REG lunch with Sandra Boss

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London is slipping as a world financial centre, being overtaken by the likes of New York, Singapore, Hong Kong, Geneva, Zurich, Chicago, Frankfurt and Boston. It has a bit of breathing space to put things right, but it needs to move quickly. That was the conclusion from a high-power lunchtime seminar of the Adam Smith Institute's led by Sandra Boss, Senior Partner of McKinsey.

Four issues for London were identified. First, the regulatory burden. London has benefited from having a well-policed financial market, but now new EU regulations threaten to add much more to the burden, putting London's world-leader status at risk. Second, UK taxes have risen, prompting a number of financial firms to leave. The tax on non-domiciles, the threatened 50% income tax rate, and changes in capital gains tax, have all made London more expensive once again. Third, London's infrastructure remains poor. Heathrow is still struggling to cope, internet bandwidth is less than perfect, and transport strikes are adding to the frustration of doing business in London.

On the other hand, London is relatively welcoming to foreigners, while New York has become much more restrictive since 9/11. And of course London has English, everyone's second language. So it is still a talent magnet. But if the tax and regulatory burden continues to rise, for how long?

To find out more about the ASI's Regulatory Evaluation Group, please click here.

Blog Review 995

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Now here's a finding you wouldn't expect. Big box stores, and especially the warehouse stores, actually reduce obesity, not increase it.

It doesn't look as if GM understands what went wrong yet. That something did, yes, but not what.

Here's at least one clue to what did go wrong. The managers never actually tried their own products.

Not just the funding of fake charities, but the funding of them so that they stagger on after the Government changes. To continue to propagandise for the fallen government's policies we must assume.

There's no new regulation, only old regulation that has been tried and found wanting already.

Some newspaper articles are so egregiously ill informed that you do rather have to suspect enemy action: surely no one working for a national newspaper is actually that stupid?

And finally, advice for the girls: "If you ever need a date, I highly recommend wearing a meat dress."

 

Why the London Living Wage is a bad idea

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borisIt is a well known phenomenon that politicians show great promise before being elected but fail to deliver once in office.

Boris Johnson’s election as Mayor of London brought to one of Britain’s most powerful political offices a man whom many viewed (with varying degrees of excitement or terror) as a radical right winger, a free market fundamentalist and rampant Thatcherite. In fact, Johnson has proven to be that most sorry of politicians, the populist.

A prime example of this has been his shameless volte face on the minimum wage. Before he was elected he wrote how minimum wage laws drove “up your costs and greatly [reduced] your ability to reinvest". Yet since being elected he has not only accepted the minimum wage (which he is, after all, obliged to do by law) but has perpetuated the London Living Wage (over which he has discretion).

In July 2008 he described how “the living wage ... is not only morally right but also makes good business sense contributing to better recruitment and retention of staff, higher productivity and a more loyal workforce with high morale." How times have changed!

Economic theory explains why minimum wage restraints are bad for workers. By and large, minimum wage rules do not improve the wages of staff. Rather, they render the least productive workers – who tend therefore to be the poorest and the most vulnerable – unemployable. Put simply, if one can only make six widgets an hour, and a widget only sells for £1, one’s employer cannot afford to pay you £6, so if the minimum wage is over £6 she will not employ you. If widget making is your forte (if you are better at producing widgets than anything else) then the minimum wage condemns you to unemployment.

Note that Johnson is also wrong that minimum wage laws drive “up your costs and greatly [reduce] your ability to reinvest". Costs are actually lower because marginal activity is no longer profitable and so production falls (though, ironically, production per head rises – the French have higher productivity per head than the British because they have higher unemployment).

For now the London Living Wage is voluntary. However, the GLA already forces it on contractors working for the London Development Agency and there are moves afoot to foist it on Olympic contractors, too.

Meanwhile, the enthusiasm for it among non-commercial, charity- and tax- funded bodies (Tory-controlled Ealing Council, for example) is enlightening. These bodies are not constrained by economic concerns; they can continue to employ less productive staff at inflated wages because – whereas a company would have to pass the costs onto customers who would then stop buying their product – the taxpayer has no choice about whether to pay, and charity donors are simply not that discriminating.

So perhaps Johnson is right after all: minimum wage laws do drive up your costs: the cost of your taxes. If his policy were adopted across the UK, it would drive up the cost to those on low incomes in a second way, too: it would cost them their jobs.

