Chuck on economics

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Why we shouldn't learn economics from Charles Dickens.

Blog Review 996

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A very simple solution to the gender pay gap (which isn't actually a gender pay gap, it's a mothers' pay gap).

Ooooh, how tangled it can get when politicians call for people to do things for moral reaons rather than legal ones.

As Paul Krugman has pointed out, having the pound rather than the euro has been pretty handy.

Another 17,314 things we could probably do without.

This is a constitutional reform Netsmith could get behind. Truly separate the legislature and the executive.

Something wrong here, surely? A bankruptcy judge who understands bankruptcy law? What will the UAW think of that?

And finally, which blogger is even less in touch with the real world than the Autorantic Virtual Moonbat?

Why the exodus?

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The technological advance in communication, particularly over the last decade, is the primary catalyst that has given ordinary people the very realistic opportunity to move abroad. The advent of social and business networking sites has revolutionised the way in which people communicate with each other. You can build up a network of friends and business contacts on the other side of the world through no more than a few degrees of separation.

Combine this with your ability to send and receive an email from just about anywhere in addition to further advances in Voice over IP technology and suddenly moving to the other side of the world doesn’t seem as daunting as it once was. The proposition is more affordable, made even more so by cheaper and more available travel.

A significant proportion of job seekers have emigrated or are looking to emigrate due to the effects of the harsh market conditions we have experienced over the last 18 months in the UK. At the same time, certain countries have incentivised UK workers to move abroad by offering advantageous tax breaks and an “enhanced quality of life". For example, the lure of The Middle East has been too great for many to ignore. Attractive relocation packages, a cosmopolitan lifestyle, the opportunity to work for a top international business tax free, good schools, restaurants and hotels are just some of the draws. The job seekers we speak to on a daily basis refer to “the work life balance". They are therefore prepared to be more adventurous in order to experience a different lifestyle, a different culture.

Finally, the news in the recent budget that people earning over £150,000 will have to pay a hefty 50% tax is likely to have implications on the number of people moving abroad. The very high earners may well be drawn to the traditional “bolt holes" of Monaco and Switzerland, whereas high earning job seekers will have further incentive to move to more tax efficient shores, particularly as international experience is increasingly sought by employers looking for talent.

To conclude, boundaries, both physical and mental, are being overcome at an alarming rate with the result that the world is becoming a far more accessible place for the increasingly adventurous and transient job seeker. People are no longer restricted by the limitations of the city they live in or even the borders of the country they were born in. Emigration, both short and long term, is bound to increase in the future and potentially at an alarming rate if the UK government makes it unappealing for job seekers to work here.

David Morel is Managing Director of Tiger Recruitment Ltd.

New report: Regulatory Myopia

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'Regulators, not under-regulation, caused the financial crash'. The financial crash occurred because regulators were too preoccupied with form-filling and did not see that the whole financial system was at risk, a leading economic think-tank says today.

Like Members of Parliament in the expenses scandal, the banks did not actually break any of the regulators' rules. But the rules were targeted on the wrong things, allowing a disaster to flare up under the regulators' noses.

The comments come in a report, Regulatory Myopia, from the Adam Smith Institute, which is its response to Lord Turner's Report on financial regulation, and published ahead of the Chancellor's Mansion House Speech in the City of London.

The Institute says that Turner is wrong to suggest that regulation was too 'light touch' for the job. The banks, it says, are minutely regulated, from how they deal in the credit markets to how quickly they pick up the phone to their customers. More regulations would not have saved the system, and will not do so now. Rather, the mistake was a shortage of overall supervision that would have seen the potentially fatal risks that the banks were running and would have intervened to curb them.

The report's authors, London Business School Fellow Tim Ambler and regulation consultant Keith Boyfield, say that the Bank of England should take on this supervision role, and that far from being expanded, the powers of the regulator, the Financial Services Authority (FSA), should be cut back to 'match its competence'. The FSA, they say, must realise it is 'part of the problem, not the solution'.

Click here to download a PDF of Regulatory Myopia.

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.

How is the FED doing?

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Of the few that know what the FED actually does, not many think it is doing a very good job.

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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It 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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People 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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Europe’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.