fees should be “challenged for gross mis-selling”, the fund says, adding that apart from Oxbridge and medical graduates there is no guaranteed graduate “earnings premium”.

People taking account of the costs and benefits of a university degree as a result of the student loan system is not a fault nor a flaw in the system. It's the point of it.

Jeremy, you can't pay for anything out of a tax rate rise which doesn't increase revenue

It always comes as a shock to a certain type of person to find out that the Laffer Curve is actually true. No, we do not mean the caricature of it, that all tax cuts pay for themselves, but the actual contention itself. That there are tax rates above which revenue collected falls, not rises. What that rate is depends upon the economy which is being taxed, the tax being discussed and so on. That Laffer Curve peak for, say, cigarette taxation is going to be different than that for income taxes for example.

But that basic contention really is true. And thus the mistake being made by Jeremy Corbyn:

Jeremy Corbyn would fund pay rises for public sector workers partly through a 1% rise in corporation tax and bringing back the 50p top rate of tax, the party has said.

We don't approve of the basic idea here but we do understand it. This is merely politics - I'll take money off those nasty people over there to give to you, my dear voters. That is mere politics - the bribery of sufficient people to get elected.

However, we do still have that Laffer point. The best evidence we have is that the peak of the Curve, for the UK and for income taxes, is lower than that 50 pence or 50% rate. Yes, there's all sorts of exciting shouting matches over income shifting and so on as to what really happened when we had and then did not have said rate but our reading of it is that 50% is too high. 

We've also that Diamond and Saez paper in the US which said that, where there are allowances,  the peak rate is 54%. One such allowance which the UK has is the ability to become non-resident, an option not available in the US. Further, that 54% is "taxes upon income", not "income tax", meaning that we must add employers NI to our income tax rate to reach that 54%.

Both theory and empirical evidence seem to indicate that 50% in income tax is above our Curve peak. Meaning, of course, that raising the tax rate to that level will not increase revenue with which to bribe Corbynista voters.

At which point there's no reason to do it, is there?

People are still getting this climate change thing wrong

The latest screeches about how we're all going to boil in the remains of the last ice floe:

Leading climate scientists have warned that the Earth is perilously close to breaking through a 1.5C upper limit for global warming, only eight months after the target was set.

The decision to try to limit warming to 1.5C, measured in relation to pre-industrial temperatures, was the headline outcome of the Paris climate negotiations last December. The talks were hailed as a major success by scientists and campaigners, who claimed that, by setting the target, desertification, heatwaves, widespread flooding and other global warming impacts could be avoided.

All the way through the entire discussion the economists have been pointing out that we do not want to set a temperature target. We want a cost benefit target. What will be the costs of whatever action we take as against the benefits our actions will create? And we should only be incurring such costs up to the point that they equal the benefits gained. The 1.5 oC target does not achieve this therefore it is the wrong target:

Keeping within the 1.5C limit will be extremely difficult, say scientists, given these rises.

These alarming figures will form the backdrop to the Intergovernmental Panel on Climate Change talks in Geneva this month, when scientists will start to outline ways to implement the climate goals set in Paris. Dates for abandoning all coal-burning power stations and halting the use of combustion engines across the globe – possibly within 15 years – are likely to be set.

Just not going to happen, is it? And more than that, getting rid, entirely, of the internal combustion engine within 15 years is going to cost vastly more than any benefit it might bring.

The problem was made particularly severe because moving too quickly to cut emissions could be also be harmful, added Field. “If we shut down fossil fuel plants tomorrow – before we have established renewable alternatives – we can limit emissions and global warming, but people would suffer. There would be insufficient power for the planet. There is an upper limit to the rate at which we can move to a carbon-free future.”

Yes, rather the point we've been making all these years. Also a point made, quite vehemently, in the Stern Review itself. We should only do as much as costs less than the benefits the actions bring.

Our own opinion here is that people aren't in fact being serious about this in the slightest:

“Some negative emission technology will inevitably have to be part of the picture if you are going to keep 1.5C as your limit,” said Professor Jim Skea, a member of the UK government’s committee on climate change. “There will always be some human activities that put carbon into the atmosphere and they will have to be compensated for by negative emission technology.”

But what form that technology takes is unclear. Several techniques have been proposed. One includes spreading crushed silicate rocks, which absorb carbon dioxide, over vast tracts of land. Another involves seeding oceans with iron to increase their uptake of carbon dioxide. Most are considered unworkable at present – with the exception of bioenergy with carbon capture and storage.

No, really, we insist that people are not taking this whole thing seriously at all. For we have spoken directly with the people who investigated seeding the oceans with iron. It works, there's no doubt at all that it works. It's also startlingly cheap. It's not a complete solution but it's an entirely viable one. It's also one that it's illegal to carry out, even illegal to do further testing upon it.