Fighting fascism with fascism

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uafPeople have taken to the street to fight fascism with, er, fascism. Last week's attack on free speech by the UAF (Unite Against Fascism) organization (which sounds suspiciously like an Irish paramilitary wing) was truly anti-liberal and purely fascist in action. It is a tactic that has been increasingly used by the left throughout time: the control of language and the threat of violence against those who do not obey.

Both sides of this argument mirror each other in their actions and their desired outcomes. On one side we have a collection of individuals coalesced around their fear of the unknown, namely ethnically different persons. On the other we have a group who do not understand the most basic human right: free speech. Both groups should be vigorously opposed by all, yet one is openly endorsed by the mainstream parties. Is it any wonder that people choose to vote BNP when they show such a disdain for rights.

It was by ignoring the BNP that allowed them to sneak under the radar and attract voters. The state's role in the demonstration also calls into question the changing relationship between right and wrong protests. The state is rubber stamping protests it approves of by standing aside and allowing this to happen. Equality before the law has vanished. The only way to defeat them is by engaging them and discussing their griefs you can enlighten them. The current approach will not work especially as it merely looks like the establishment wanting to protect their right to use violence either via the police or approved protestors against a 'differently' oriented minority.

The green bubble

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green_bubbleEurope’s unrelenting investment in renewable energy, dating back to 1997, that serves as a template for similar US proposals, has the purpose, among others, to create green jobs. However according to a new study there is not much to show for it. In March 2009, Gabriel Calzada Alvarez of Universidad Rey Juan Carlos in Spain released the results of his study on the EU wide creation of green jobs through along these policies. The summary of his examination is equally blunt and devastating, labeling these investments to be “terribly economically counterproductive" after concluding that for every green energy job created:

2.2 on average will be lost, or about nine jobs lost for every four created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

In addition actually nine out of ten promised green jobs created were not even permanent. To put it in a different way: every green megawatt created:

destroyed 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.

With regard to renewables in Spain, the investment of $36 billion so far created only $10 billion worth in real market prize of energy. Thus renewable mandates have caused already severe damage to the Spanish economy with energy costs increasing nearly 55%. For some companies such as Ferrroatlantico energy cost for its production of iron alloys soared from 37% in 1997 to 43 % in 2005. The escape route for this company of course was the move to nuclear energy saturated France. My best advice these days: spend your days with good Provencal vines and food until the green energy bubble bursts as did the dot.com and the housing bubbles before.

Blog Review 994

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There's a reason economists make fun of French labour laws....and it's not just because it's so easy.

Interesting that the education establishment is to demand from home educators what they do not demand from schools that they themselves control.

Technical and nerdy, but there's still more to go on this climate change thing than some think.

How and why has public sector productivity been falling even as ever more billions are pumped in?

Is this really why Hazel recanted?

When you set out to make fun of a particular piece of economic research you'd better make sure that you're not making fun of something which is entirely sensible.

And finally, yes, some economics is indeed wrong, but wrong in a different way than expected.

Hurrah for Compass!

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Compass is one of those wildly left wing non thinking tanks which would normally never attract our attention. However, I have to say that they've come up with a corking idea here. An absolute cracker:

Protect working people by index linking the minimum wage

Now I don't think there should be a minimum wage at all so why am I supporting this? Why do I applaud their campaign to make this happen? Because it will lead to, over the years, the minimum wage becoming an irrelevance.

The truth is that, over time (no, not in every year, like this one, but over the decades) wages rise by more than inflation. It's precisely and exactly this which makes each successive generation better off than the one that preceeds it. So if we link the minimum wage to rises in inflation only (the usual meaning of indexation) then it will become an ever smaller proportion of the average wage in the country. As an example of this, the state pension was linked to inflation, not earnings, in 1980. This has led, over the past near 30 years, to it falling from 23 % of average earnings to 15% of average earnings.

So, given that, despite my wishes, no one is going to abolish the minimum wage the next best thing is for it to whither away, falling behind average earnings until it is entirely an irrelevance. So I therefore entirely support this idea from Compass, for all that I think that everything else they come up with is ludicrous.

The only fly I can see in this ointment is that I rather suspect the proposers of this plan to be either too dim or too ill informed to understand what it is that they are proposing. But we'll not tell them, eh? Just keep it as our little secret?