Roger and I live in parallel universes

The friend Roger I wrote about, who opposes every single policy that might achieve his declared objectives, lives on the same planet as I do. We share physical space, but we live in very different parallel mental universes. His world is dominated by sinister dark conspiratorial forces which leave ordinary humans as helpless victims of their oppression. Big Pharma, as he calls the pharmaceutical companies, is in cahoots with Big Tobacco, and they have allied themselves with Big Bankers to create cartels that acts against the interests of the public by overcharging for goods, by denying the public access to life-saving treatments, and by forcing them into buying harmful products and detrimental services. Big business, which includes fast food providers and major brand retailers, have bought legislators, think tanks and the media, and contrive to ensure that their misdeeds are never adequately uncovered and exposed by a servile media and legislature. We are all their helpless victims, and Roger campaigns against them by eagerly buying each new book that highlights their nefarious influence.

In my parallel universe people buy stuff they like, and their choices influence businesses into tailoring their output so that they can sell more. Individuals exercise the power of their feet; they walk away from stuff they don't value, and every year big household names go under as they fail to match up with changing tastes. People make choices, and they allocate their resources to where they think they'll bring most satisfaction. Sometimes they buy things whose value others might question, things such as carbonated beverages, salty crisps, tobacco, alcohol and fatty foods. But others who dispute the value of these things are free not to buy them.

In Roger's universe the dark forces control our lives, and in the parallel universe we mostly control our own through our decisions. Roger's world is full of pessimists who see individuals as helpless pawns, constantly manipulated; the other world is inhabited by many cheerful optimists, confident that human resources can be applied to achieve worthwhile objectives. In the cheerful world people watch out for rent-seeking, for the desire to use government restrictions to limit choices and secure greater returns than people's free choices would have bought them. The optimists campaign constantly against this crony capitalism and in favour of free choices, open entry to markets, and against using legislation to thwart competitors. They often win, and they know that eternal vigilance is needed if individuals are to keep a world they can control, rather than succumb to one in which they are controlled.

It has to be said that the cheerful world is a lot more fun to live in than the one controlled by shadowy, sinister forces.

They're lying again about the gender pay gap you know

Oh dear, oh dearie me. We find ourselves with a politician trying to feed us all porkies again. This time it's Gloria De Piero announcing loudly that the gender pay gap is near 20% (along with the usual this is disgusting, must stop, Labour will do something about it and so on). She's making the same claim that Harriet Harman did a few years ago: and she seems to have forgotten that the UK Statistics Authority said that Mrs. Dromey was in fact a very naughty politician indeed for making the claim in the manner she did. And as Del Piero is making the same claim in the same manner that also makes Ms. Del Piero a very naughty politician indeed. And we tend to think that it's worth calling out politicians when they attempt to mislead us all by being so naughty.

You can see the actual claims being made all laid out in charts here at the Mail. Full time male employees make more than full time female employees. Part time female employees make more than part time male employees. There are many more female part timers than male: and the average part time wage for either gender is lower than the full time wage for either or both.

And what Del Piero has done to get to her 20% or so figure (the actual numbers coming from the correct source, ASHE) is to include the part time and full time female numbers into one, the part time and full time male numbers into one, and then compare the two. This is not acceptable. As Sir Michael Scholar pointed out to Harriet Harman when she did the same those years ago:

 GOVERNMENT EQUALITIES OFFICE PRESS RELEASE: 27 APRIL 2009 I am writing to you about the Government Equalities Office (GEO) Press Release on the Equality Bill, issued on 27 April, which states that women are paid on average 23 per cent less per hour than men. GEO’s headline estimate of the difference between the earnings of women compared with men (generally referred to as the gender pay gap) is some 10 percentage points higher than the 12.8 per cent figure quoted by the Office for National Statistics (ONS). Yet both estimates are derived from the same source, the 2008 Annual Survey of Hours and Earnings (ASHE). Such a difference in headline estimates is likely to confuse the general public. The Statistics Authority is concerned that this may undermine public trust in official statistics. I understand that there has been a dialogue between ONS and GEO on the presentation of women’s earnings figures in the context of Equality issues and that the National Statistician has agreed to look at the way the gender pay gap is presented in ONS statistical bulletins. Work on this is planned for later this year and will be used to inform the content of ONS’s statistical bulletin on the results of the 2009 ASHE, due in November 2009. In the meantime, I enclose a copy of a note that the Statistics Authority will shortly publish on its website. This clarifies why figures as different as 12.8 per cent and 23 per cent have been used and explores different options for presenting the gender pay gap in an impartial and objective way. The note explains that the figure of 23 per cent quoted in the GEO press release relates to the median hourly earnings of all employees (full-time and part-time combined) whereas ONS's figure of 12.8 per cent is based on the difference in the median hourly earnings of full-time employees only. Neither measure is entirely satisfactory as an impartial and objective headline estimate. The former rolls together the quite different levels of hourly earnings for part-time and full-time employees; while the latter excludes the earnings of around one quarter of all employees. These considerations suggest the need for a more extensive set of measures to present the differences between the earnings of men and women. Indeed, it is the Statistics Authority’s view that use of the 23% on its own, without qualification, risks giving a misleading quantification of the gender pay gap. I trust that you will find this note of value pending the further work that ONS is planning on this issue later this year.

