Failing to spot that the problem with Ethiopia is....

Things are not going well in Ethiopia, this we know. Riots and protests erupt. This is not a good sign for a society. It's also very much a pity - not just for the usual reasons that violence is a pity - because Ethiopia is one of those places discovering the joys of the early stages of a lift off into the Industrial Revolution. They're taking those first baby steps to getting rich, that thing that we've all done and which has escaped all too much of the world until very recently.

What's happening is that those living on a piece of land, working it perhaps, are being thrown off it in favour of those doing something else with it. But why?

The Guardian tells us what is happening but doesn't quite manage to grasp that cause, even though they mention it:

All land is theoretically owned by the government, merely leased by tenants, and when the government says go, you have to go.

This is the problem that private property solves. OK, sure, you can construct a very rickety indeed case that all land is still owned by the Crown (it isn't, but) and that compulsory purchase equates to this. But that's not so - compulsory purchase means that you get paid at the market rate for having to move and then only in favour of a project which contributes to the public, not private, good.

But in a system where the government really does own all the land, and can allocate usage without reference to current occupiers, the end result is what we see in Ethiopia. Who gets to use the land depends upon access to the political system and those excluded riot as a result.

It might even be true that no one made the land so there's no reason why anyone should own it exclusively. Except that, as with democracy, all other systems are worse.

Absolutely not, no, no way ever

This is one of the more vile suggestions for public policy that we have seen in recent years. And the correct answer to the idea being put forward is absolutely not, no, no way ever.

Police forces raised more than £5 million last year by selling off a treasure chest of criminals' loot, including flash cars, luxury yachts, light aircraft – and even guns.

But now the windfall is at the centre of a political row as demands grow to allow forces keep more of the cash they get from such sales to fund frontline policing.

Currently, half of the proceeds are handed to the Home Office, with more money going to the courts and the prosecution service. But Thames Valley's police and crime commissioner Anthony Stansfeld said: 'I think we should have it all.'

We object to the basic idea, that property can ever, let alone should be, confiscated without conviction in a court of law of an actual crime other than having some property whose financing cannot be proven.

But we also do actually have a good example in front of us of what happens when incentives are aligned, as they are in the US. There police forces do indeed keep most to all of property taken. And the effect is that the population is subject to legalised plunder. As the ACLU, the IfJ, Cato and others continually point out.

Policing for profit is not something which has a place in anything approximating to a liberal polity. Those who do the confiscating must never be those who gain from the confiscation having been done.

Absolutely not, no, no way ever.

It's not obvious that the Mail has understood Corporation Tax

We're not quite sure whether to be amused here at the lack of knowledge or to beat our heads on the keyboard at the, err, lack of knowledge. For the Daily Mail has decided to give us a listing of companies not paying what they think is the correct amount of corporation tax.

They start by getting one thing right: 

All retailers are supposed to pay corporation tax — a levy on company profits, currently at a rate of 20 per cent but falling to 19 per cent next month. 

It is, as they say, a levy upon profits. We might want to add the tiny detail that it's upon cumulative profits but it is still a tax upon profits. At which point they have a go at Vodafone and EE:

Vodafone

Corporation tax: Nil

It’s because Vodafone handed over exorbitant sums to the Blair government for 3G licences, and set aside those costs and other investments against its earnings here.
 

EE

Corporation tax: Nil

But even though it registered big sales and profits in 2015, it wasn’t liable for corporation tax because, like Vodafone, it has carried forward costs from the £8 billion it invested in 3G back in 2000.

That is, neither firm has been paying corporation tax because they haven't been making any profits. The reason they've not been making profits is because they've already given all of the money to the government anyway.

In these days when we're all being told that we must be vigilant against the threat of fake news we can't help but feel that the legacy media might up their game a bit.
 

If women disproportionately suffer from austerity then they must have disproportionately benefited from the previous system

This is not something which we insist is right or wrong, something that should be or not, it's just a logical truth which we think is worth pointing out:

Labour has urged the Conservatives to carry out a gender audit of its tax and spending policies, as the shadow equalities minister, Sarah Champion, published analysis showing that 86% of the burden of austerity since 2010 has fallen on women.

Champion said research carried out by the House of Commons library revealed that women were paying a “disproportionate” price for balancing the government’s books.

