Left - Right / Open - Closed

James Kirkup over at the Telegraph has an article on how the Left-Right divide no longer seems to apply to the UK’s political parties. We should expect Left-wingers to be hostile to free markets and big business, he argues, and Right-wingers to embrace them. However, reality is far less clear-cut. UKIP is increasingly honing an anti-corporate edge, criticizing both the European Commission and the Labour party for being in bed with large, multinational firms with little regard for 'the national interest'. UKIP are simultaneously daubed ‘more Thatcherite than Thatcher ’ – and indeed, plays up to this when useful – yet considered left of the Conservatives by voters.

Kirkup also notes that whilst Labour, UKIP and parts of the Conservative leadership are busy immigrant-bashing, a ‘curious band of political actors’ are fighting the immigrant’s corner, including ‘nasty party’ London Mayor BoJo, the ‘old lefty’ Vince Cable, and (apparently, shock horror!) the ASI.

Libertarians have long claimed that the Left/Right distinction is largely redundant, arguing that the Nolan chart – which plots support for economic & political freedom across two axis – yields far clearer understanding of political ideology. Today, variations of such political quizzes and graphs abound, including the somewhat absurdist 5-axis offering.

Kirkup's analysis is simpler; that politics is no longer about Left or Right, but whether we should be an open or closed nation.

This certainly makes some sense in the current political climate. UKIP isn’t really left or right, but ‘closed’ – looking inwards for a sense of ‘Britishness’ and for British values we may or may not have ever possesed. The distinction can be broken down further, with individual policies analyzed the same way. Conservatives are, for example, typically open to business, but closed to immigration. You could widen the definition of ‘open’ and ‘closed’ out, too – for example, the Lib Dems are open to the issue of prison and drug law reform, whereas the Tories are far more closed. They're open to things like NHS and schools reform, though – whilst Labour tend to be closed to such possibilities.

It might then be a useful strategy not to consider whether a party is Left or Right wing, but whether individual policies are broadly open or closed. Disregarding the left/right stigma could help individuals focus upon what it is they actually care about. Clearly, this dichotomy doesn’t work for everything – monetary policy, for example, or attitudes towards the EU – although you could argue that openness generally correlates with a preference for smaller government.

Certainly, openness is a defining characteristic of the ASI. We favour openness in terms of international trade, the movement of people, competition, experimentation in the public sector, and social attitudes.

In this context, open policies reflect the freedom of individuals to make their own choices without unnecessary restriction. They encourage new ideas and welcome change. In contrast, closed policies seek to restrict potentially disruptive activity and unwanted influence, in an attempt to maintain some status quo or protect particular interests. This tendency cuts right across the political spectrum, but, as a think tank, is one that we endeavour to avoid.

Professor Dennis O'Keeffe

We are sad to announce that Prof Dennis O'Keeffe has died. He was a very distinguished educationist who did original and influential research on subjects that included truancy and teacher training. He was Professor of Social Science at the University of Buckingham. He attracted national attention with his report on "School Attendance and Truancy (1995)," taking the view that truancy was an almost inevitable result of poor courses that failed to entice the attention of students. With the Adam Smith Institute he published "The Wayward Elite" in 1990, a major critique of British teacher-education, and sat on the ASI's Scholars' Board. He was a keen supporter of several of the Free Market think tanks in addition to the ASI, including the IEA, the CPS, and Civitas, and participated in many of their activities. His attendance was always appreciated at our lectures and lunches, as much for his goodwill and charm as well as for his considerable intellect.

People respond to incentives

That people respond to incentives is an obvious point but I feel like every reiteration is worth it. One of the clearest examples of where people respond strongly to incentives is retirement. If you raise the retirement age, many people who'd otherwise be eligible continue to work. Since retirement probably increases life satisfaction/happiness and perhaps even health we obviously want it to happen at some point, but since it's also very costly in terms of benefits paid and productive activity not done, we want to be mindful of both costs and benefits.

A new paper in The Review of Economics and Statistics by Kadir Atalay and Garry F. Barrett at the University of Sydney adds to a large literature:

Governments around the world are reforming their social security systems in light of the challenges posed by population aging. We study the 1993 Australian Age Pension reform, which progressively increased the eligibility age for women from 60 to 65 years. We find economically significant responses to the reform. An increase in the eligibility age of one year induced a decline in the probability of retirement by 12 to 19 percentage points. In addition, the reform induced significant program substitution, with increases in enrollment in other social insurance programs, particularly the disability support pension, which effectively functioned as an alternative source of retirement income.

