Helping entrepreneurs to help us

On Tuesday, while Vince Cable was advocating government direction of the economy, I was speaking at a Royal Society for the Arts workshop devoted to young entrepreneurs.  The RSA published poll figures showing that large numbers of young people aspire to run their own businesses.  This is in line with our own findings, first with a poll of the Millennial Generation, and more recently with a poll about the nanny state.  In both we found that nearly half of young persons would like to run their own business at some stage.

I pointed to three obstacles.  First there are planning laws that act against building up a business from domestic premises.  Then there are the regulations and liabilities imposed on employment, including PAYE, NIC, maternity leave, sick pay, holiday pay, protection of employment, and so on.  Added to these are the regulations on health and safety and the paperwork that has to be filed.  Thirdly, I pointed to taxes on business which are high enough to act as a disincentive, given the risks involved.

I suggested that each could be redressed.  A five year 'holiday' could exempt start-ups from the regulations which otherwise apply to business premises.  And if all employees of small firms could be treated as self-employed, most of the employment regulations would not apply, nor would the obligation to fill in the paperwork pertaining to them. 

Finally I suggested a version of the German law that allows people to earn up to 400 euros a month from part time jobs without being taxed on it.  People are allowed to take on more than one such job, provided they are with different employers.  In Germany these laws halved youth unemployment and created 500,000 new such jobs in their first year.

My contention is that these would clear space into which young entrepreneurs could move in large numbers, creating between them the growth agenda that has to accompany fiscal responsibility, and would do it far more effectively than the many-times-discredited approach of Vince Cable.

The results are in: Spending cuts, not tax hikes, are the road to recovery

A new research paper by Alesina, Favero and Giavazzi focuses on measuring the output effect of fiscal consolidations. The idea is that fiscal consolidations tend to have much more favourable effects on the economy if they are done via spending cuts alone, not via increased taxation (see the graph below), which is actually what austerity is supposed to be.

Here's the abstract:

"This paper studies whether fiscal corrections cause large output losses. We find that it matters crucially how the fiscal correction occurs. Adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. Spending-based adjustments have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments have been associated with prolonged and deep recessions.” (Alesina, Favero, Giavazzi (2012) "The output effect of fiscal consolidations" Figure 3, pg. 40.)

 Tax-based (RED) and Expenditure-based (BLUE) adjustment

The figure shows the results they got when comparing tax-based and expenditure-based fiscal consolidations, using a sample of 17 OECD economies, over 25 years (1980-2005). It is clear that for every country in the sample, tax increases resulted in a negative or stagnant output, whereas expenditure cuts resulted in an increase of output two years after the adjustment.

They have also found (not shown in the graphs) that business confidence picks up immediately after the expenditure-based adjustments, unlike consumer confidence for which it takes longer to recover. Finally, the most important finding, in my opinion, is that the "heterogeneity in the effects of the two types of fiscal adjustments is mainly due to the response of private investment, rather than that to consumption growth". This means that private investments tend to drive recoveries, not consumption as the Keynesians would claim.

The findings of the paper are important in trying to explain the process of "right" or "wrong" fiscal adjustments. Using an increased taxation burden combined with spending cuts is a wrong approach since it depresses the economy temporarily (loss of public sector jobs leads to a loss of consumption before these people are reemployed), but fails to offer incentives for it to grow. All the laid off public sector workers that are supposed to find jobs in the private sector are unable to do so since the private sector isn't hiring due to the many existing constraints it is facing.

Unemployment starts to go up, supported by an increasing number of graduating youths for whom finding a job is now even more difficult, making the situation look bad for the politicians in power. This means that the politicians, still under pressure to close the budget deficit, now need to cease spending cuts and stop firing more civil servants and bureaucrats, since they don't want to make the unemployment picture even worse than it already is. So the government then relaxes the spending cuts and public sector reforms and focuses mostly on increasing taxes to close the budget deficit. The government starts running out of options, as further spending cuts become politically unfavourable while increased taxation is needed to continue closing the budget deficit.