That does indeed make Ms. Del Piero a very naught politician indeed and as she does the rounds of the talk and news shows to promote this old Labour mistake perhaps someone would like to pick her up on it?

As to the reality of the gender pay gap it's made up of two things. The first is that there really was, historically, direct discrimination against women in education and career opportunities. That is something almost entirely solved for today's younger generation and we see the effects still only in the older age cohorts, in the inequality of wages of people in their 40s and older. There is no such inequality among the young.

The second is that women tend to take career breaks in order to have and to raise their children in a manner that the fathers of those same children do not. We might rail against that sexist notion that this should be so but it's hardly an unusual gender division of labour in a viviparous, mammalian, species.

The part of the gender pay gap that comes from direct discrimination has already been dealt with, the part that comes from how people decide to live their lives and raise their children, well, that will be with us for as long as that's how people decide that they want to live their lives and raise their children.

And adding together part and full time wages to describe the gender pay gap is a naughty thing to do. As the Statistics Authority has already told one Labour politician when they did it.

The Puritans still don't understand the meaning of the word "waste"

Apparently households are "wasting" as much as £18 a year by continuing to use tumble driers even in the summer months. We're told that we should all be out there hanging the stuff up from a washing line instead. Quite apart from the fact that a British summer is not a period of guaranteed dryness this is showing a depressing ignorance of the meaning of the word "waste" in an economic sense. There is one indication of how much richer we all are now though:

Official statistics show that more than 16.5m UK households own either a washer-dryer or a tumble dryer.

Sales of tumble dryers in particular have soared in the past decade. Almost 12.5m households in the UK owned a tumble dryer as of 2013, an increase of 3m since 2003. By contrast, in 1970 just 138,000 homes owned one.

This is all part of that great economic emancipation of women that has been the signal change of the past two generations. As running a household becomes ever more mechanised then both the gender division of labour and the restriction of women to largely household duties simply fade away. But about that waste:

The declining popularity of the traditional washing line is costing British families at least £120m a year, as tumble dryers are routinely used throughout warm summer months.

More than half of all households who own a tumble dryer use it at least once a week during the summer, according to the Energy Saving Trust.

The organisation, a charitable foundation which offers advice on cutting energy bills, said that a typical household could save £18 from their annual electricity bills “by line drying clothes instead of tumble drying” during June, July and August.

It would be rare to find a household that had a budget constraint that bit harshly on £18. And as to whether the spending of that £18 is waste or not is really up to those spending it rather than some bunch of puritan prodnoses. The actual budget constraint that none of us is ever free from is that on our time. And so the question becomes whether, in the minds of those doing it, the time spent with a tumble drier is worth the £18 as against the longer period of time used with the washing line. We've good authority as to how to measure this in a theoretical sense too. The Sarkozy Commission (including the laureates Stiglitz and Sen) pointed out that such household labour should be valued at the rate for "undifferentiated labour" or, in more understandable terms, minimum wage. That £18 is 3 hours of minimum wage labour. If using a tumble drier saves three hours over an entire summer as opposed to the alternative washing line then it's an entirely rational allocation of time and money. It's simply not waste at all.

Yes, planning regulations really have driven up house prices

Not that we ever suspected differently of course. But there are those who do insist that it's not planning regulations, who may build what and where, that increases the cost of housing in the UK. It's just some combination of rising population and perhaps not enough council houses or summat. Definitely not, it couldn't be, State restrictions on housing that make housing so expensive. So it's nice to see news of a paper that addresses exactly this question. What actually is it that has contributed to the sky high house prices of today?