Raising the retirement age for women led to lots more of them working, but also more of them claiming other benefits.

Every single paper I've ever seen on the topic has found a similar result. For example in the UK raising the pension age from 60 to 61 led to 7.3pp more women in employment at age 60 (separate paper with more evidence). In Spain, people with worse health were more responsive to financial incentives. Less generous pension payouts in France (normal retirement rather than disability insurance retirement) meant 14% higher total work hours, on average, between the ages of 55 and 64. Another paper found that pensioners respond to incentives in a different way: if they stand to gain more by waiting before they claim then they are more likely to wait.

The point of all this is not to say that we should pack the elderly off to the workhouse until they're 90, but more to note that incentives matter, against the common claims that the homo economicus model is rarely or never a good approximation for real humans.

D'ye see why we get puzzled about food banks?

We've the news today that it's just appalling that a supermarket that runs a collection scheme for food banks should actually indicate, in its stores, which foods might be suitable for purchase to a food bank.

The Co-op has faced criticism on social media after a customer tweeted a picture of an own-brand grocery display touted as 'ideal for the food bank'.

Dan Paris, a Scottish National Party activist, shared his picture of the promotion and remarked: 'It's easy to get used to these things but a shop advertising tinned food as "ideal for the food bank" has floored me.'

It led to a furious response from Twitter users who accused Co-op's charitable appeal as a scheme for 'pushing stuff customers won't buy just to make a profit,' as one put it.

Umm, what?

In response, Mr Paris explained he is himself a supporter of food banks.

He tweeted: 'I'm sure this was done this with good intentions but I found it genuinely upsetting that food poverty has been normalised to this extent.

'Nobody should be asked to buy food for the poor when they're doing their weekly shop. That's what the welfare state is for.'

We wouldn't normally say this, that people should look to La Toynbee for actual information on anything but she did, on the same day, point out this:

As the Church of England report revealed, the most common reason for using food banks is benefit delay and “sanctions”.

The reason that we don't want food banks to be a part of the welfare state is because they're a reaction to the incompetence and or malevolence of the welfare state. It's also worth reminding ourselves that the Trussell Trust says about itself that it started to take an interest in the issue back in 2000. when it was horrified to find out that there were people with no actual food in the house because of incompetence in the paying of benefits. This isn't a new problem. and it's not even entirely a problem with the simply incompetence of the State organs. Any system that tries to deal with tens of millions of tax and or benefit accounts simultaneously will screw up from time to time. And the sheer numbers just mean that at any one time some tens of thousands of people at least will be getting screwed. Which is rather why it seems like a very good idea to be using an entirely different system, operating in an entirely different manner, to be dealing with that problem.

All of which is entirely beside the basic moral point at issue here. What the heck's wrong with private charity? Why does the solution only become sanctified when it is washed through the Holy Church of the taxing offices?

One reason why we get bad policies

If the What Works Centre for Local Economic Growth didn’t exist someone would have to invent it. It analyses policies to see which are the most effective in supporting and increasing local economic growth. Although its focus is local, most of its findings have national implications. So far, the centre has looked at a number of policy areas. A theme cutting across all of its findings is that to a large extent we don’t really know what works. Too often, the evidence is inconclusive or lacking.

On access to finance:

• We found very few studies that look at the impact of schemes on both access to finance (direct effect of the scheme) and on the subsequent performance of firms (indirect effects of the scheme).
• While most programmes appear to improve access to finance, there is much weaker evidence that this leads to improved firm performance. This makes it much harder to assess whether access to finance interventions really improve the wider economic outcomes (e.g. productivity, employment) that policymakers care about.
• As with other reviews, we found very few studies that gathered (or had access to) information on scheme costs. As a result, we have very little evidence on the value for money of different interventions.

On business advice:

• There is insufficient evidence to establish the effectiveness of sector specific programmes compared to more general programmes.
• We found no high quality impact evaluations that explicitly look at the outcomes for female-headed or BME businesses.
• We found two high-quality evaluations of programmes aimed at incubating start-ups. Both programmes were targeted at unemployed people and show mixed results overall. However, there is a lack of impact evaluation for Dragons’ Den-type accelerator programmes that aim to launch high-growth businesses and involve competitive entry.