Are public investments the key to recovery?

This got me thinking further on one of the most popular policies aimed at kick-starting a recovery, one that is especially being advocated in the UK - infrastructure spending. The idea is as follows: the government is suppose to kick-start growth via infrastructure spending by two ways; (1) directly creating jobs, and (2) cutting costs to businesses through improved infrastructure.

The first idea implies that hiring more workers in construction, who will use their new wages to increase spending, will ultimately boost consumption (the classical demand-side story, followed by a Keynesian government spending multiplier). However, if the idea is to hire more workers to start a demand-side increase in consumption, why not have the government hire 100,000 workers (or more), give them all a job to dig holes around the country, and then fill them up? That's a perfectly meaningless job, but as long as the workers get paid, they will begin the cycle of recovery, right? Wrong! Modern consumption theory teaches us that expectations of temporary income aren't the same as expectations of permanent income.

If people anticipate a rise in income, tax rebates or any other form of stimuli (this is true for companies as well, not just consumers) to be temporary, they will save this money instead of spend or invest it. But when they anticipate a permanent rise in income (like getting a new or better paid job) they are much more likely to spend or invest now as they anticipate a certain future stream of income.

The second way is having the newly build infrastructure lower the costs of businesses and help them grow. But how long does it take to build major infrastructure projects like motorways or railways? A long time! Much longer than the average bankruptcy rate for businesses in the UK. And much longer than the current recovery is going to last (hopefully). Full benefits won't be visible in another 10 years, during which time the very same businesses advocating the project will be using old roads and old railways.

This isn't to say that infrastructure projects aren't important - they are, for long term growth almost definitely, but they cannot be the priority in starting up a recovery. One can argue that major infrastructure projects and things like the New Deal made a big difference during the Great Depression, but the world is much different today than it was 80 years ago. For starters back then information was being distributed either through the radio or word of mouth. In that case the people hearing that the government is ready to do something to help them out was enough to get confidence going. Their knowledge of possible negative effects on public finances was very limited. In the modern age of vast informational availability this is certainly not the case anymore. Particularly among investors, but that's another story.

To start up a recovery, the priority should be on supply-side reforms aimed primarily at resolving labour market inefficiencies and at reducing the regulatory and taxation burden on businesses. These will decrease costs much faster and much more efficient than any new road or rail-link, no matter how good or fast they could be.

No, Brendan Barber, the economy is not a sporting event

TUC leader Brendan Barber has jumped on the back of Olympic glory to make a strange analogy about the Games and how we should run the economy. He criticises the notion that private is better than public spending and that the market will deliver better than government by pointing at the success of the publicly funded and organised Olympic and Paralympic games, just ahead of the TUC’s annual Congress.

Of course, the function of the Olympic Games was to provide entertainment. Some may argue that it will boost tourism and (temporary) employment but, essentially, it is a sporting event. If we were to run the country like the Olympics, we would produce a society in which wage values would be polarised between very high achievers (the Usain Bolts and Jessica Ennises) and the very low earners (the many, many amateur athletes that do not manage to make it to the Olympics). This is precisely the wage differentiation that the TUC campaign against.

Barber ridicules the fact that government claim they "can’t pick winners" when helping companies adding, ‘Tell that to Bradley [Wiggins], Jessica [Ennis] and Mo [Farah], all supported by targeted funding.’ What he is missing in this comparison is the essential difference between athletes and companies, which is one of function. An athlete can certainly be targeted by funding, as they have only one function, easily and objectively measured. For example, the target of funding for a 100 metre runner would be whoever can run 100 metres in the fastest time, while the target of funding for a high jumper would be whoever can jump the highest and so on. Simple.

When governments target spending towards companies however, they are essentially saying: the products and services this company provides are what people will want and all alternative products and services are inferior. By ‘picking winners’, companies compete for government investment as opposed to consumer spending. The great thing about letting the markets decide is that it is, in a sense, democratic; it lets people vote with their money, creating a fluid and representative selection of what the entirety of society actually want and allowing those areas to develop and become more accessible.

