Apparently I'm a hyper-neoliberal

It rather surprised me, last week, that I was described by an American magazine editor as a "hyper-neoliberal". I'm really not quite sure what that means but I assume it's because I agree with points like this:

PLAN A The government subsidizes the incomes of low-wage workers. These subsidies are financed by increasing taxes on middle- and upper-income Americans.

PLAN B The government again subsidizes the incomes of low-wage workers. But under this plan, the subsidies are financed by taxing those companies that hire low-wage workers.

This is Greg Mankiw discussing the difference between raising the incomes of the working poor through some form of public payment (ie, tax credits, the EITC, whatever) and a rise in the minimum wage.

To be sure, the minimum wage isn’t exactly a system of taxes and subsidies. But its effects are much the same as those of Plan B. Unskilled workers earn more, and the businesses that hire them pay more. The main difference between the minimum wage and Plan B is that, under a minimum wage, the extra compensation is paid directly from the business to the worker, rather than indirectly via the government.

And for me this is the clinching point:

First, fairness: If we decide as a nation that we want to augment the income of low-wage workers, it seems only right that we all share that responsibility. Plan A does that. By contrast, Plan B concentrates the cost of the wage subsidy on a small subset of businesses and their customers. There is no good reason this group has a special obligation to help those in need.

I've said this a number of times before and it still remains true. There is indeed the market price of whatever it is, in this case low skilled labour. And it's entirely possible that we, as a society, communally, decide that we don't like that price. Say we think that the price of cigarettes is "too low" (leave aside how we determine too low or too high here). We tax them and that tax benefits us all in that all of us share in the public goods financed by that tax.

We might also decide that the price of low skilled labour is too low. We desire it to be higher. Precisely because it is all of us making that decision (again, leave aside concerns about majoritarian tyranny here) therefore it should and must be all of us dipping into our pockets to pay for it. We should no more insist that investors in the sort of business that employs low wage workers pays that extra wage that we desire than we should insist that smokers, or tobacco companies, get that extra tax raised as we fix that too low price of ciggies.

They're societal interventions thus it must be society that pays or collects on them.

Whether we should have a wages top up, or taxes on ciggies, is entirely another argument. This logic, assuming that we're going to have them, still stands. Societal decisions need to be paid for by society, not by some subset who can be stuck with the costs of our desires.

In this analysis I am joined, as above, by Greg Manikiw, ex-head of the Council of Economic Advisors, economic advisor to Mitt Romney (about as wet a Republican candidate as we've seen in many a decade) and also by the UK's only thinking Marxist, Chris Dillow.

And for thinking this way I am called a "hyper-neoliberal" by an American magazine editor. I still don't quite know what that phrase means but I think it's more a commentary on the political inclinations of the US journalistic caste than it is about me or the real world.

A little note for our Robin Hood Tax friends and the World Development Movement

You will recall one of the arguments put forward by the Robin Hood Tax crowd: that lots of speculators in futures and options markets drives up prices. This has also been put forward by the World Development Movement, another group of teenage trots only lately out of their mothers' basements. The problem with this idea, as has been endlessly pointed out, is that future prices can only affect current, spot ones, if there is a rise in inventories. And that's not something we've seen in recent price booms.

And here is Craig Pirrong, fresh from the mendacious hit job the NYT did on him, to explain why in more detail:

Back in the 1990s and early 00s, gold prices were low. Very low. $300 and below. Back then, the hue and cry was that prices were artificially low because . . . wait for it . . . producers were massively short because of hedging programs.

Well, if producers were massively short that means that speculators were massively long. So if speculators drive prices, why weren’t gold prices stratospherically high in the late-90s early-00s? After all, supposedly in 2008, and the last couple of years, the massive long speculative positions were inflating prices. Why didn’t the massive long speculative gold positions a decade ago inflate gold prices?

Flipping things: If short commercial positions were depressing gold prices a decade ago, why didn’t they depress oil prices in 2007-2008, and over the last couple of years? Hence the danger of superficially examining net positions and claiming that one side of the market is inflating (or depressing) prices: an equally legitimate argument is that the other side of the argument is depressing (or inflating) prices.