Leave aside even whether there has been any austerity (spending seems to keep on going up after all) and whether, if there has been, there should have been. Concentrate instead just upon the logical implications of this:

In total, the analysis estimates that the cuts will have cost women a total of £79bn since 2010, against £13bn for men.

It shows that, by 2020, men will have borne just 14% of the total burden of welfare cuts, compared with 86% for women.

If cutting that welfare state means that women are getting less out now then that obviously means that before the cuts to the welfare state then women were getting more out.

No, we don't know either what is the correct split between taxing everyone to benefit women and taxing everyone to benefit men is. We might even point out that as men make the higher wages they get taxed more to boot. But that is still the correct question to be pondering. Not how much has that distribution to male and female changed but what is the righteous and just structure of that distribution in the first place?

The Treasury and the self-employed

The Adam Smith Institute has had many a run-in with the Treasury over the issue of self-employment. Fundamentally we like self-employment and they don't. They deny that, of course, but their actions over the years evince their attitude. They try to have as many as possible classified as employed rather than self-employed, and have moved whole categories of workers from the latter camp into the former.

It is easy to see why they take this position. Tax is easier for them to collect if the employer sends it off under PAYE.  It takes longer for a self-employed person to assess what they owe and to send it off.  Furthermore, the self-employed have legitimate deductions if they, for example, use part of their home as an office.  The Treasury prefers to get its money the easy way, without taking into account the effect it might have on individual lives or on the economy as a whole.

One group of Treasury officials actually suggested that all wages should be paid by employers direct to HMRC, who would then graciously remit to employees the sums they were due to be paid after tax.  It is illustrative of a mindset that sees all money in the UK as belonging to the Treasury except that which they generously hand out to its citizens. They actually refer to not taxing the wealth in our bank accounts as a "tax cost."

We like self-employment because it provides space for independence and for scope for entrepreneurship. It is an engine of growth and it creates jobs. Self-employment has helped prevent our jobless totals from ballooning after the 2007-2008 Financial Crisis. It is, for many, a step on the way to realizing the dream of owning and running their own business.

The Budget of March 2017 was a political miscalculation of the highest order. It broke a clear manifesto commitment and will be thrown at every future promise the Conservatives make. No less importantly, it hits the very people we should be trying to encourage. The self-employed are the aspirational, the upwardly mobile, the people who will create tomorrow's jobs and tomorrow's wealth. For them to face higher National Insurance sends the wrong signal. 

The reduction in tax-free dividend income is a further blow to people setting up and managing their own businesses. These two measures look like Treasury spreadsheet thinking that likes neat rows and columns. The self-employed pay less National Insurance than their employed counterparts, true, but they receive far fewer social benefits in return. 

MPs with political intuition have understood what a political disaster these twin measures would be, and implementation has been delayed pending consultation. It is not too late for the government to listen to objections and abandon the measures. It has happened before.

As Shell sells its oil sands it calls for a carbon price

As regulars around here will know we've rather annoyed everyone over this past decade. The point being that there's such a head of steam about climate change that the science doesn't particularly matter, something is going to be done. We've thus been insisting that if something is to be done then it should be the sensible thing, a carbon tax to provide a price for emissions.

At which point we get the news that shell is selling its oil sands operations:

Royal Dutch Shell has agreed to sell most of its carbon-heavy Canadian oil sands assets for $8.5bn (£7bn) as the chief executive warned that the industry risked losing public support without progress towards cleaner energy.

We would happily wager that that's little to nothing to do with emissions and all about money - we're really very sure that it is the folding stuff which motivates. As something much more akin to a manufacturing process shale is still getting ever cheaper and that changes the economics of high fixed costs production like sands, or even the larger deep sea or Arctic projects. The oil world has changed.

However, this part hasn't:

Van Beurden said that the transition to a low carbon energy system would take decades and government policies including putting a price on carbon emissions would be essential to phase out the most polluting sources of energy such as coal and oil.

Quite so, if we want to - and note at the top, we're saying that something will be done, not that necessarily something need be done - change behaviour in this manner then the method to use is putting a price on that externality. A carbon price, a carbon tax. As Nordhaus, Stern,. Quiggin, Tol, Weizman, Mankiw and every other economist on the issue insists.

If anyone actually wants to implement a solution then we know what the correct solution is.