Barber goes on: ‘Markets always trump planning, they say. Well look at the Olympic Park, the result of years of careful planning and public investment.’ He says look at the Olympic Park, well I say look at Concorde, British Leyland, the Millennium Dome, the Channel Tunnel, and so on. All government investments that overshot costs and timescales and were grossly inefficient. The taxpayer underwrites the risk of government investment and it is they that have to foot the bill when things go wrong.

Economic activity and investment in certain industries in London and the surrounding areas have been boosted (at least temporarily) by the Games, but to the detriment of those living everywhere else whose income was diverted through taxation to fund it. This may be regarded as an acceptable loss by many because of the entertainment value provided, but is it right that even those who have no interest in the events should be made to pay? Central planning means that your income is diverted towards things that may not be in your best interest and often in a way that is too inefficient to justify the collective good rationale.

Finally: ‘Private is always better than public, they argue. Not true, as we saw all too clearly when it came to Olympic security.’ G4S remember was the choice of government with the backing of the public purse; it should have been up to them as investors to ensure that the security company was up to the task, something a well run private organisation would have been sure to do. Even if we disregard this fact, the Olympic games took place over a matter of weeks, while the market has been in existence for thousands of years.

Markets learn and adapt to needs and preferences, removing underperforming businesses and rewarding those that provide the desired service at the cheapest cost (unless of course there is government interference). Unlike the targets of government spending, companies within a free market system that do not provide the products and services desired of it better than their competitors can are allowed to fail, while better and more efficient ones take the lead. Competition induces progress, forced monopoly results in stagnation.

Perhaps Brendan Barber realises the fallacies of the arguments he is making, but think they can win him favour simply by allying him to the ‘Olympic spirit’, implicitly setting his opponents against it. However, the economy is not a sporting event, it cannot be run like the Olympic Games and nor should it.

jessennis.jpeg

We don't need an industrial policy

Britain's business secretary Vince Cable wants an industrial policy. He is wrong.

Core to his proposals are a new state-sponsored business bank. "There are areas where the banking sector just isn't working for large chunks of the economy," he says. "Small business lending has actually contracted." So he wants a new bank, with as much money behind it as he can squeeze out of a hard-pressed Chancellor, George Osborne, to step into the breach.

We don't need a new government bank. Governments are not good at running banks, or any other industries, for that matter. And the government is already the controlling shareholder in many of Britain's banks. And they are not doing their job, one might surmise that it is up to the shareholders to change their policy, rather than run off and build a competitor.

But in fact the banks are behaving perfectly rationally given the circumstances they are in. They got burned in 2007/08 because they had lent too much to too many people who, when the boom came to and end, discovered they were well overstretched and couldn't meet their repayments. Regulators in Basel had told them that government bonds were good security that they should invest in, but it turned out that governments are even more broke than householders. So now – once bitten, twice shy – banks are being far more canny about how much they lend, and to whom.  And indeed Vince Cable and his colleagues have been telling them to stock up on their reserves, which leaves them less money to lend out even if they wanted to.

Businesses and householders got a fright too. So they have been paying off their debts and trying to have some money under the mattress just in case another financial crisis hits them for six. In other words, the banks can't and don't want to lend so much, and businesses don't want to borrow as much. But Mr Cable sees only those small businesses who want to borrow but can't get a loan from the bank. He forgets that small businesses are in general very risky businesses, and that he has already told the banks to be more wary.

So when Mr Cable's new government bank opens its windows, who is it going to lend to? Small businesses? That would be a risky thing to do with taxpayers' money. Particular future-focused industries? Governments have never proved very good at 'picking winners'. Good ideas generally get the support of investors, if people really believe that they will make money in the future. Is the government, politicians and civil servants, better at predicting what industries and what companies will succeed better than professional investors who make such decisions every hour of the day? You would have to be nuts to think that.