On employment training:

• We have found little evidence which provides robust, consistent insight into the relative value for money of different approaches. Most assessments of ‘cost per outcome’ fail to provide a control group for comparison.
• We found no evidence that would suggest local delivery is more or less effective than national delivery.

As the above suggests, on key areas of government policy we lack evidence of what works, particularly when it comes to determining value for money. Given the billions spent on various schemes this simply isn't good enough.

The way to move forward from this is to work backwards, ensuring that a robust framework of analysis is build into each and every government programme so that we can know how successful (or otherwise) each intervention is. Crucially this should be done in a way that lets it be compared by the same metrics also being measured in other schemes trying to achieve similar outcomes.

Residing in the economic departments of our universities are the brains to do exactly this – to date though, policymakers have lacked the gumption to systematically experiment, measure and evaluate what works. Until they do we will just keep getting ad hoc policies with enough Rumsfeldian known unknowns to make an economist cry.

Philip Salter is director of The Entrepreneurs Network.

The income inequality obsession

There is undoubtedly a persisting obsession with income inequality, whether this comes from the likes of Thomas Piketty or Russell Brand (whom Kate Andrews very recently wrote an article on), this obsession is unhealthy and, actually, upon closer scrutiny, counter-productive. The focus on income inequality places emphasis on income being the most important component of inequality. Income, however, is only useful as a means to an end, rather than as an end in itself.  It is a way of measuring and attaining a form of freedom in modern society. It derives its value from affording the individual who possesses it with capabilities. Ludwig von Mises wrote in a Theory of Money and Credit that money is money by virtue of the fact that it is a medium of exchange (rather than it being legal tender or a store of value, for example).

The obsession with relative income rather than focusing on advancing one’s own, absolute capabilities (and/or others’, for that matter) helps perpetuate the frictions of class differences (the income component of them, at least). Income, whether absolute or relative, is not an end-in-itself for the vast majority of people.

Delving more deeply into the real value of money, we find that freedom and the inequality of freedoms enjoyed by people is at the real heart of the problem. Those who obsess over income inequality shy away from addressing the legally imposed inequality of freedom; the right to use one’s labouring capacity as one sees fit, to spend one’s time as and when they want and for the price they will, the right to interact with our fellows to our mutual advantage without third-party interference, the right to speak freely, think freely and live freely – don’t these legal iniquities require more urgent addressing?

The focus on income inequality is the smoke and mirrors of well-intentioned rhetoric. The focus on wealth redistribution rather than the opportunity to engage freely in wealth creation, on compulsory, ever-more rigid education instead of free thought, on dividing society according to income instead of encouraging social cohesion… this focus provides supposed justification for the legal privileging and normative elevation of income pursuit and, therefore, enables subtle homogenisation and, ultimately, degradation of peoples’ capacity for free thought. Addressing income inequality through redistributive policies is, as is all too often the case with such proposals, conservatism in the guise of social liberalism.

A Regular Choice Between Voting Systems

With May's general election set to emphasise the shortcomings of First Past The Post more than any other in recent memory, Vishal Wilde posits that we should empower voters by allowing them to choose their electoral system as they vote, and by embracing plurality in electoral systems. Many eligible voters do not actually vote when the time comes for various reasons. One significant reason is for some is the belief that their vote doesn’t have a tangible impact on public policy or that the party they vote for might never come into power. The Liberal Democrats attempted to address this (albeit with their own gains in view as well) by having the Alternative Vote referendum of 2011 that was subsequently rejected by the electorate. However, the fact that 32.1% wanted to change to the AV system shows that a significant proportion of the electorate don’t think that the current system works effectively or fairly.

The problem is that not everyone will agree on one voting system but we might instead design and employ a voting system that amalgamates and integrates major voting systems simultaneously by allowing voters to pick a voting system and mark their candidate/political party choices simultaneously as they do so; then, the seats are allocated accordingly in proportion to the voting systems chosen and constituencies are redrawn as well.

This obviously sounds very different to what we have in place and it can be argued that this would make each vote unequal but the principle is simple: All votes would still be equal if each voter was given the same opportunity to determine how they would like their own vote to impact the political process instead of being wholly constrained to one single predetermined system – after all, why shouldn’t people be allowed to decide how they’d like their vote to count when they cast their vote?

