Economic Nonsense: 41. Immigration is bad for the economy

Many argue that immigration harms the economy.  Some suppose that immigrants are attracted by welfare, and come to live off benefits at the taxpayers' expense.  Others assert the contradictory claim that "they come here to take our jobs."  Schrödinger's immigrant, like his cat, seems to manage two states simultaneously.  Some point to the pressure on services and resources, with immigrant children filling classrooms and their sick taking up hospital beds and lengthening waiting times to see doctors.

The reality is that most immigrants are young and ambitious, coming to better their lives.  They are overwhelmingly fit and looking for work.  Many of the jobs they take up are ones whose low pay and long hours do not appeal to the native population.  Most do not draw benefits or take up hospital space.  In some sectors they help fill skill shortages, and many UK businesses clamour for more educated and talented foreigners to be allowed in.

The work they do adds to our GDP and boosts growth.  The taxes they pay boost our public finances.  Most immigrants have shown some drive in being prepared to move to a new country to improve their lot.  Some have scraped up cash to finance their trip.  Some have taken risks on their journey.  They constitute a huge net plus to the economy, not a minus.  

It is true that in some areas, particularly if they concentrate, they can put pressure on local facilities.  A minority seeks to retain a culture that sits ill alongside the tolerance and liberalism that Britain has developed over its history.  These are indeed problems, but they are ones that can be addressed and dealt with, and some are temporary rather than long-term. 

Immigrants do one more positive thing for the economy.  Most countries in Europe face declining and ageing populations, and will encounter difficulties if there are not enough young people in work and paying taxes to support the elderly with appropriate services.  The UK population is not declining, and it is immigration that is making the difference.  Far from constituting a problem, it is in this case a solution.  

Only government can screw up markets this badly

A quite lovely piece in The Observer awailin' an' a moanin' about how cocoa is rising in price, which will make chocolate a luxury good, yet also complaining that the cocoa farmers aren't making enough to continue farming. We usually suspect that a rising price will feed through into a better income for producers so that's that problem solved then. Indeed, it's difficult to work out how it could be otherwise:

“In the next five years the price of chocolate will skyrocket, and we should think about it as very much a luxury,” said Alejandro Litovsky, founder of consultancy Earth Security Group. In a recent report, Earth Security forecast a cocoa shortfall of a million tonnes by 2020.

Scary, eh?

The chocolate industry is reaping the harvest of poor working conditions and rock-bottom prices in the cocoa heartlands of west Africa, a situation that is driving potential farmers out of the industry in droves.

But it's horribly difficult to understand how we can end up with both happening over time. Rising prices for the beans, and thus the chocolate made from them, will mean that farming those beans will produce a higher income and thus keep farmers in the process or attract more to it.

Unless, unless, of course, there's something screwing up that market mechanism. Ah:

Local investment is hampered by high taxes on farmers, with around 40% of the money paid by commodity buyers going to the government.

Ah, the government is taking a whacking great tax wedge out of the cocoa trade. Meaning that the transmission process of consumer prices to producer prices is prevented in part. And thus we have our problem, the market not working becuase of that governmental intervention.

This isn't all that much of a surprise either. Cocoa farmers in West Africa tend to be poor rural peasants. Political power in such countries comes from the rather richer urban voters. Thus the incentive is for government to sting the farmers and spend the money in the urban areas. This has in fact been going on since Ghana became independent under Nkrumah. There the mechanism was to set the exchange rate very higher. This benefited the urbanites, from whom political power flows, who were able to import at reasonable prices, and hit those rural farmers exporting the cocoa cash crop.

So it appears that there really is something wrong in the cocoa market. That is, there's too much government and not enough market going on. We do, of course, support the campaigners who are bringing such abuses to our attention. But we'd be a great deal happier about it if they could manage to divine accurately what the problem actually is:

But campaigners argue that manufacturers and retailers should do much more. “If the five biggest chocolate companies spent 1% of the $86m they spend on marketing on the Ivory Coast, they could train and support half of the farmers there,” Mechielsen says. “Where are the priorities of those companies?”

Why not suggest that the government lower that taxation rate so the market can have the room to breathe and work?