But no, we are told that the bank will target lending to carmakers, aerospace, life sciences, construction, energy, higher education and creative industries. The winners, it seems are already picked. And taxpayers will pick up the cost of the government's choices, just as they always have. We would have a more thriving industrial sector if Mr Cable took his own advice: "Most sectors of the economy function perfectly well on their own. They want lower taxes and for the government to get out of the way." Quite. Low taxes, less regulation, fewer confusing, short-term, counterproductive but headline-grabbing initiatives like a state investment ba nk. As Allister Heath put it in City AM today, "There is only one industrial policy worth pursuing: making the UK a better place to conduct business, regardless of sector." Mr Cable should be creating that open competition policy, not a new bank.

Predistribution is an old trick for an old dog

Ed Miliband’s new big idea is that wealth redistribution takes place too late.  One has to be poor first to get government hand-outs of richer people’s taxes.  How much better it would if no one was poor and then redistribution, and all the bureaucracy that goes with it, could be consigned to history. We would all rejoice if benefits could be cut without further impoverishing the poor. He uses Sweden as an example of a predistributive country.

As Neil O’Brien points out in his excellent article in Saturday’s Telegraph, Britain does have one of the highest levels of income inequality, seventh out of 34 OECD countries and that surely fuels the widespread discontent.  Note the booing of George Osborne at the Olympics.

Unfortunately, Sweden is not a good example of a ‘predistributive’ country.  Income tax only looks low because national (social) insurance is four times as high as the UK’s.  The Nordic countries public expenditure is far higher, maybe 50% higher, than the UK’s share of GDP.  They have grown accustomed to being high tax/high public spending economies.  In other words, the hand-outs are given in different ways.

Two factors contribute to the inequality in the UK: housing costs and unemployment.  They compound each other because housing costs are highest where there is most employment.  Governments have tried to move employment to where it has most needed but moving the BBC to Salford and civil servants to Newcastle is not the answer.  The employers most easily moved from the south east contribute nothing to the economy and it would be better to employ fewer civil servants than rehouse them elsewhere.

Inequalities will be reduced when, and only when, employees create more wealth than they earn.  Sweden and Denmark, for example, achieve high personal incomes due to free markets and relative economic strength. Any government that tries to micro-manage its economy achieves precisely the opposite, especially if it tries to raise incomes when there is no productivity to pay for it.  Older readers will recall the futility of government attempts, in the late 1960s, to direct prices and incomes. At the same time, the trades unions were doing their best to destroy such industry as we had.

Today we have Ed Miliband demanding higher personal incomes unsupported by national wealth creation and trades unions backing that up with calls for strike action.  Welcome back, Old Labour.

ALeqM5gZWDFV1qBDnTChGoIOiG2OYJUnpw.jpeg

Make room for a bottom-up Olympic legacy

Interesting proposal from a group called British Future, saying that we should build on the Olympic feelgood factor, and widen the Olympic legacy by having more minority/disabled sport on TV, a single national school sports day, and suchlike.

Hmmm. I would be perfectly content to see the nation taking to sport, cycling to work, insisting that their kids walk to school and run round at the weekend rather than slouch on the couch. But these proposals all sound a bit – well, statist. I would really prefer not to live in a country where some minister could tell schools what day to arrange their sports day on, or could bully broadcasters into carrying programmes (however worthy) that they believed their viewers and listeners were not really interested in.

Better, surely, to have diversity among schools, who might want to do all sorts of different sports activity in their own way and at their own time, in ways that some central ministry could never imagine in a decade. Better too to have diversity of broadcasting, rather than the close central regulation we have at the moment which allows broadcasting 'watchdogs' – that is, a state-appointed quango – to dictate what they should carry. Better, indeed, that broadcasters should owe their living to carrying what their public actually wanted, rather than what ministers want for them (or what they say they want to surveys – who is going to answer 'no' to the question 'should sporting minorities be better represented on TV?'.