But the point is that neither argument is legitimate: both are equally illegitimate. Derivatives positions net out to zero. Derivatives are in zero net supply. Looking at one side of the market, and ignoring the other, makes no sense.

In the absence of changes in physical stocks driven by those future prices, futures speculation simply will not change current, spot, prices.

Worth adding I think my favourite mistake by the WDM on this point. They looked at grain prices in 2008. Wheat and corn (maize) moved a bit. Rice moved massively. OK: but they used this as proof that futures and options speculation really does change spot prices. Failing to note that the futures market for rice is very thin and small while those for wheat and corn are vast and deep. Thus the grains with more speculation in them had lower price rises: not exactly a confirmation of their thesis.

The effect of rising consumerism

We're all aware of the standard critique of consumerism: that we shouldn't in fact want more at all. We should be happy with our lot, accept that there are limits and, you know, just sorta vegetate with what we can currently do and make. However, as Virginia Postrel points out, that's not really how the human race works:

Rising expectations aren’t a sign of immature “entitlement.” They’re a sign of progress -- and the wellspring of future advances. The same ridiculous discontent that says Starbucks ought to offer vegan pumpkin lattes created Starbucks in the first place. Two centuries of refusing to be satisfied produced the long series of innovations that turned hunger from a near-universal human condition into a “third world problem.” Complaining about small annoyances can be demoralizing and obnoxious, but demanding complacency is worse. The trick is to simultaneously remember how much life has improved while acknowledging how it could be better. In the new year, then, may all your worries be first world problems.

We only ever moved out of the caves because someone thought that house sharing with a hungry bear was unsatisfactory, only ever invented the car because of the rising tide of horse dung, it's the very things that we find unsatisfactory currently that drives the vast wave of innovation that has been sweeping us along these past few centuries.

And the real strangeness of this is that while we might indeed be desiring more transport, or food, or communication ability, whatever it is, that innovation manages to bring us that more at the expense of using fewer resources. Smartphones are, obviously, using fewer resources than trying to run Facebook on semaphore flags. So contrary to the standard story it is our very consumerism that reduces resource use via the mechanism of innovation.

Excellent advice to all budding politicians everywhere

Don Bourdreaux has some excellent advice for buddfing politicians of all flavours and stripes:

If you really wish to serve your fellow Americans, stay in the private sector where those with whom you deal pay you voluntarily – that is, in ways that prove that you are serving them well. In politics, you’ll be spending money taken from others forcibly, so you’ll have precious little reliable feedback on whether you are helping or harming your fellow Americans.

Quite.

Indeed, it's one of those well known little secrets among economists that people value what politics brings them at less than the cash that it costs politics to bring them to them. Even the US Census agrees that poor people value Medicaid at less than it costs to provide it, food stamps at less than their face value. They'd rather have the cash than what the politicians think they should be getting. Over here the same is true of housing benefit: everyone would far rather have the cash. Thus even the welfare state is value destroying.

And in the private sector, in the absence of politicians deliberately creating a rent seeking opportunity for you, you will only be able to extract from people what they think your actions, activities and services are worth. Less in fact, for there will always be a consumer surplus: so you know that your activities are creating more value than you are receiving.

It's true that we do actually need a government, thus we need people to be part of it. But think about what that government is really tasked to achieve: finding a method of making sure the bins are emptied. And that's no life for a bright and ambitious thing like you. Get off into the private sector and create some value rather than being in politics where you shanghai it at gunpoint then destroy it. And this applies even more, not less, if you have the public good at heart.

Well, yes, markets do work you know

It would appear that the fact that markets do in fact work is getting through even into our educations system. For which, of course, great thanks and hurrah!

Parents who move house and shell out for private tutors are paying as much for their child's education as those who send them to private school, says a top headmaster.

The cost of a good education is the cost of a good education. And we're two, maybe three, possible methods of achieving that aim.

The first is simply to gird the loins and go and pay for one out of post tax income. We can see the money going out for that and boy, doesn't it sting.