Yes, we know there's a problem now let's get on and solve it

There is, to our mind, much too much attention paid to, reporting of, symptoms rather than the root cause. And it's only when the root cause is correctly identified that it is possible to come up with a solution:

Vulnerable tenants are being pushed out of the housing market as cuts to benefits and rising costs mean rents are “increasingly out of step” with household incomes, a leading industry body has warned.

Yes, we know this. We also know that student loans are a problem as their existence means that yuppies cannot buy a house because houses are so expensive. And unemployed people cannot move to London where the jobs are because housing is so expensive. And we can't keep key workers in expensive areas of the country because housing is so expensive. And there's a wealth generation gap opening up of those who can afford expensive housing through inheritance as against those who cannot because housing is so expensive.

And variously people have told us that we should have a higher inheritance tax to close that wealth gap, that key workers should have a special scheme for cheaper housing, that something must be done to aid the unemployed in moving and student loans must be changed so that yuppies can buy and then here, that something must be done about housing support for those on benefits.

All of which are to try to treat symptoms. It's as if a doctor were to note a severe rash, fever, headache, neck stiffness and intolerance to light and set out to treat each. Skin cream for the rash, aspirin for the fever, ibuprofen for the headache, a neck brace, a darkened room and so on. Instead of getting to the root cause and starting to treat the meningitis.

Not treating that root cause is entirely ineffective as well as likely leading to the death of the patient.

And so it is with housing. The common point here is that housing is too expensive. We do not want to construct some rickety apparatus to deal with each, nor even any, of the symptoms. We want to excise the original problem ,the expense of housing. And we know how to do that. Restricted supply means high prices, that's one page one of each and every textbook. The answer is thus to build more housing.

We have no shortage of land we only have a shortage of land that can be built upon. May be built upon is perhaps better. Mischa Balen sorted that out for us over a decade ago. Just let people build houses on the land they'd like to build houses upon.

Or as we tend to put it these days, blow up the Town and Country Planning Act and successors.

Response to Aidan Byrne on British Academia

Aidan Byrne of the Plashing Vole blog has written an article criticising the report I wrote for the Adam Smith Institute about the political views of British academics. 

Most of the first half of his article concerns the figures I cited from the THE poll and A.H. Halsey’s book. Since I have already responded to a separate critique of that aspect of my report, I will not repeat myself here. Suffice it to say that, even if the figures from the THE poll are off, they are unlikely to be off by enough to alter the conclusion that the British academy has a sizable left-liberal skew. In this regard, it is noteworthy that Byrne purports to speak for the entire academy in censuring my report:

A new report from the Adam Smith Institute on so-called left-wing bias in academia has been making waves over the past week. It has already largely been written off in the sector as lazy, unevidenced, ideological puff [emphasis added]

That “the sector” could already have “written off” my report as “ideological puff” would be rather surprising if there were a substantial number of conservative or right-wing academics. Here, Byrne implicitly admits that the British academy has a left-liberal skew.

Before getting to Byrne’s other substantive criticisms, it is necessary to make a few corrections. First, I am not affiliated to the Adam Smith Institute, other than via having written this report for them. Pace Byrne, the ASI’s funding sources are therefore completely irrelevant. I was simply asked by my friend Ben Southwood, the ASI’s head of research, to write a paper on a germane topic that interested me. Second, Byrne claims, “It’s bad enough that Noah Carl was paid to produce this stuff”. This is completely false; I was not paid anything to write the report. Third, Bryne describes me as a “white male author from a country governed by a white male billionaire”. Technically, this is true, since I am half-American. But I do live in the UK, which is currently governed by a white female non-billionaire.