Consider that the influence of each vote is clearly unequal in a system that is determined entirely by the first-past-the-post (FPTP) criterion? If people feel the need to vote tactically so that they don’t ‘waste’ their vote in constituencies where it is highly unlikely their preferred choice will ever come to power and, furthermore, if some people choose not to vote at all, everyone’s votes are unequal and not everyone has real freedom during the election process.

Suppose now that voters had the choice between PR and FPTP and that 40% of voters wanted PR whilst 60% of voters were content with FPTP. We might then say that 40% of the seats in Parliament would be PR whilst 60% of seats would remain FPTP (of course, this is applying the principle of proportionality where other principles might be applied but it will be apparent that when we amalgamate several voting systems into one, we can apply various principles and issues will persist with any one of them).

This would mean that those people who live in constituencies where their first choice of political party or candidate have no chance under the FPTP system would now have an incentive to vote (rather than abstain entirely) since they could vote for them via PR and, therefore, previously marginalised and largely powerless individuals from various constituencies would have a real impact on the way in which our parliamentary democracy functions.

For example, a political party that never wins under FPTP but which still has a sizeable support base across the country would gain seats despite the supporters’ dispersion because those voters may simply choose to vote PR whilst others in their constituency continue to vote FPTP. In this way, more voters would realise that their preferences can be properly accounted for and their time and vote will not be wasted on the day of the polls.

A potential problem here is that this would entail a constituency being divided in terms of whether they vote PR or FPTP and there might need to be a continuous redrawing of constituency lines in order to account for this (i.e, if very few people vote FPTP in a certain locality, their locality might be amalgamated into another, larger constituency so that they have an MP representing them. The complication here is the continuous need to redraw constituency lines and it would be difficult to agree on what to do here (of course, an algorithm can do this easily but the criteria under which it does this would be controversial).

However, this would mean that in many constituencies, many voters would benefit from an MP representing them due to the people who voted via the FPTP option despite the fact that they actually voted via the PR option. In fact, one could argue that if the constituencies are enlarged then there are more constituents per representative and this might diminish the quality of that MP’s service.

This problem could be dealt with in a variety of ways but one such way might be to assign some of the representatives elected by PR to various constituencies and actually have more than one MP for some constituencies. They might also be from different political parties to encourage competition between the MPs that may, therefore, improve political performance and incentivise efficient governance.

Of course, there are so many ways that we could increase the freedom with which people vote – for example, we could also allow people to choose between having a Presidential or a Parliamentary Government each time they vote a new government into power. In this way, voters would be able to choose between the different underlying moral principles that the various structures of government supposedly reflect.

Finally, the proposal to enhance the power of peoples’ votes might be rebuked on the basis of its being too complicated for people and this might make people less likely to vote in the first place. However, people would also have incentive to become more educated about the entire political process, different voting systems, various distributions of power, the moral principles underlying them and so on; via granting more choice about how their vote is utilised in the first place, there is increased incentive to self-educate.

Tactical voting will always exist, no matter what voting system we use but by granting the voter more freedom in terms of voting method, we can potentially ameliorate election turnout. So, a fundamental democratic principle can undergo innovation and be elevated to new heights when we simply apply the principle of freedom.

It will be apparent to the reader that I obviously haven’t worked out all the details, complications and practical considerations that empowering votes and, thereby, freeing the electorate would entail. Neither do I purport to know exactly what the fairest voting system would be. I do, however, believe that elections in which a significant proportion of the population think that the system must change to even make it worthwhile for them to vote simply undermines democracy. More freedom in voting will increase faith in democracy, improve political efficacy and ameliorate voter turnout.

This isn't a rerun of 1930s poverty

Just a small reminder that whatever you see being shouted over in The Guardian and other points left this really is not a rerun of the levels of poverty seen in the 1930s. It's possible that it's a rerun of the inequality of those days (although we would vehemently disagree with that), it's possible, what with Syriza and the Front National, that certain aspects of politics are like they were in the 30s. But it really isn't true that we're anywhere near anything like 1930s levels of poverty. Here's what Dr. Barnardo's calls living in poverty these days:

Families living in poverty can have as little as £12 per day per person to buy everything they need such as food, heating, toys, clothes, electricity and transport.

In 1930s Britain the Public Assistance Committees would provide 22 shillings a week for a family of five, two adults and three children (the PACs being the safety net after eligibility for the dole was exhausted) . That is £1.50 a day per person. Yes, that's after inflation, that is £1.50 per person per day in today's money and at today's prices.