What about the physical restrictions? In a hypothetical world where they could be magicked away, prices would be 15pc today lower than they would otherwise have been. The majority of these constraints can be felt in highly urbanised areas, for obvious reasons: there is not as much space available in city centres and lots in the countryside. Some parts of the country are easier to build on than others.

Everyone wanting to live in the South East, where all the jobs and money are, obviously has some effect. Housing is, at least in part, a positional good in that we can't all actually live in Central London. But that's not the only effect:

They find that house prices in England would have risen by about 100 percentage points fewer, after adjusting for consumer price inflation, from 1974 to 2008, in the absence of regulatory constraints to housebuilding. In other words, they would have shot up from £79,000 to £147,000, instead of £226,000. Another way of putting this is that prices would have been 35pc cheaper.

Had the south-east of England, in practice the most regulated English region, been as liberal as the North East, the least regulated over the past 40 years, house prices would still have been roughly 25pc lower. As it happens, the authors aren’t necessarily advocating deregulation: they are trying to calculate, using sophisticated econometric techniques and a wealth of detailed data, the effect of constraints.

The authors aren't advocating deregulation but of course we are. For example, those greenbelts where it's almost impossible to build houses cover rather more land than we have actually already covered with houses. Relax those restrictions and housing will become cheaper. To put the blame where it really lies, the reason British housing is so expensive is because the Town and Country Planning Act exists.

An African American high school dropout is more likely to be in jail than employment

Quite the most horrific number to come out of Paul Ryan's poverty plan was the point that for young African American men, those who have dropped out of high school, they're more likely to be in jail than they are in employment. John Cochrane has picked up on this and so subsequently has Mark Perry, from whom I've borrowed that chart above. The cause, of course, is the horrible confluence of the appalling inner city education system in the US plus the effects of the near entirely insane "War on Drugs". And do read Cochrane's piece where we find this:

And really, that's just the surface. Neal and Rick's numbers don't count the numbers on parole or otherwise under the supervision of the criminal justice system. And their numbers miss one of the biggest effects: In America, once you have a criminal record -- often even just an arrest record -- getting a job becomes next to impossible. So the flow through the criminal justice system, as much as the numbers currently in jail, is an important measure of its effect.

Becky Petit's Invisible Men: Mass Incarceration and the Myth of Black Progress calculates the cumulative risk of imprisonment, which gives a sense of how many people are in this quandary.

The less than high school black number rose from 14.7% in 1979 to an astounding 68% in the latest numbers. Nearly 70 percent of black high school dropouts will spend time in jail. And pretty much end their hopes for conventional employment as a result. (Things aren't great for white high school dropouts either, and 21% for black high school graduates is pretty shocking too.)

The UK's not this bad, not yet, but we do have a large racial imbalance in the prison system. And again it's largely due to those two activities on the State: the inner city education system and that War on Drugs.

We here support the legalisation (or at the very least, the decriminalisation) of drugs on the entirely liberal grounds that they're out bodies and self-ownership means that we as individuals get to decide what goes into them. But if that's not enough for you those numbers above might, or at least we hope they would, sway you over to our side of this argument. For the War on Drugs is having a great deal too much collateral damage, isn't it?

Thomas Piketty ignores government capital

Thomas Piketty’s core argument in Capital in the Twenty-First Century is that the return on capital is (likely to be) greater than GDP growth and therefore those with capital will gain an ever greater share of wealth increasing inequality. This is not true in an individual sense or societally. Gilts returning 4% over an 80 year lifetime, paying 45% income tax, assuming RPI of ~3% and inheritance tax on two transfers would reduce a £100m fortune by 92% in real terms. There are almost no historic fortunes. Crassus was supposedly the wealthiest man to ever live. The de Medici fortune, assuming a zero real return, would be worth about $23bn today. But in practice individual great fortunes have struggled to earn even a zero real return, even without destruction, let alone Piketty's assumed 5% real return, which would have seen them dwarf Bill Gates' paltry billions.

Piketty argues income is increasingly taken by the productive: As he shows on page 200 of his book capital’s share of national income has fallen about 40% from 1850 to 2010 despite a substantial real savings ratio. Piketty argues the productive avoid taxes making inequality greater. According to the ONS the top 10% of income earners pay 39 times more income tax than the average of the other 90%.

