It's remarkable how politics can be driven by simple untruths

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We think we're all onboard with the idea that something dreadful is happening to rents in London? They're vast, much too high, soaring ever higher and becoming increasingly unaffordable? Therefore something needs to be done. Possibly rent controls, maybe throw up a couple of hundred thousand prefabs, possibly crucify buy to let landlords or something?

The problem is that the basic original fact is wrong.

The London Assembly asked the Cambridge Centre for Housing and Planning Research to study the possible effects of various restrictions and new tenancy contracts. Including, obviously, some forms of rent control. Said study pointing out the following:

As can be seen private rents have actually risen below wages or CPI on average during the period 2006-2013. This is true both in London and in England as a whole.

Rents are not rising faster than either inflation or wages.

We do not, therefore, have a problem.

And hands up everyone who thinks that the revelation that we do not have a problem will stop people demanding a solution?

Yes, quite.....

This isn't a joke, it's a criticism

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The lady who wrote "Who Cooked Adam Smith's Dinner?" has returned to the pages of The Guardian to tell us more about economics:

Economists sometimes joke that if a man marries his housekeeper, the GDP of the country declines. If, on the other hand, he sends his mother to a care home, it increases again. The joke says a lot about the perception of gender roles among economists, but also shows how work done within the home is not counted as part of GDP, but the same work done outside of it is. This economic assumption may seem harmless, but actually has severe consequences for women and girls.

It's not in fact a joke, it's a criticism. It is what Keynes said about Simon Kuznet's work on trying to define how we do measure GDP. This is not some evidence of the patriarchy controlling economics, it's evidence that the problem has been known about and considered since the very start of the whole idea of trying to measure that economy.

As, amusingly enough, one of us explained in an article published on the same day in a different place.

And we all also know what is the answer to that little conundrum. If GDP is value added at market prices, and there's labour adding value but not at market prices, then how do we value the added value of that labour? The Sarkozy Commission considered this and such as Joe Stiglitz and Amartya Sen told us the answer. At the "undifferentiated labour rate" or, as we might more commonly call it, minimium wage.

It's not just that the original set up of the problem is incorrect it's that she doesn't know it's already been solved.....

Sobering thoughts on the Bank of England

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I can't say I really trust central bankers. The incentives on them are to over-expand, and create rising prosperity which reflects on them and their political masters. Often they do not even realise they are doing it. But the trouble is that it takes increasing doses to maintain the high, and when you ease off you get a hangover - and real people lose real wealth. Never mind dashing away the punch bowl - don't serve booze in the first place. Keep the economy sober so people can make rational investment decisions.

When you do eventually crash after the previous excesses, I agree that you need to boost the money supply fast - because just as the banks create money in the upturn, they destroy it equally fast in the downturn, and you have to replace at least part of that to bridge the way from the downbeat to the upbeat without, hopefully, hitting the bottom.

I don't think we have a QE system that actually gets cash where it's needed, though. It goes into assets, which is fine for people with assets, but lesser mortals are left high and dry. In the UK, it basically goes into buying up government debt. But like the rest of us, the government can't get out of a fix just by stacking up more debt.

And then you have to be prepared to take all this money out of the system when things start to turn around so you don't get inflationary pressures building. It might be repressed inflation – where the monetary expansion is actually distorting investment decisions, but people are still too nervous to put up prices. But it is still destructive. Again, there is little incentive on a central bank to restrain itself at this point.

I do worry whether the UK's spectacular recovery is in large part due to all the QE we have done (larger, proportionately, than America's). A recovery built on the same thing that brought us the last boom-bust episode. The trouble is, it's hard to know. You could, of course, rely on the market to tell you, as the market probably has a better collective idea than most monetary officials. But that would mean giving up the monopoly control of money. Central bankers aren't going to volunteer for that (though crypto-currency may do it for them).

Europe's monumentally appalling problems are because they have the same boom-bust problems, but a) a bunch of economies that are state-dominated and fat and under-performing, not the best formula for a recovery, and b) countries that should adjust but are locked into the euro so they can't, and c) a complete inability to take on-time monetary decisions anyway because of all the political differences. Sell your shares in the EU!