The remarkable thing about the Queen's Diamond Jubilee is how little it was organised from the centre. There were more than 2,000 street parties, all of them organised by local people in response to the desires of local people to have them and to help with them. You would think the nation would be street-partied out after the Royal Wedding not so long ago, but no, they came onto the streets with bunting and deck chairs and had a good time. It didn't take any ministers or officials or think-tanks or pressure groups to dictate how we were going to get into the mood, we just did it.

Nor did it cost anything. Actually, for the £9.5billion that the Olympics cost, you could keep the Royal Family up and running for 294 years. And I think that in the last year or two, they have been responsible for at least as many Union Jacks on the streets as the Olympics.

I often figure that interest groups come up with good ideas that we all agree should be done, but somewhere along the way a price tag appears. Sure, we want to capitalise on the Olympic legacy, but maybe not at the expense of higher taxes to fund more central programmes. And worse, it gives the nannies an opportunity to come out and dictate how we should live our lives.

An Olympic legacy will amount to nothing if we try to manage it from the centre through state initiatives. it has to come from the hearts, minds and enthusiasm of local people. We need to set them free, though. When parents refuse to help out with school sports because they face the indignity of criminal record checks, when you want to hire a school gym or a village hall for some sport event and get hit with a demand for risk-assessments and a whopping insurance bill, you can hardly expect people to promote sport at the local level. Get out of our hair, and the legacy will create itself.

olympic-rings_2152934i.jpeg

Back to the stone age at the Trades Union Congress

It's like that moment when the clocks go back, and suddenly the evenings are dark. After a glorious summer of sports and jubilees, suddenly the annual Trades Union Congress meeting is upon us and gloom spreads around.

Austerity isn't working seems to be the slogan this year. Apparently we need more government spending to boost the economy by hiring a lot more public-sector workers and raising their pay. They will then go out and build things, supply essential services, encourage business by buying stuff, and help the government by paying more taxes.

Sounds a bit like inviting in a burglar in the hope that he might spend some of the swag in your shop. Unfortunately, the money to hire more public-sector workers, and to pay them better, has to come from somewhere. The government could borrow the money, but its problem is that it is already borrowing far too much. There comes a time when your creditors reckon you are so deep in debt that you will never be able to repay everyone, so they had better stop lending to you and indeed start getting their cash back. Then you are sunk, of course, like Greece, having to offer 20%+ in the hope that a few reckless or over-optimistic folk might be daft enough to keep propping you up with loans.

So yet more borrowing does not seem a particularly safe source of money to boost public-sector employment and wages. Nor is inflation. We have had too much of that too. A rising cost of living means that people's savings and pensions do not buy as much. And rising prices also confuse businesspeople about what is actually profitable: they cannot see the 'signal' of where the real demand is from the 'noise' of prices rising all around. That gave us the financial crisis: when everything seems to be booming, people make some pretty crass bets.

Or the government could raise the money for public-sector expansion from higher taxes. Don't get me started. A sure-fire way to kill off hard work and enterprise is to slap a high tax on it. We tried that in the 1970s and we got the brain drain. Not many of us who drained out actually came back.

But why should we boost public-sector employment and wages anyway? The fact is that productivity in the public sector is dire. It has flatlined at a time when, for decades now, it has soared in the private sector. Shouldn't we be putting our money into things that are highly productive, rather than things that are not?

And it is fine to talk about downtrodden cleaners and nurses on low pay, but the fact is that the average public employee is, for a similar job, better paid, has a much better pension, takes more days off, and has better fringe-benefits and holiday entitlements, than the average private-sector worker. Private-sector workers have also been more likely to have lost their jobs over the last five years, or to have had to take cuts in hours. So why should a private-sector cleaner be expected pay higher taxes to boost the wages of public-sector cleaners?