Redistribution is materially greater than increased taxes and capital’s falling share of income would suggest. Capital and the entrepreneur have created almost all of the growth in income. The hairdresser has not changed his productivity but has seen his real income grow. The farm workers who produce vastly more than 200 years ago, only do so because of the inventions and innovations of capitalists and entrepreneurs. While he drives a combine harvester he has not improved his skills, capitalists and entrepreneurs taught him how to use their inventions and better processes. Workers work ever fewer less strenuous hours, retiring earlier and nevertheless receive an ever increasing real income.

Piketty argues that the private capital to income ratio has grown materially to about 6, that its distribution is very skewed and government’s capital is zero, all as evidence of the inexorability of ever greater inequality. However, government has vast wealth in the form of the net present value of the tax flows they receive (and expect to receive in the future) to which he ascribes no value. But these flows are worth about 40x national income.

Even if he is correct about private wealth, the overall wealth of society is quite evenly distributed—the government’s 40 is increasingly devoted to welfare (and might usefully be imagined as de facto belonging to those who expect to receive it in the form of welfare and state provision of goods), redistributing from those who earned it to the rest of society. The capital value of transfers to a hypothetical individual who chooses to never work and relies entirely on the state is likely to be in the region of £1.5m.

The most bizarre complaint yet about rising train fares

We've all, at some time or another, stood aghast when listening to one or another outbreak of lefty intemperance. The stamping of the foot as they insist upon absurdities like all people are born equal in every possible skill and talent, it's only society that makes us turn out different. Or to move from one of Danny Dorling's misconceptions of the world, how about Thomas Piketty's insistence on an 80% income tax plus an annual wealth tax in order to avoid the fate of France which is a country with a 75% income tax and an annual wealth tax. Or today's example, that it really is outrageous that rail fares should rise as subsidies to railways fall:

In reality, fare increases aren't really paying for infrastructure but are instead covering the gradual withdrawal of government subsidies, which have fallen by 9% in real terms since 2010-11.

Well, yes, and?

Agreed, we here think that privately run railroads are a wonderful idea, that's why we campaigned for that privatisation. We're aware that there's some people who don't agree with us on that too. But look at that specific reason that's being given. That it's right and proper that people be taxed in order to make middle class commuting cheaper. That the dustman must pay to subsidise the stockbrokers' travel in from Surrey. It's an absurdity when put that way but that is the argument being made. That it is somehow wrong that those who wish to live a long way from their work should pay their own costs of doing so.

How about that for an absurd insistence?

Why Roger contradicts himself

Most of us know someone like Roger.  His speciality is that he opposes policies that would achieve his objectives, and supports policies that achieve their opposite.  Roger supports what he calls 'clean' energy, yet is adamantly opposed to nuclear power which is among the energy sources with lowest environmental impact.  He is also among those who protest against fracking, even though the gas it produces enable us to phase out the coal-fired power stations that are more than twice as dirty as gas-powered ones.  He argues that fracked gas is a non-renewable fossil fuel, which it is, and is therefore fast running out, which it isn't. Roger feels passionately about the plight of the world's poor, and is concerned that they should not go hungry.  Yet he campaigns to ban the genetically modified crops that can aid their farmers with crops that are more resistant to pesticides, drought and salt water, and can produce increased yields with less chemical fertilizers.  He expresses his sympathy with children in poorer countries, yet opposes the 'golden' rice modified with vitamin A that can save hundreds of thousands of third world children from death or blindness every year.  He supports using food crops to make ethanol, a renewable fuel.

He supports buying locally and campaigns against the 'food miles' that use energy to transport, even though it is by having us buy their products and crops that poorer countries can lift their populations out of poverty.

Roger is worried that greenhouse gases might be heating up the Earth, yet opposes all proposals that might offer technical solutions to this.  He is against even an experiment to seed areas of ocean with iron to generate algae blooms, increase fish stocks and sequester carbon.  He opposes all proposed ways to sequester carbon, saying it is more important not to emit it in the first place.  He wants experiments banned that would spray fine salt water mist into the lower cloud layers to increase their reflectiveness to incident solar radiation.

Roger's argument in the above examples is that they act against 'behavioural change,' which he says is the only solution to our problems.  Ways that enable us to solve those problems and carry on as we have, growing richer, miss the point in his eyes because he does not want us to be doing that.