The second is to move to an area where the State, remarkably, is actually able to provide a good education out of those taxes already paid. But such areas have higher house prices (it's very noticeable indeed that house prices, the prices of houses that people with children might like to live in, vary by school catchment area) and thus more must be paid for a house in such areas. We can still see the money rolling out here and boy, doesn't it sting.

The third is of course home schooling. In which case we don't see the money rolling out: but we do rather see it not rolling in as one of the possible two household incomes is likely to be sacrificed to produce it. Given that there's no tax wedge here this might in fact be the cheapest option.

However, all three are substitutes for each other and there's really no surprise at all that close substitutes have roughly the same price. Because, you know, markets work and close substitutes tend to converge in price.

It is absolutely vital that you deploy your consumerism responsibly

I thought this was rather good from Julian Baggini in The Guardian: although it does have one terrible error in it:

You might dismiss this kind of ethical consumerism as mere gesture. Waving my right-on debit card as a badge of honour as I pack my Fairtrade chocolate into a canvas tote bag can look like a poor surrogate for revolution. This is part of a knowingly superior narrative of impotence that tells us our day-to-day choices can't lead to meaningful political change. "The system" is inherently corrupt and to believe we can affect it by our choices is to buy into the very myth of consumer power that late capitalism promotes in its own interest. It is to believe that virtue can be bought, when the vice of the system is precisely that it puts a price on everything, including a clear conscience.

But this narrative is wrong. It portrays capitalism as though it were a kind of entity with a will of its own, whose only desire is to maximise profit. In fact capitalism is amoral, not immoral. It doesn't care for right or wrong, only for what people demand. If we demand goods and services at the lowest price, capitalism will provide them, and damn the social and environmental consequences. If, however, we demand Fairtrade bananas or recycled toilet paper, capitalism will provide them too, as it demonstrably has done.

These are not things done by capitalism: they are things done by markets. Where there is choice then it is indeed possible for people to have a choice on how, with whom and upon what they spend their money. A capitalism without markets (ie, monopoly capitalism) would provide none of those choices: just as any other economic system without the choice offered by markets would not allow the consumer to express their preferences. Capitalism and markets are simply not the same thing at all and it is markets here that Baggini is praising.

Other than of course he's precisely spot on. If you want things to be produced in a certain manner then it's up to you to spend your money so as to encourage producers to do their production in that manner. You not only can but you ought to express your moral choices in the way you decide upon who to buy from. I tend to buy from factories located in poverty stricken hell holes as that's the best way to alleviate poverty we've yet found. Agreed, others might differ on this: but it's still true that you should deploy your financial firepower to make the world a better place by your own lights.

It is, after all, vastly better to light a candle than to curse the darkness and every pound spent on your moral goals brings them that one pound closer.

Perhaps we don't want a crash social housing building program

Yes, we know, there's somewhat a shortage of housing in the UK, that's what makes it so darn expensive. But it could be that we still really don't want to have that government led emergency social housing building program that so many are calling for. Over and above the fact that simply issuing more planning chitties is the answer, there's also the point that perhaps we just don't actually have the material to build houses with:

Brick stocks in the UK have reached the lowest level on record as merger mania grips the sector.

Stockpiles of the vital building blocks dipped to 323m at the end of October, down almost a third from 500m in 2012, after stocks of more than 1bn were recorded in 2009, according to monthly reports from the Department for Business Innovation and Skills, and the Office for National Statistics.

Apparently every brick that will be made in the next three months has already been sold.

Of course, there's also another way of looking at these numbers. If the building supply industry is operating at full capacity then that must mean that there's rather a lot of building going on. If that's true then whatever it was that we needed to do in order to solve the housing problem has already been done.

Might even be the effects of the government insisting on issuing lots more planning chitties over the past couple of years, eh?

I'm still trying to understand why Bitcoin won't fail

Anything that people happily use as money is of course money. So, if you can get people to use something as money then it is money: in which sense Bitcoin is indeed money. You can buy things with it therefore it is money. And yet I still can't quite see why it's going to be successful: successful here meaning a widely accepted form of money and accepted over the long term. There's many economists writing about it now in a manner that there weren't even just a few weeks ago: it has reached at least that level of success, that people are sucking their teeth over it. Tyler Cowen, Paul Krugman and friends, there's a lot of very clever people whose opinion I respect saying that it's not going to work.