Some subsidies are not like other subsidies

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Austin Healey is arguing that the solar feed in tariff should stay at some gloriously elevated level because:

Mr Healey visited 10 Downing Street to argue the case for a U-turn of the proposed changes last week. The Government currently spends £26bn a year subsidising the fossil fuel industry and £3.5bn on solar: “We think the drop in the tariff is draconian,” said Mr Healey.

The Telegraph helpfully linking that statement to this excellent piece by our own Sam Bowman.

When you read the report, it becomes clear pretty quickly that the IMF’s definition of a subsidy is a little different from everyone else’s. Usually, subsidies describe the government paying money to a firm or industry to encourage production, ostensibly to reduce prices for consumers. Think of the EU’s Common Agricultural Policy, or the cash given to the British steel industry during the Sixties and Seventies. These are unpopular with economists. Subsidies end up making firms bloated, inefficient, and more interested in satisfying government bureaucrats than their customers. And those customers still end up paying for those subsidies with their taxes. But the IMF’s idea of “subsidies” to fossil fuels refers to something completely different. They have taken the indirect costs to society of using energy – air pollution, traffic congestion, climate change – and, if governments haven’t imposed special taxes on one, called it a “subsidy”.

That is, Healey's statement is not actually true, not within the normally accepted meaning of the word "subsidy".

But there's more to it than that. The government does not in fact spend £3.5 billion a year subsidising solar. Rather, it insists that solar should be able to overcharge us for their production. And what is being decided now is that that insistence on the consumer being gouged is to end, or at least decrease.

Yes, it's very definitely a subsidy, a subsidy arising as a result of government action, but it's not government spending upon such subsidy. It's government market rigging to provide it. And the equivalent sum over on the fossil fuel side is, in the best gloss one can put on it, an absence of government rigging the market to account for externalities.

Not all subsidies are the same.

There's a simple solution to this

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It's entirely possible that the man from the Post Office is right here. That instead of banking when in credit being free, with high charges for not being in credit, it would be better to have a system where all get charged the costs of their activities. Entirely possible that he's right: Free bank accounts are unfair to poor customers and form an unsustainable foundation for the banking system, according to Post Office Money’s chief executive, Nicholas Kennett, who wants to see the industry charge customers regular fees instead.

He believes it is unfair that customers who have to use their overdrafts are charged high fees, which are then used by the bank to offer free accounts to the better-off who rarely pay any fees.

We also have a system to work out whether he is right:

While this may mean that customers who never incur fees and charges are well-served, he argues that charging customers for the services they use would be fairer overall and lead to better service for more account-holders.

In his case, the Post Office offers an account which costs £5 per month and will not let customers rack up unexpected overdraft fees.

Excellent. So, those who think that is the better system will flock to the Post Office to gain access to that better system. Those who do not will not. No one need do anything else. The alternatives exist, all are free to choose between them so choose people will. Which is the best system thus being not something that we can determine a priori, but something emergent from what people do.

You know, this market stuff?

Panem et circenses

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We think it's very nice of the Guardian's subeditors to offer us this opportunity to point to and giggle at Polly Toynbee:

Only the BBC could give us Bake Off and Strictly. We must protect it

Polly Toynbee

Because someone, somewhere, was always going to attach that headline above to it.

Yet there's more to this than just a giggle. For it betrays Polly's very patrician idea of what the State is for. It is to provide the entertainments, the diversions, which stop us plebs from rising up and throttling said patricians. Rather than our view of what said State is for, which is to do those few things which both must be done and can only be done by government.

And what really grates is that at least the Romans insisted that it was the patricians that paid for the bread and circuses, Polly's insistent that we must be charged for what she insists we must have:

If the BBC is to be truly independent, it should have written into its charter a permanent guarantee that it will always get a licence fee uprating to cover inflation – so as to keep off the interfering hands of governments, and all the threats and snarls that besiege it from Westminster.

In 100 pages, the BBC defends in detail its need to do the things heavily targeted by its enemies as ripe for selling off. But no commercial channel approaches Radio 1’s 65% new and live music, or the breadth of Radio 2’s specialist niche music. Radio 3 has depth and range but only 10% repeats, compared with unadventurous Classic FM’s 40%.

Read this document when it goes online at midday today and be amazed at what our public broadcaster does for so little cost. It’s a fine reminder of what you get for £12.13 a month,compared with Sky’s average bundle at £61 a month.