If we were to take the objectives at face value, it would be illogical systematically to oppose the means of achieving them.  In the case of Roger, and maybe some others like him, however, I think I detect signs of a deeper, more fundamental motive.  At heart Roger is conservative.  He dislikes the pace and complexity of modern life, and yearns for the measured rhythm of a simpler life.  He has constructed a somewhat fanciful picture of the past which overlooks some of the disease and squalor that accompanied it.  Roger wants us all to live more simply because at heart he dislikes change and the unsettling effect it has on people like himself.  Those of us who are comfortable with change and the benefits it brings will beg to differ…

How to raise wages: cut corporation tax

We'd all like to see wages rise: that is the point of this economy thing, after all, that the average life of the average bloke just keeps getting better and better. So, how might we go about doing this lovely thing? Well, some interesting research from the US as to the effects of eliminating (or, if not, at least lowering) the corporation tax rate:

We adopt a dynamic stochastic occupational choice model with heterogeneous agents and evaluate the impact of a potential reduction in the corporate income tax on employment. We show that a reduction in corporate income tax leads to moderate job creation. In the extreme case, the elimination of the corporate income tax would reduce the non-employed population by 5.4 percent. In the model, a reduction in the corporate income tax creates jobs through two channels, one from new entry firms and one from existing firms changing their form of legal organization. In particular, the latter accounts for 85.7 percent of the new jobs created.

This is not, we should note, about patent boxes, about freeing foreign income from UK taxation or any of that sort of stuff. This is the effect simply of lowering the rate upon profits made inside the UK. Jobs created would go up and, given that the closer we get to full employment the higher wages rise, wages will indeed then go up.

This finding is simply the mirror image of the standard point that capital and corporate taxes have higher deadweight costs than most other forms of taxation. Any tax means that some economic activity doesn't take place but different taxes destroy, for the same revenue raised, different amounts of economic activity. We would therefore, for whatever amount of revenue we want to raise, prefer to destroy the least amount of economic activity. Which means lowering corporation tax, as above, even if that means higher taxes on consumption or property to still collect the same revenue.

The remarkable logic of the minimum booze price people

This is an interesting example of the logic of the anti-booze prodnoses. They tell us that a minimum price for alcohol will affect really heavy drinkers almost exclusively because really heavy drinkers drink cheap alcohol:

A new study of liver patients shows that a Minimum Unit Price policy for alcohol is exquisitely targeted towards the heaviest drinkers with cirrhosis. Researchers studied the amount and type of alcohol drunk by 404 liver patients, and also asked patients how much they paid for alcohol. They found that patients with alcohol related cirrhosis were drinking on average the equivalent of four bottles of vodka each week, and were buying the cheapest booze they could find.

No, really, that's it, that's their argument.

Published today in Clinical Medicine, the peer review journal for the Royal College of Physicians, the researchers studied the amount and type of alcohol drunk by 404 liver patients, and also asked patients how much they paid for alcohol. They found that patients with alcohol related cirrhosis were drinking on average the equivalent of four bottles of vodka each week, and were buying the cheapest booze they could find, paying around 33p per unit, irrespective of their income. In contrast, low risk moderate drinkers were paying on average £1.10 per unit.

If the government set a MUP at 50p, it wouldn't affect pubs or bars and would have no impact on moderate drinkers; the average cost would be £4 per year and 90 per cent would not be affected at all, the research shows. The impact on heavy drinking liver patients would be at least 200 times higher.

They've not even attempted to work out what the actual effect of an MUP would be. No discussion at all of whether people would in fact drink less. Or even whether people are in fact budget constrained and if they are whether it would be other things (oooh, I dunno, food maybe?) that would get dropped from their budget in the face of such price increases. They've just said that alcoholics drink cheap booze so we're right!

And they're still not attempting to answer the point we've been making here for so long. Which is that an MUP is still a ludicrous way of dealing with this. Even if it's true that higher booze prices would reduce the amount alcoholics glug, even if they're correct on that point, it's still a ludicrous solution. If you want more expensive booze then raise the alcohol tax: at least that way there'll be a bit of revenue and we can cut other taxes to boot. Why on earth you would try to raise prices and then insist that the extra margin stays with the manufacturer or retailer is very hard to fathom.