On the day that first ship laden with ferrous sulphate sails for the Southern Ocean we'll agree that people are taking this all seriously. And that is about the level of effort required. Fleets are not, a couple of ships might be. The raw material is a waste from other processes and is thus free. Distribution is no more than a burly bloke shoveling it over the side. Our best information so far is that this will sequester up to 1 billion tonnes CO2 a year. About the current output of two Britains.

We do actually know how to sequester CO2. But we're not doing it and not even planning to do so. People just aren't taking this seriously, are they?

This is nuts

That there are iniquities and inequities in our society seems to us to be a statement of the obvious. Further, that we might well like to sort through them, consider them and decide which we might like to try to solve. If a solution is possible at all of course.

This does not mean that every iniquity does in fact have a solution:

People suffering from mental health problems such as depression and panic attacks earn up to 42% less than their peers, prompting the government’s equalities watchdog to brand the pay gap “a disgrace”.

Quite why is is a disgrace is something left unsaid. Ill health of any form can and often does lead to a reduced income. It is not true, as some like to try and insist, that all health inequality is caused by economic such, it is true that at least some economic inequality is caused by the random chances of health inequality.

That this applies to mental health as well as physical is hardly a surprise.

“We must do more to tackle the injustice in our society of this mental health pay gap,” said David Isaac, EHRC chair. The figures revealed “the hidden disgrace of British society’s pay gap for men and women living with depression and panic attacks”, he added. 

We're not even sure that anything can be done about this. But worryingly the analysis is worse than this, much worse:

Commission analysis of men who suffer from mental impairment, including learning difficulties and mental health problems, has concluded that they are more likely to earn less as a result of working part-time, being in low-paid jobs or having few educational qualifications. Notwithstanding that, however, “there is still a large and unexplained gap and the impact of discrimination and stigmatisation as underlying factors should not be underestimated”.

To be crude about this the complaint is that some stupid people don't get much education and thus don't get nice jobs. This is not, we think, a savage injustice calling out to the very heavens for restitution.

We do think it might be a bored bureaucracy looking around for something to do with its time and budget.

But for an expression of true madness try this:

Emma Mamo, head of workplace wellbeing at the mental health charity Mind, said: “Fortunately, employer attitudes towards recruiting and supporting people with mental health problems are improving, with many employers now putting in place measures to support staff wellbeing.

“It’s unacceptable that people with mental health problems earn less than those without mental health problems.“Staff who have a mental health problem can and do make a valuable contribution to the workplace,”

It is most certainly true that certain mental health problems reduce the ability of the worker to produce value for their employer. Thus they get paid less.

We're about to get a campaign calling for equal pay for the ill. And that's just nuts.

Piketty is interesting, yes, but is he right?

That Thomas Piketty's book about wealth and capital is interesting is entirely true. And the world that it describes is perhaps one that we might not like all that much. But we do recall Paul Krugman saying how great a work it is but that it doesn't quite seem to describe this particular world that we inhabit. Certainly, the American economy does not run on inherited capital. Further, the large rise in capital and wealth in both the US and UK economies in recent decades is based upon pensions and housing - not great concentrations of capital at all.

So, interesting, possibly even shocking, but is it true?

Thomas Piketty's Capital in the Twenty-First Century puts forth a logically consistent explanation for changes in income and wealth inequality patterns. However, while rich in data, the book provides no formal empirical testing for its theoretical causal chain. In this paper, I build a set of Panel SVAR models to check if inequality and capital share in the national income move up as the r-g gap grows. Using a sample of 19 advanced economies spanning over 30 years, I find no empirical evidence that dynamics move in the way Piketty suggests. Results are robust to several alternative estimates of r-g.

That's from the IMF. It appears that, whichever world Piketty is describing it's not this one.

 

This really is idiocy, yes, we're afraid it is

We feel a little let down here. Not quite sure why we did but we expected better than this from The Times. We also expected better than this from a science correspondent. So, a double disappointment from Oliver Moody:

If those arguments sound in some way sentimental, consider food security. At present the UK produces 62 per cent of what it consumes. Agricultural tariffs tend to be among the more punitive terms levied in trade deals and the EU is not likely to be forgiving if we lose access to the single market. Prices will rise and if we lose the capacity to grow a wide range of our own food we will be horribly vulnerable to the whims of the international markets.

The assumption being made there is that if the EU imposes agricultural tariffs upon Britain then this will make food more expensive in Britain. This is nonsense, that upon stilts kind of nonsense too.