Around here we do not wish either living standard upon anyone: not that £1.50 a day which is some twice the amount that the absolutely poor, the hundreds of millions of them around the globe, still live on. Nor that £12 a day of the poor in our own society. That's why we work to improve economic policy so that the poor do get rich. Through the only economic system that has managed it on a large scale for any length of time, free market capitalism.

But the important point we want to make here is that those two numbers are obviously very different indeed. Whatever else is happening in the UK of today it just is not true that we are getting anywhere near either the living standards or the poverty of 1930s Britain. To claim so is to be entirely ignorant of the facts.

The marijuana multiplier effect

Public sentiment is currently quite a way away from being conducive to drug-legalisation in its entirety. However, opinion concerning marijuana laws around the world is shifting and, since it is one of the most popular substances in the UK, legalisation (or at least decriminalisation) is certainly feasible. It’s worth examining some of the economic consequences of the oft-ignored behavioural implications of marijuana usage. So, besides the fact that many marijuana producers would open up, jobs would be created, marijuana would be safer, policing costs would decrease and there would be less crime, there are common behavioural symptoms of marijuana usage such as that which is colloquially referred to as ‘the munchies’, the medicinal, therapeutic effects and also the potential for enhancement of creativity.

The ‘munchies’ is characterised by increased hunger, thirst and a heightened sensitivity to smells and taste. This peculiar behavioural phenomenon often leads users to indulge in both a greater quantity and variety of goods that they normally would not. In fact, if marijuana usage was legalised then the increase in its usage would also be accompanied by an increase in the consumption of goods and services that are associated with the behavioural changes (or, at the very least, changes in patterns of consumption would occur).

There is also potential for an increase in productivity from the increased happiness or well being that could accompany marijuana usage since many would be able to fully enjoy the medical benefits (health being an obvious, important component of well being) and some would simply gain from recreational use. Incidentally, it’s noteworthy that Bhutan, the only country in the world that employs the Gross National Happiness measure, also has marijuana growing freely on the streets.  Productivity increases associated with well being amelioration (amongst other things) would improve the morale of the workforce and lead to a supply-side-based multiplier effect that increased output and, therefore, incomes across the economy (since happiness is contagious, after all).

Finally, the link between marijuana and creativity is controversial and debated but it is possible that there is something in the postulate that it enhances creativity. If this is true, then the legalisation of marijuana would help encourage divergent thinking and, thereby, help fuel innovation across various industries.

A miracle cure for central bank impotence

Are central banks ever unable to create inflation? The question may seem absurd – why would we ever want them to create more inflation? The typical answer is that deflation can be a lot worse than inflation. But this ignores the fact that prices can fall simply because we can produce things more cheaply. Falling oil prices mean cheaper production, which should mean cheaper consumer products. That's 'good' deflation.

But 'bad' deflation, caused by tight money, can be very harmful, and indeed is what Milton Friedman blamed the Great Depression on. A variant of this view, which looks at market expectations, blames expectations of deflation for the crisis in 2008. Those of us who think that nominal GDP is what matters – since contracts and wages are set in nominal terms – recognise that deflation can knock NGDP off-course and cause widespread bankruptcies and unemployment that would not have taken place in a more stable macroeconomic environment. (Free banking, say.)

So if inflation is sometimes desirable, when it prevents deflation (or collapses in NGDP), the power of the central bank to create it really does matter. That's where Paul Krugman and the Telegraph's Ambrose Evans-Pritchard have clashed. In response to Krugman's claim that central banks are impotent when their interest rates are zero, Evans-Pritchard writes:

Central banks can always create inflation if they try hard enough. As Milton Friedman said, they can print bundles of notes and drop from them helicopters. The modern variant might be a $100,000 electronic transfer into the bank account of every citizen. That would most assuredly create inflation.

I don’t see how Prof Krugman can refute this, though I suspect that he will deftly change the goal posts by stating that this is not monetary policy. To anticipate this counter-attack, let me state in advance that the English language does not belong to him. It is monetary policy. It is certainly not interest rate policy.

The piece is worth reading in full. I'm less convinced that 'helicopter drops' are actually needed now – if central banks said that they'd do as much conventional QE as it took to raise the inflation rate or NGDP level to x%, that may well be enough. But Evans-Pritchard's basic point that central banks are never 'out of ammo' is what counts.