Introducing the climate deniers at the Renewable Energy Foundation

John Constable of the Renewable Energy Foundation finds that he gets attacked for being something he is not:

Work like this has caused a flurry of unease in certain circles. REF has been falsely accused of hiding its donors, while our new Energy Institute – established with the University of Buckingham – has been branded a “front” for climate sceptics. The Independent quoted one academic who called me a “doubt-monger”.

We feel the pain, we've been accused of similar things ourselves. So, what is it that Constable suggests?

But it also means that there has to be a clear economic signal, which I think is best provided by putting a consistent, economy-wide price on carbon, probably through a carbon tax with corresponding offsets in other taxation. This would be flexible, so economic harm could be kept under control, and it would be technology-neutral, allowing the economy to gravitate towards the cheapest ways of reducing emissions that human ingenuity can discover.

That is also what we have been suggesting this past decade. And it's extremely surprising to be told that we're climate deniers for doing so. For this was, of course, the major recommendation of the Stern Review itself. That source document that everyone is using to tell us that something must be done. Stick on a carbon tax at the social cost of carbon emissions, reduce other taxes to compensate and she'll be right. Perhaps sprinkle a bit of R&D fairy dust tax money around the place as well.

This is not an odd view, is not some denial, it's the straight up mainstream view. We could get everyone from Bjorn Lomborg through Nick Stern, Bill Nordhaus, Richard Tol all the way out to James Hansen to sign on to this. Yes, there's technical arguments about what the social cost is but the basic structure of what needs to be done is evident to everyone who has spent more than 30 seconds thinking about the economics of this.

But then, of course, it's when the economics profession is most united in their view of a matter that no one else takes a blind bit of notice, isn't it?

A most interesting argument about the housing market

We might also term this an interesting installment in our "How to lie with statistics" course. From the Green MEP for the South East:

Perhaps as a result, the south-east has seen the biggest rise in rough sleeping levels with a shocking 96% overall rise since 2010. And in 2013/14, no new social housing was built at all by the region’s local authorities.

This represents a massive political failure to serve the interests of our communities.

Well, no, not really. Here are the numbers for housing completions in Britain. What you will note is that council building of houses is, as is stated, pretty much non-existent. That's because we changed the way we did this, moving over to social housing being constructed by social housing associations, rather than councils directly. We can still argue, of course, that more of these should be built. But the way that number has been quoted leaves the impression that no social housing is being built: when some 25,000 units were last year, at least some of which will be in the South East.

Then there's this which is a most ugly idea:

This should be implemented alongside a “right to rent” policy. Homeowners who are unable to meet their mortgage payments and are under threat of repossession would have a right to transfer ownership to the council, at less than market value, in exchange for the right to remain in the home and pay rent as council tenants. This would stop people living under threat of eviction and in fear of not being able to make next months rent.

This is equivalent to compulsory purchase of the property by the council. And given that it's at less than market value it is a confiscation from the holders of the mortgage. It's flat out theft in fact.

That then has an interesting knock on effect: if the security of a mortgage is to be called into question in this manner then all mortgages will cost everyone more. Further, quite apart from this, negative equity is not eradicated upon the sale of a property. The total amount is still owed to the mortgage holder. so this solution doesn't even solve that problem of people being in negative equity.

Yes, this is election season and all sorts of barkingly mad things are proposed at such times. But really, this could do with a bit more thought.

Economic Nonsense: 40. Too much wealth is owned by too few people

Underlying the claim is an assumed egalitarianism.  How much is "too much" and how few is "too few?"  Obviously those making the criticism have some concept in their minds of how they would like to see wealth distributed in society, and it seems they would prefer a more equal distribution than is currently the case.  The obvious question is "Why?"  The answer often given is that this would be 'fairer', but since they seem to define 'fairer' as 'more equal', this is not very helpful.

It does not help, either, that many of these measures of inequality only count certain forms of wealth.  Many people in the UK see equity in housing as their main source of wealth.  For some it is pensions.  Many assessments of wealth distribution, on the other hand, only count assets and investments, and thus miss much of the wealth owned by ordinary people.  Few if any seem to count entitlements to such things as health and education as part of measured wealth, even though they undoubtedly improve the living standards of the average citizen.