Once we Brexit the EU will be in charge of whatever tariffs they decide to impose upon British exports to that fair continent. They might well set them at the same levels that they charge to other countries. That then makes British food more expensive on that fair continent. The effect on the price of British food in Britain is to lower it a little. For, presumably, facing high tariff barriers less will be exported and thus more will be available for domestic consumption.

The error underlying Moody's confusion is the assumption that the EU will determine what the tariffs will be on fair food from the continent arriving in Britain. That's nonsense - whatever our import tariffs will be will be something that we decide. And given that we like food from the continent why would we add, add ourselves that is, to the price we must pay for it? Quite, we won't.

Finally, being free of the EU's farm tariff barriers will mean that we can import lovely food from other parts of the globe. New Zealand is known to offer butter and lamb at reasonable prices for example.....

The argument that leaving the European Union will make food more expensive is nonsense, nonsense upon such stilts that it is idiocy we're afraid.

Polly's car crash of an argument

Polly Toynbee decides to take on the iniquities of the HGV industry:

The economic orthodoxy says a labour shortage should lead to a pay rise until people are enticed into vacant jobs – but that doesn’t happen as industries conspire to keep pay low, despite the shortages.

That's actually a significant charge - cartels in hiring are highly illegal. Under current rules a company found to be taking part in such can be fined 10% of turnover if found guilty. We also have a system whereby the whistleblower doesn't get fined and everyone else does - an adaptation of the insights of the Prisoner's Dilemma to the real world.

Given the seriousness of the charge we do really rather hope that Polly has the evidence to back up the allegation. 

However, that's not the car crash aspect to her argument. This is:

The story of road haulage is mirrored time and again in British industry, with employers failing to work collaboratively, unions too weak to force good pay and conditions, and no government intervention.

Companies collaborating is bad but companies must collaborate. 

We do rather wonder whether Polly reads her own work.

Julian Baggini's really not understanding Tax Freedom Day

Over at The Guardian Julian Baggini has an attempt at denouncing our favoured little concept of Tax Freedom Day. As ever with economic logic in The Guardian the wheels rather come off his argument. For he makes the incorrect conceptual leap from insisting that the things government provides are just great to the insistence that therefore tax is great. Nope, no, and really, just no. 

It is impossible to get either accounting or economics correct if you fail to distinguish between a cost and a benefit. Thus we must indeed distinguish between costs and benefits:

No one is celebrating such a social solidarity day yet. However, for several years the Adam Smith Institute and the Taxpayers Alliance have been advocating something they call tax freedom day, which fell this year on 3 June. They tout this as “the first day of the year that you start earning money for yourself”, since on average all we earn for 154 days of the year we pay in taxes.

Social solidarity day and tax freedom day are of course two ways of looking at exactly the same objective phenomenon: that on average, 154 calender days earnings are taxed. The meaning of this fact, however, is changed by how we frame it. For economic libertarians, taxation is a deprivation of what is ours by natural right. For those who favour a welfare state, taxation is (or at least should be) a fair payment towards a well-functioning, just society that protects the weak as well as the strong.

Tax freedom day has been an effective rhetorical tool for advancing the tax-as-theft worldview. It is now as politically difficult to speak positively of tax as it is easy to praise the things we spend these taxes on, as though we can be in favour of the NHS while being against what funds it.

We're sure that there will be disagreements between Mr. Baggini and ourselves on what are the lovely parts of government and what aren't the lovely parts of government. Even on how we might gain more of the lovely parts without having to put up with the rest of the dross.

But it is still absolutely essential to insist upon that distinction. The benefits of government are indeed a benefit. Tax is the cost we must pay to gain those benefits. Tax is not, in and of itself, a benefit - it's on the other side of our calculation, the other page in the ledger.

We could, of course, just dismiss this as a matter of emphasis, possibly as each side deploying the appropriate rhetoric to support their favoured argument. But sadly this is very much more important than that. We do in fact want the maximum of those good things from collective spending while doing the minimum of that tax raising to fund collective endeavours. Thus we want to minimise the tax bill for whatever it is that we are getting.

Yes, this includes everything - whether you favour military spending, the NHS, education, whatever, we still want to get the maximum bang for our buck, the most people cured for the least money, the most snotnoses taught to reed n'rite for the least picked from our wallets. That is, it is only by viewing tax as a cost that we can possibly hope to gain any efficiency in the manner in which it is spent.

Rather than Baggini's view, which seems to be that the more money we burn as votive offerings to the State the more we will be demonstrating our reverence for said state. At which point we do have to point out that we are Enlightenment liberals, who do believe in the separation of Church and State - whether that means organised God type religion or the religion of the State itself.