Austerity isn't working? What austerity? Government spending is pretty well what it was five years ago in real terms. The government is reducing its borrowing a bit – that is, it is not over-spending, beyond its means, quite as much as it did before. But it is still borrowing £2.50 on every £10 it spends, and still adding to a national debt that is already at record levels.

Adam Smith once wrote that what is right for a family cannot be wrong for a great nation. One reason the economy is sluggish is that businesses and families are actually trying to cut their debt. Once bitten, twice shy. So people aren't spending as much. When people become more comfortable with the level of their household debts, they they will start spending again and growth will resume. It's just a phase we have to go through, like the hangover after a bender, before we can recover. A hair of the dog is no solution, it provides only a temporary relief but actually adds to the problem and makes recovery even harder and longer.

A gradual tightening

Ayn Rand’s Howard Roark succinctly summarises the only real obstacle to individual achievement in a single line: “the question isn’t who is going to let me; it’s who is going to stop me.”

Fans of Rand (and private sector workers) know that few forces in the world have more stopping power than a government. With its monopoly on violence and its ability to rewrite the rules, government possesses the power to interfere with the private lives of those who live under it even when these persons are willing to abide with the multitude of other laws, regulations and taxes, not all of them fair, to which they are subject. And in the exercise of this power it can be unfair and arbitrary; democracies and tyrannies alike have the power to reduce the efforts of a single person to nothing, to crush him utterly for any reason such a government might choose. Last month brought the news that, as has happened many times in many nations, our government has done exactly that.

By revoking the “very highly trusted” status of London Metropolitan university without providing for any transitional arrangements, the Home Office gives that institution’s current and future students a mere 60 days to either find an alternative sponsor or to self-deport. These are not very good options.

Those who would see themselves as members of Middle England, whether working or not, will doubtlessly be delighted by the news. In a Daily Express piece calling for further crackdowns on illegal immigration three days ago, the London Met debacle received an Express mention; and though I do not ordinarily recommend the Express to my friends and readers at the Adam Smith Institute, as it is illustrative of Middle English sentiment to foreign migration, I will make an exception on this occasion.

Adorning its article with a photograph of our deadly serious-looking Home Secretary, Theresa May, the Express trumpeted the government’s efforts to “block sham marriages,” restrict access to credit and mobile phone contracts for over-stayers, deport prisoners, capture abscondees, and track down failed asylum seekers. All of this, the Express tells us, is part of a broader initiative to reduce “net migration” to “tens of thousands” – a stupid, relative concept with no economic basis and, in any case, a move which both industry and academia have vociferously opposed.

But the relevant point for present purposes is the conflationary link, where the Express betrays that it really views all immigrants to be the same, found at the article’s very end: “no decision has been taken on whether to strip London Metropolitan University of its right to take foreign students” – legal immigrants, who jumped through all the hoops, filled in all the forms, paid the fees, and at any rate who should commence studying at London Metropolitan university in a month. As a consequence of government action, these young people will be made to suffer a serious, life-altering disruption in the course of their lives. Given competition for university places and this very late stage, without rapid government intervention to fix its own mistake, individual remedies will not be readily found.

The structure of the Express’ article reveals, and is illustrative of, the struggle for establishment that immigrants in the UK face: whether legal or illegal, well-off or poor, studious and energetic or lazy and dull, immigration is a political question, and immigrants – current and future – are the collateral which unpopular governments post to offset the risks from their other political liabilities. As a political football, therefore, all immigrants are equal and equally problematic. 

Take my own case, for example. A few years ago, after finishing my undergraduate, I had planned to finish graduate school and continue my leave under the “Highly Skilled Migrant,” or the “Super-Immigrant who is rich, pays taxes, and is not entitled to benefits” visa; however, before I could do that, the regime was revoked and replaced. I joined its replacement, the “Tier 1 – post-study” visa, and jumped into “Tier 1 General” class as soon as I could.