Back to Byrne’s substantive criticisms. First, he completely misrepresents scholarly opinion on the subject of IQ, writing:

Point 2 depends on Intelligence Quotient scores, as though IQ isn’t thoroughly discredited as anything other than a measure of how people perform on IQ tests

And later in the article, he writes:

IQ is a load of cobblers often promoted by rather unpleasant people who have a habit of moving from IQ scores to theories of racial difference, by which they almost always mean superiority

Contra Byrne, IQ is one of the most valid, reliable and predictive variables in all of social science. It has not been thoroughly discredited. Rather, it has been continuously excoriated by scholars who view it as a threat to left-wing objectives. As Steven Pinker notes in his book The Blank Slate, these scholars are guilty of what’s known as the moralistic fallacy: “It would be bad if human intelligence could be quantified using a single number; therefore it cannot”. Three excellent overviews of intelligence research are: Arthur Jensen’s The g Factor, Ian Deary’s Intelligence: A Very Short Introduction, and Stuart Ritchie’s Intelligence: All that Matters. Indeed, Byrne cites Richard Nisbett’s Intelligence and How to Get It as if this were the final word on the subject. Yet that book has itself been subject to sustained criticism: by Rushton & Jensen in the Open Psychology Journal, as well as by James Lee in Personality and Individual Differences.

Second, Byrne accuses me of attacking a straw man by “by wondering out loud whether academics are left-wing because they’re more intelligent”. Yet I cited several previous studies that have entertained precisely this hypothesis (please see pp. 6–7 of my report).

Third, Byrne erects his own straw man, suggesting that––by discussing the so-called status inconsistency hypothesis––I was accusing left-wing academics of being “bitter purveyors” of the “politics of envy”. To quote myself:

the left-liberal leanings of academics may derive from a peculiarity of their social-class positions, namely that they receive low incomes relative to their advanced educational attainment and rich cultural capital

I should note that I did not originate this hypothesis. Rather, it goes back to the work of Erving Goffman, Alwin Gouldner and Pierre Bourdieu. Byrne goes on to claim, “There’s no evidence, but Carl’s just going to leave it there for you to think about.” Once again––contra Byrne––I cited the work of Neil Gross, who found that a measure of status inconsistency made a modest contribution to explaining the liberal views of American professors.

Fourth, Byrne subtly accuses me of racism a number of times. In fact, he mentions “the Nazis”, “Jim Crow” or “racial superiority” an impressive seven times during the course of his ~2,800 word article. Then, about two thirds of the way down, he rather bluntly states:

The true purpose of Lacakademia becomes clear. It isn’t really about the sociological curiosity of imbalanced political views amongst academics. It is about academic rejection of theories of racial superiority.

I would assure Byrne that I am not a racist, but I very much doubt that such an assurance would convince him, given his evident talent for reading racist motives into scholarship. However, in order to assuage any concern the reader might have that I am a fulminating, hood-wearing, cross-burning member of the KKK, I will note that the only sentence of my report in which race differences were mentioned simply stated:

When Charles Murray published his book the ‘The Bell Curve’, which, in one chapter discussed studies of race differences in intelligence, he was roundly excoriated for allegedly trying to demonstrate that blacks were genetically inferior to whites, an accusation that is 15 still levelled at him 20 years later [link added]

Fifth, Byrne includes the former Harvard president Lawrence Summers in his line-up of “racial superiority theorists”. I should point out to Byrne that he has the wrong ‘ism’ here: Summers was accused of sexism not racism, as I note on p. 14 of the report.

Sixth, Byrne claims that I failed to provide “any contextual analysis”. Indeed, he asks “What of the shift in the UK to student fees, to managerial over-reach, to the employability agenda?” Once again––contra Byrne––I explicitly discussed the issue of student fees, writing:

Because they now have to pay hefty fees upfront, students are increasingly treated like consumers, rather than prospective scholars, so that when they demand restrictions on free speech, universities supply those restrictions accordingly

In summary, I was not paid by the Adam Smith Institute to write the report, and fail to see the relevance of their funding sources to any discussion of my report’s veracity. I reject the accusation that I am a “racial superiority theorist”. And, finally, I would point out that one does not have to be conservative or right-wing to be concerned about the extreme left-liberal skew seen in some academic disciplines. Heterodox Academy, an American organisation set up to promote intellectual diversity within the academy, boasts many progressives and centrists, as well as conservatives and libertarians, among its membership.

Ann Pettifor tells us all about the magic money tree

Ann Pettifor takes to The Guardian to tell us all about....well, it's supposedly about International Women's Day but it's actually about the Magic Money Tree.

Despite all these obvious differences, government budgets are deemed analogous (by economists and politicians) to a household budget.

Standard, absolutely middle of the road, economics does no such thing. It does simplify the arguments into the demotic to get points over to the populace, entirely true, but it simply isn't true that economist equate government and household budgets. There are chapters in each and every textbook detailing why it would be wrong to do so.