If we want it then we'll buy it, thank you so very much, Lady Bountiful.

Why Theresa May be wrong

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Theresa May’s Conference speech on Tuesday made some… strong claims about the harms of immigration, and attracted an array of excellent critiques in the media. I want to highlight one flaw that these reactions didn’t discuss in detail. Her argument relied on a constant blurring of the difference between the volume of immigration and the size of net migration flows. The problems she highlighted with immigration fall into two categories – problems with net migration, which generalise to population growth of any kind, and problems with the level of immigration - an influx of foreigners into our society.

She talked about immigrants putting pressure on government finances and education systems. Conspicuously absent was any mention of the fact that (unlike those of us who are scroungers born-and-bred), the majority of immigrants are actually net contributors to the state. Nor did she extend her logic to the hordes of babies and children in the UK who are net burdens on government services – perhaps because, like the children of immigrants, those children will grow up and pay taxes in the future.

The main thrust of the speech, though, focused on the social impact of immigration – the difficulty of creating a ‘cohesive society’ in the face of the 641000-strong huddled masses that came to the UK in 2014. May’s treatment of empirical research on the social consequences of immigration also leaves something to be desired. (For a more nuanced review of the literature, you might be interested in James Dobson’s ASI paper The Ties That Bind).

Approximately 330000 people moved to London in 2013 (including newcomers from elsewhere in Britain, as well as abroad). This is much higher as a percentage of the population than the 485000 outsiders that came to the country as a whole, and a much larger rate of social churn than in, say, the average town in the North-East of England. And yet the collapse of the social fabric has spectacularly failed to materialise. Indeed, London’s schools are better than elsewhere in the country and improving more rapidly, and there is substantial reason to believe that immigrants have a positive influence on this trend.

No one ever seems to worry about a tide of Scots flooding in and diluting our culture, destroying our values. But are they really like us in some fundamental way that French, Spanish and Polish graduates aren’t? Is there something in the water that hardworking Nigerian cleaners have failed to absorb?

The other assumption that went unexamined in May’s speech was that immigration is ‘high.’ There is some level of immigration at which the costs begin to outweigh the benefits. But with every wave of immigration, such claims have been made. In the 1930s: “Thousands of Huguenots were assimilated, but that was over the course of decades – there’s no way the country can cope with tens of thousands of Jewish refugees!” Each time, British society has proved its resilience and tolerance. Why would there be a sudden tipping point when immigration reaches about 1% of total population? There aren’t any compelling reasons to suspect that this time will be different – which might go some way to explaining May’s failure to provide any.

In which we sympathise with a letter in the Telegraph

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We find ourselves nodding in agreement at this letter:

Mr Walters said there are some benefits to being a member, but that the level of bureaucracy is a heavy burden on the state. “If we get ourselves out of the bureaucratic nightmare Europe creates, that would be beneficial. And the amount of money spent propping up that bureaucracy. There would be no worries about an exit.”

Because of course "Europe" is a political union with people who do this:

Four French bakers have been found guilty of working too much and hit with fines after sparking national debate over their desire to stay open seven days a week. A court in Dax, south-western France, handed €500 (£368) fines to the four from the town and nearby Saint-Paul-les-Dax saying they had flouted a 1999 prefectural order obliging any bakery to remain closed for at least one day per week.

Note that this is not about giving the staff (nor even the boss) a day off or two. This is an insistence that the actual premises must close for one day a week. Supposedly so:

Jean-Pierre Crouzet, head of the national baker's and confectioner's confederation backed the status quo, saying it encouraged competition by obliging people to buy bread elsewhere at least once a week.

That is, in the view of the French Bakers' union, the French people are too stupid to understand the concept of shopping around. A problem which can only be solved by having one seventh of the country's bread, confectionery and patisseries plant and capital inoperative on any single day.

We really are of the opinion that this is something that the market unaided can solve. And, further, should be left to solve.