Clearly some other people had the same idea as, shortly afterwards, “Tier 1- post study” was abolished and the income, available funds, and educational thresholds for T1General extensions were increased. When this failed to stem the tide of rich, well-educated, taxpaying people remaining the country, the income and funds criteria for extension were increased yet again, and new applications in T1 General were abolished entirely. What was once a quiet and predictable legal environment under Blair has been in complete disarray and subject to constant chance ever since there was a threatening opposition in parliament; over the course of six years, the immigration rules to which many legal immigrants have been subject have been changed, in a fundamental way, at least six times, possibly more. Each change presents new challenges, and more failed applications as migrants cannot meet the higher thresholds. And this, our government tells us, is an indication of success.

I am not alone. From my immediate circle of friends, I can think of a half-dozen examples of well-educated people on the road to success and high taxation whose lives have been hampered by the veritable orgy of recent legislative activity concerning migration. One investment banker I know decided, after a few years in exile in her home country, to return to Britain; she is now tethered to her current employment due to the abolition of T1 General, whereas if she had come but two years earlier, she would have been able to choose her employment freely. Another banker I know who was similarly tethered quit the country and returned to Texas rather than stay tied to a job she despised; still others are prevented from obtaining jobs for which they are qualified, as the administrative burden to smaller companies of complying with Tier 2 visa sponsorship is, for many, absurdly high.

Bankers, with their relatively high incomes, have it relatively easy – others are less lucky. Take, for example, the couple who had to fly abroad for a quickie wedding – planned, but two years early – in order to get around the fact that Tier 1 had tightened up. Or the self-sufficient lighting designer and AV technician who could not start his own business and legally remain after finishing an Open University course, despite having all the resources and connections to do so. Or the law graduate who, being supported by her parents, not eligible for (or taking) benefits while working as a paralegal, self-deported when she could not afford to jump into Tier 1. The young lawyer who tried to get a mortgage, but was rejected by the bank because the credit risk of a time-limited visa was too high due to the high probability of rule changes or non-renewal. The finance professional who, on account of the fact that her visa allowed her only to work in Scotland, was ordered to leave (which, being a law-abiding American, she promptly did) after being successful enough to find work in London in spite of the recession.

I could go on. What is clear from my view in the trenches is that the government’s obsessive tinkering with the rules is hugely disruptive and damaging to business and individual lives, and it must end.
It pains me greatly to have to hyperlink again to the website of the Express, doubly so as the article concerned features Tory MP Douglas Carswell – one of my favourites – arguing in favour of further tightening, in this case by “[insisting] on medical insurance” for all incoming migrants. For certain sorts of immigrants this is a proposal I would support (there are some stories I would like to tell to support this point which, for a number of reasons, I cannot). What is not made clear is whether the enterprising young things – the university students who are destined to  pay taxes and NI and work in banks and law firms, for newspapers and insurance companies, in your productive industries as well as in enterprises of our own – would have to buy independent insurance, too.

If this were the case, I should object, since including bright and promising migrants in such a proposal would be, in economic terms, a silly thing to do. Tighten the noose if you wish, but this is the 21st century and we are young, we are hungry and we are mobile. If this country tries to stop us, there are plenty of others that won’t.

Noose.jpg
Summary

Ayn Rand’s Howard Roark succinctly summarises the only real obstacle to individual achievement in a single line: “the question isn’t who is going to let me; it’s who is going to stop me.”

Fans of Rand (and private sector workers) know that few forces in the world have more stopping power than a government. With its monopoly on violence and its ability to rewrite the rules, government possesses the power to interfere with the private lives of those who live under it even when these persons are willing to abide with the multitude of other laws, regulations and taxes, not all of them fair, to which they are subject. And in the exercise of this power it can be unfair and arbitrary; democracies and tyrannies alike have the power to reduce the efforts of a single person to nothing, to crush him utterly for any reason such a government might choose. Last month brought the news that, as has happened many times in many nations, our government has done exactly that.

By revoking the “very highly trusted” status of London Metropolitan university without providing for any transitional arrangements, the Home Office gives that institution’s current and future students a mere 60 days to either find an alternative sponsor or to self-deport. These are not very good options.