 If the economy slumps (as in 2008-9) and the private sector weakens, then like a see-saw the public sector deficit, and then the debt, rises. When private economic activity revives (thanks to increased investment, employment, sales etc) tax revenues rise, unemployment benefits fall, and the government deficit and debt follow the same downward trajectory.

In those same textbooks that's usually under the subject of "automatic stabilisers." This is again absolutely standard, mainline, economics.

 Because government spending (unlike a household’s spending) has a big impact on the economy, governments can use loan-financed investment to expand tax-generating employment – both public (for example, nurses and teachers) and private sector employment (construction workers). Both nurses and construction workers will return a large part of their incomes into the economy through spending, benefitting the private sector. Thanks to the multiplier effect, that spending will generate VAT and corporation tax revenues – for repaying government debt.

That though is Magic Money Tree stuff. Certainly, some of that happens but Pettifor and others take it too far. Some even (R. Murphy for example) insisting that it costs nothing at all to employ a State worker. Because the tax that comes back from having done so entirely covers the cost of their employment. If this were so of course then we'd never have to tax the private sector in order to pay for the public one, would we?

Today this framing of the debate is at odds with reality. After the financial crisis, the Bank of England injected £1,000bn into the private finance sector to prevent systemic economic failure. And after the shock of the Brexit vote, the Bank unveiled the “Term Funding Scheme” as part of a £170bn “stimulus package”aimed at the private finance sector. The money was “public money” offered at a historically low interest rate – to bankers. It was not raised by cutting spending, and it was not raised from “your taxes”, even while its issue was backed by Britain’s taxpayers.

And there we have the second incarnation of the Magic Money Tree. We can just invent money and spend it! Which we indeed can. Again this is entirely standard and mainstream economics. It is called monetisation of spending. Printing money to go and spend it that is. This can be done, this has been done, many a time. Two notable recent examples are Zimbabwe and Venezuela. The result was massive inflation - that in Zim being such that the value of the last 100 trillion $ notes off the press were not high enough to purchase the ink for the next run.

We have indeed done QE but there are two points to that process, firstly it's exactly because we haven't gone off to spend it in the real economy that hasn't caused that inflation. Secondly, QE is reversible and the Federal Reserve and the BoE have been very clear about how they will reverse it. When the time comes they will stop purchasing more bonds to replace those maturing, a process which will destroy again that excess money.

The problem with Pettifor's radical economics is that it isn't in fact radical at all. All of her assertions are dealt with within the entirely standard economics structure.  Or as we might put it, no, really, sorry, there is no Magic Money Tree that we can reliably use.

At least Polly gets the basic underlying argument correct

We are not, as regular readers will have noted, great believers in the perspicacity of Polly Toynbee, the grande dame of the British left. However, when she does get something right it's worth pointing out that she has got something right:

They plan to cut the size of the state permanently to 36% of GDP, from 45% in 2010. New faces in No 10 and 11 Downing Street are only casting changes for the same old script, ideologically identical. How far can they go? That’s the only question: with an 18-point poll lead they may imagine nothing can stop them squeezing the breath out of public services – except hubris.

Of course there's more than just a tad of rhetorical hyperbole there but she is right about one point, the underlying basic one. This is ideologically driven.

Different people have different ideas about what makes up the good society. Sorting through whose ideas should be enacted is the purpose of democracy. We've had a number of elections in recent decades and the pendulum has swung between those different visions. Government, public spending, that state, was about 35% of GDP when T Blair and G Brown took over and they ramped it up to over 40%. That was an ideological move, their vision of that good society was one closer to the Nordic social democracy than what had pertained before.

As Polly herself has noted we Brits tend to like the idea of that Nordic state but we're really very unhappy about having to pay for it through the necessary taxation. And so the pendulum has swung again to those with the vision of a slightly smaller state, one that might be described as closer to the more traditional Anglo-Saxon model. 

We can all make arguments in favour of one or the other variant and we ourselves continually make those for the case that significantly smaller than 35% is a better vision. However, to advance one or the other, or any variant, is not an act of hubris - it's to lay out a vision of what the good society is.

What ails Polly is that currently the British people do not agree with her ideas on the point. Ah well, that's democracy for you.