It could be argued that societies with an unequal distribution of wealth are able to increase wealth faster, and that poorer people in those societies become richer more rapidly than those living in more equal societies.  To poorer people it matters that they are able to command more resources.  It matters less to them that software multi-billionaires have widened the gap between them and made society less equal.  

Part of the reason this criticism persists is envy, the resentment that some have more, yet aspiration is often motivated by the observation that some have it better.  The success of others can inspire the desire to emulate instead of simply envying.

The false zero sum game probably plays a role in this criticism, the notion that because some own so much, the rest must make do with less.  In fact wealth in constantly being created, and creating wealth is a far surer route out of poverty than redistribution.  Instead of envying those richer than themselves, people would be better advised to try to copy them.

Come and work for the ASI in your gap year!

It's that time of year again: the ASI is looking for two new employees, to start in September 2015, and stay for 4-9 months. Our current crop—Sophie and Nick—are not quite finished (they are staying for the Summer before they go to Edinburgh and Cambridge respectively). But we are opening applications nice and early to make it easy for everyone to plan their gap years.

As last year, the crucial requirements are that you:

• Are on a gap year; you must be 18-20
• Are open-minded, inquisitive, friendly, intellectually curious, eager to learn and interested in policy
• Know and have an opinion on the ASI's perspective and what it does
• Have a broadly liberal perspective on the world

Your duties will include:

• Organising lunches and dinners
• Keeping the database up-to-date
• Managing the blog
• Reviewing and editing ASI publications
• Selling ASI merchandise
• Doing secretarial work for the directors
• Logging RSVPs for events
• Meeting a wide range of interesting & important people
• Learning about social & political science
• Socialising with the staff
• Carrying out self-directed research
• Writing blog posts
• Setting up and cleaning up after events
• Mailing out publications to subscribers

Previous interns have gone on to work with the Adam Smith Institute, including the ASI’s current Deputy Director, Sam Bowman, and Head of Digital Policy, Charlotte Bowyer, who was a Gap Year intern in 2009-10.

The role pays the National Minimum Wage. All applicants will interview with President Madsen Pirie and Deputy Director Sam Bowman at the Adam Smith Institute offices in Westminster during the summer.

Please send a CV and cover letter of around 500 words to gapyear@old.adamsmith.org by May 1st 2015.

Iceland's new money and banking proposal. Yes, why not?

Iceland is considering a new report which would rather radically change the banking system of that country:

Iceland's government is considering a revolutionary monetary proposal - removing the power of commercial banks to create money and handing it to the central bank.

The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

"The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said.

The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

To be honest, the report (which can be read at that link) is little more than a rehash of the proposals of Positive Money. And worth about as much as such a rehash is going to be. It's worth pointing out that Julian Simon was actually correct, human ingenuity, and the knowledge it produces, is the ultimate resource. And given that Iceland's population is some 300,000 people there's not a great deal of it natively. We have noted around here more than once the problems that stem from trying to extract decent economic ideas from the rather larger population of Norfolk as an example.

The basic idea is that as banks create credit, credit creation is behind boom and bust, put credit creation into the hands of the government and abolish boom and bust. We don't think that that's how it will work out. Rather more likely is that politicians will follow the incentives of being able to spend this newly created money without having to tax to gain it and the result will be high and persistent inflation.

However, we're absolutely delighted that someone undertakes the experiment. Actually, we're delighted that someone else undertakes this experiment. Good luck to them say we. And we'll come back in 20 years, see whether there's been that abolition of boom and bust, been that persistent inflation or not, and then we can make a decision about whether to follow or not.

Economic Nonsense: 39. Only strong government regulation can hold big business in check

It isn't strong government that causes concern for big business.  They are more worried about the smaller, newer businesses that might take away their trade.  It is competition, not government that they worry about.  Big business often cozies up to big government.  It employs lobbyists to negotiate with civil servants and ministers, and hammers out agreements on what types of regulations should be introduced, and how they should be implemented.

Big business can cope with regulation.  It can afford the staff to deal with compliance.  Small businesses, especially start-ups, find it more difficult to afford the money or the staff time that regulatory compliance takes up.  Big business knows this, and often strikes deals with lawmakers to impose regulation that will deter newcomers from entering the market.  Far from it being used to control big business, regulation often helps big business by imposing unacceptable costs on its real or would-be competitors.  People speak of "regulatory capture" when the industry works with government to secure helpful regulation.