And do note that it tends to be the nerds and the computer scientists who insist that it will and the economists who are a great deal more unsure about it.

My sticking point comes from the ease with which you can create a cybercurrency. The Bitcoin source is open, so anyone can use that. And I asked a friend who knows about these things to estimate how much work it would take to launch a new such currency based upon some tweaks to that code. A couple of days of pondering later he came back with "two man months". And that's why I just don't think it's going to work: it's too easy to copy.

Assume that, as Cowen does, the entire idea of cryptocurrency does indeed work: thus there will be seignorage profits to be made from introducing a new one. Do the two man months of work, launch the new currency, reserving some portion (20% sounds nice) of all that will be issued over time for the launch partners and, because cryptocurrencies are successful this will be a workable business plan. But precisely because it is a workable business plan then may people will be doing it and thus there will be no scarcity value of cryptocurrency. With no scarcity comes no value and thus the failure of cryptocurrencies.

In the end I see it as the Golgafrinchan B Ark using leaves as money. They end up having to burn down the forest to stop the inflation. And given the ease of launching a new cryptocurrency I can't see the extant ones retaining value.

I'm entirely willing to be shown to be wrong here but I really just don't see the long term "success" here. I see the South Sea Bubble part of it, ride the wave until it's over but other than that....

In praise of those complaining economics students

I've rather changed my mind about those economics students up north revolting (no, they are having a revolt, they are not revolting in themselves) over the curriculum they are being forced to study. I don't in the least take seriously their complainty that they're not being taught Keynes for I've read their syllabus and they are. But in a more general view I think I am converted to their cause. As Peter Boettke points out:

This observation is nothing new. It can actually be found in Adam Smith’s The Wealth of Nations. Smith discusses the differences in approach to the teaching found in Glasgow and Oxford, respectively. Professors in Glasgow were paid through direct student fees, and thus they devoted more time to teaching their students, whereas the professors in Oxford were paid from an endowment, and so did not pay attention to the students in the least.

Given that the students are, through their loans, paying for their own education then yes, they should indeed be taught those parts of the subject that they desire to be taught in the manner that they wish. I do also have a feeling that exactly that paying for their own education is going to lead to their wanting ever more of that highly mathematical modelling as a result: for that is what will get them the jobs in hte merchant banks to pay off those loans. But it is indeed their money and they should not only be allowed, but encouraged, to spend it as they wish.

This is, after all, one of the things that we do try to encourage in the understanding of economics, that people spending their own money on their own desires works better, most of the time, than any other possible system.

One possible confusion though at the end of all of this. If they do get taught the economics they desire to be taught, in the manner they so desire, and then they cannot find jobs at the end of it all, will this be seen as a failure of market economics or a failure of the planned system of what students ought to be taught? And given that the students are demanding to be taught much more about alternatives to markets, about market failures, will they take their own market demands as having been the thing at fault?

The twelve days of state bureaucracy: 4-7

Day 4

Dearest Grandmama, four Environment Agency officers came round today and said the pear tree was unsafe as it might blow down in a gale. No gales are forecast, but they still say it has to be fenced-off or removed immediately. So we had some builders round to erect a sturdy fence. I will write more tomorrow.

Day 5

Dearest Grandmama, five traffic wardens arrived today, saying the neighbours had been complaining at the number of vehicles that had been calling. They gave tickets out to everyone parked in the street including several neighbours which only made them angrier. I will write more tomorrow.

Day 6

Dearest Grandmama, six security contractors arrived today. The traffic wardens had complained of harassment from the neighbours for giving them tickets so the local council were installing CCTV to ensure a safe working environment for the traffic wardens. I will write more tomorrow.

Day 7

Dearest Grandmama, the floodlights that the CCTV contractors installed really light up the tree and the partridge nicely, but seven of my near neighbours have organised a protest picket outside the house because they cannot sleep at night and the traffic and noise keeps them awake during the day. I will write more tomorrow.