Why you can't trust the American poverty statistics

A nice little chart here at Cato showing how spending on food stamps has risen over the past decade.

We can see that expenditure on this anti-poverty programme has risen considerably over 12 years. In fact, if we assume away inflation and GDP growth (not quite right but close enough in this past 12 years, especially with respect to food prices) then expenditure on this programme has risen from 0.12% of US GDP to 0.56% of GDP. Call it, allowing for the uncertainty over the GDP and inflation numbers, a fourfold increase in real terms.

Now, I think it should be obvious to everyone that giving poor people a means to purchase food means that poor people are less poor. We would also assume that some who were poor before this distribution are not poor after it.

But here's the interesting question. Fully 0.5% of GDP is being given to the poor in just this one redistribution programme. What difference does this make to the number of poor in the US?

The answer is, distressingly, absolutely not one iota. By the official statistics this redistribution does not lift one solitary person up out of poverty: in fact, does not even alleviate poverty in any way recorded by the official statistics. Further, this is true of all of the major US poverty alleviation programmes. Their Section 8 housing vouchers (roughly, housing benefit), Medicaid (health care for the poor), the EITC (working tax credits). Adding these together the US spends a good 4% or more of GDP on poverty alleviation. Yet apparently it alleviates no poverty at all.

The reason being that the US, uniquely, does not count benefits in kind, nor benefits through the tax system, when calculating who is poor. They could double spending on the poor and there would be exactly the same number of poor people as when they started. In fact, in recent decades they have doubled spending on the poor. And they've still got the same number of poor people.

Just a little warning should anyone ever brandish US poverty figures at you. They're very strange indeed and absolutely cannot be taken at face value.

Why Marginal Revolution University won't work

Alex and Tyler have announced their new Marginal Revolution University. And I'm afraid that I have to say that I don't think it will work.

I should be careful to distinguish what I mean by "work" of course. They're very good teachers and I'm sure that those who take the courses will learn a great deal. This is one definition of a deliberate act of education working and by that definition of course it will work.

However, when we think of a new method of doing something entering the market we mean more than it just being the marginal (sorry) addition to that market. What we're really interested in is whether this new method can sweep away the old. Can restructure that part of the economy completely to all our benefit. And by that standard I think it's doomed to failure.

Not because it might not educate people better. Current universities are built still upon the limitations of medieval book production technologies. The whole idea of a lecture, one person shouting at a crowd, comes from the idea that books were simply, pre-Gutenberg, too expensive for all to have a copy. Thus they must be read out to the students. This is clearly no longer true but 600 years later we're still working within those past technological constraints. I think it's therefore fair to say that within higher education there's some resistance to change.

What we really want to know is whether online courses can replace, not just augment, the current university system. And I don't think any set of online courses is ever going to get the chance. They won't be accredited, it won't matter how many you have you'll never be awarded the piece of paper which is a degree. For those who have the power to award such degrees now know very well that they will be swept away if that does happen. Thus we'll have a great deal of institutional reluctance to allowing that to happen.

This is what I think is one of our major economic problems at present. There's all sorts of shouting about how we all have to be innovative: even the EU parrots the catchphrases. But that's only half of the story. We also need the destruction of the old ways to make way for the new and all too much of our economic and political life is in the preservation of those comfy sinecures  the old ways present.

Another way to put this is that almost all innovation and productivity gains come from entry into and exit from markets. We've all the cheeleaders for the entry part but no one seems to be making the exit happen: far from it, huge amounts of energy seem to be being spent on preventing exit.

I hope of course that Alex and Tyler do succeed. As they point out, their first course takes half the time for all of the same material as that traditional university technology. Think how much we would all save if a first degree took 18 months not three years (for the English that is). Think how much more if it were not done on campus. But the great problem is going to be those who currently make a living from a slow campus degree: and unfortunately they're also the same people who determine what a degree is.