Some regulation is needed to reassure the public that it will not fall victim to sharp practice or shady dealing, but five words should be engraved above the door of every legislator: "Competition is the best regulator."  It is competition that keeps firms striving to deliver high quality and keen prices.  The fear of losing trade is more powerful than the fear of incurring the displeasure of government.

Regulation is commonly used to protect those in the market from competition by those who might enter it.  If no-one can trim hair without training and a certificate, the prices charged by existing hairdressers will not be undercut.  If no one can enter the taxi trade without a medallion or a two-year training course, the fares charged by existing cabbies will be protected.  All rules like these are done in the name of protecting the public, but in reality it is the established operators that they most commonly protect.

To control big business government should pursue a policy of promoting competition.  It should make it easier, not harder, to enter established markets.  This, more than regulation, will keep firms attentive to their customers.

Blithering stupidity about electronic cigarettes

Sometimes we just despair for the human species. Perhaps it might be time for us to resign and make way for intelligent life. Such is our reaction to this latest report about electronic cigarettes:

E-cigarettes need to be more strictly controlled to stop teenagers using them, health professionals have argued.

The call was prompted by new research showing that 19% of 14-17 year olds have tried the products despite them only becoming available in recent years.

An analysis by researchers at Liverpool John Moores University found that the e-cigarettes were used by 5% of teenagers who had never smoked, 50% of former smokers and 67% of light smokers.

Or as the BBC reported:

Many teenagers, even those who have never smoked, are experimenting with e-cigarettes, researchers in north-west England say.

Questionnaires completed by 16,193 14 to 17-year-olds, published in BMC Public Health, showed one in five had tried or bought e-cigarettes.

The researchers said e-cigarettes were the "alcopops of the nicotine world" and needed tougher controls.

The truth is, of course, that these results show that electronic cigarettes are an entirely marvelous product that are likely to save many lives in the future. Yes, lots of teenagers are using them. But what is the effect of their using them? As one of us has pointed out elsewhere:

That halving of teen smoking rates coincides with the invention and introduction of vaping (overlaps at least, the first devices really came in 2007). And other studies show very much the same thing. People use vaping equipment instead of smoking, not as a gateway to it nor does vaping increase smoking prevalence. It is thus a substitute, not a complement. As such of course it is to be greatly welcomed.

Electronic cigarettes lead to less smoking of cigarettes. Thus, far from our wondering about whether we ought to regulate them more the actual discussion should be about whether they are quite so wonderful that we ought to be subsidising them.

Young Writer on Liberty Competition 2015

  The Adam Smith Institute invites the under-21s to enter our annual 'Young Writer on Liberty' competition.

This year’s theme is: The road not yet travelled: Three paths the next government should take towards a freer United Kingdom

This is not a typical essay contest. Instead, entrants should submit three, ASI blog-style articles, each highlighting a different policy the incoming government (whoever they may be!) should adopt to make the UK freer, richer and happier.

You may argue to get rid of certain regulations, or a repeal a specific law. You might suggest reform of the banking system, the right to sell organs for money, or a move to direct democracy. You might even call to abolish politicians completely! No idea–however radical–is out of the question.

We are looking for entrants who can think creatively and express themselves clearly and succinctly. As such, winning entries will be thought-provoking, well-argued, and suitably researched.

Prizes: There are categories for the Under-18s and the 18-21s, with a winner and a runner-up in each.

The winner of the Under-18 category will receive £150 prize money and a box of liberty-themed books. They will also have their articles published on the Adam Smith Institute blog.

The winner of the 18-21 category will receive 2 weeks work experience at the Adam Smith Institute, £150 prize money, a box of liberty-themed books, and have their work published on the ASI blog.

Runners-up in each category will also receive a box of books, and have an article of their choice featured on the website.

How to enter: You should submit your three articles using our Young Writer on Liberty submission form.

The deadline for entries is 11.59pm on Friday, May 15th. Applicants must be under 21 on this date.

If you have any questions or queries, please contact schools@old.adamsmith.org

We look forward to reading your entries!