The EU closes the shop again

The bureaucrats in Brussels do not care for the constructive way Britain has fostered vital, young entrepreneurial businesses and their financing.  Their latest move is to specify how small companies can use the financial support they receive.  In a free and fair market, you might imagine that SMEs should be able to use their funding in any way the funders agree.  UK Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) legislation broadly does this. Nanny Brussels knows better and has decided that these funds may not be used for “replacement capital”, e.g. one generation of SME owners selling out to the next, and company acquisitions. Continental countries, notably Germany, do not use the financial market so much as state handouts which you might think more reprehensible, but oh no.  If you did not know for whose benefit the EU operates, wake up now.  If there was any doubt, the Association of Investment Companies reports that the Commission has warned HM Treasury that they will be watching the UK implementation quite specifically.

Fresh financing often involves an element of replacement capital, whether the entrepreneur wishes to sell the business, or reduce his personal financial risk, or simply grow the business. Using the financial services market to grow the wider economy is precisely what the EU should want. Releasing some equity may be the only way that an entrepreneur can develop the business.

As a company grows and develops, its financial profile changes and so does that of the management team. Replacement capital is crucial for facilitating such development.

Business growth must not be limited to the organic. Sales and acquisitions are vital for a healthy market.  The weak are reinvigorated by the strong.  This is where value comes from, notably for consumers who will be short-changed by the Brussels meddling.

To differentiate between growth capital and acquisition finance is, in many instances, completely artificial. VCT and EIS finance are major sources of capital in an investee company.  Outlawing such activity, often their main source of funds, will certainly reduce growth at a time when most commentators think that growth is what the EU most needs. A company, like any organism, is constantly evolving; many grow, some shrink, but as they change, so do their finance needs develop and alter.

In the UK version of the legislation in the Draft Finance Bill 2015-2016, HM Treasury has sought to water down the prohibition through negotiation with Brussels.  Needless to say, that compromise was ineffective and does not solve the problem. We should not have to play this off the back foot anyway:  the EU’s position is simply anti-competitive.

A guest worker programme for Syria's women

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I have previously written that we should let Syrians come to work in Britain through a guest worker scheme, arguing that the effects for natives are unlikely to be very bad, and I suspect may well be positive. But how might such a scheme work? Typically guest worker programmes are seasonal, allowing workers to migrate during harvests to work in agriculture. The UK ended its Seasonal Agricultural Workers schemes in 2013 when it was scrapped alongside work restrictions on Romanians and Bulgarians being lifted. New Zealand’s programme has supplied workers for its growing wine industry, which quadrupled in size between 2004 and 2012 (from NZ$300 million to NZ$1.2 billion).

Britain’s agriculture sector is growing less quickly, and shows less of an obvious need for new workers. But we do have a problem with high childcare costs and, perhaps relatedly, low native fertility rates leading to an older population.

So I suggest we set up a guest worker programme for Syrians to come and work in the childcare sector here. This would reduce costs – labour costs account for around 78% of total childcare costs, in part because we have such tight regulations about things like staff:child ratios compared to most other Western European countries.

But interestingly, this could have a significant knock-on effect on fertility. A paper released last year found that, by reducing childcare costs, immigrant inflows can boost the fertility rate of high-skilled native women. By reducing the cost of having children, highly-educated women are able to have more of them (and may be less inclined to leave the workforce when they do have kids.)

Virtually all childcarers – 98% of them – are women, so the visa programme could be opened to women only without distorting the existing shape of the UK labour force.

This would have the added benefit of avoiding most of the crime that people (possibly exaggeratedly) worry about immigrants causing – the UK’s male prison population is about nineteen times the size of the female one (i.e., women account for 4.6% of the prison population). Of course we could require that applicants have English language skills as well.

This would also significantly boost the incomes of Syrians back home or in refugee camps – the New Zealand guest worker programme led to per-capita income gains of 30-40% in countries like Tonga and Vanautu with per capita GDPs significantly higher than Syria’s.

I have heard objections to this that Syrian women would simply not be allowed to come by their families, which seems to me to be a misreading of the strictness of Syria’s religious culture. But even if I’m wrong and there’s not much take-up, the few people who do come would still be made better off. The main downside might be what would happen to the men in Syria if the gender ratio became significantly lopsided – an argument against doing this on a massive scale, perhaps, but not against taking an extra twenty or thirty thousand people.

A programme like this is obviously going to be limited in scope. It won’t solve the Syrian crisis, but it could be very good for the people who take part. And it would have the nice bonus of reducing costs for British families and boosting the birth rate among high-achieving British women. So what are we waiting for?