How terribly amusing from the European Commission

There's a great deal of shouting from the European Union about the taxation of digital business. An insistence that really, such companies must be paying more tax where value is added. Which is, of course, how the system currently works. Most of he value is created in the US, given that's where all the programmers are, and that's where it gets taxed, under US rules. Really - profits cannot be paid out to shareholders until US profit taxes are paid.

This doesn't satisfy European politicians of course as they want to be able to spend that revenue. Thus the shouting. However, in the course of their reasoning they let slip something terribly fun, an agreement, an admission perhaps, that we shouldn't be taxing corporations at all:

In the field of taxation, policy makers are struggling to find solutions which would ensure fair and effective taxation as the digital transformation of the economy accelerates. There are weaknesses in the international tax rules as they were originally designed for "brick and mortar" businesses and have now become outdated. The current tax rules no longer fit the modern context where businesses rely heavily on hard-to-value intangible assets, data and automation, which facilitate online trading across borders with no physical presence. These issues are not confined to the digital economy and potentially impact all businesses. As a result, some businesses are present in some countries where they offer services to consumers and conclude contracts with them, taking full advantage of the infrastructure and rule of law institutions available while they are not considered present for tax purposes. This free rider position tilts the playing field in their favour compared to established businesses.

Not paying corporation tax is an advantage to those who don't pay it as against those who do. Which is what we've been saying about corporate and capital taxation all along. If you tax corporations then there will be less investment in them in your economy. This makes everyone poorer - the deadweight costs are high. This is indeed exactly the same reasoning which leads us to insisting, as a result of optimal tax theory, that we shouldn't be taxing the corporations at all.

Which is interesting, even amusing, don't you think? The EU's justification for why they just must tax companies is the very reason basic theory says we shouldn't be taxing corporations at all.

We're struggling to see what the problem is quite frankly

We're aware that we might not be quite in tune with the zeitgeist here but we do find it difficult to understand what is the problem here:

The ranks of Queen’s Counsel are the elite of the legal profession’s advocates. To take silk — so-called after the silk robes worn by the 10 per cent or so who attain the initials “QC” — is a passport to status and higher earnings. So who gets it, and how, matters.

Yet despite fundamental reform in 2005 to end the system’s reliance on judges’ comments and the lord chancellor’s decisions, women still do not put themselves forward in anything like the same numbers as men.

As it happens women seem to achieve this exalted rank in about the same proportion as they put themselves forward. The portion of newly appointed QCs that are female also seems to be about the same as the the portion of those lawyers of the appropriate seniority who are female.

We'd thus start with the idea that the appointment of QCs isn't a problem. As the analysis goes on, what is actually happening is that rather more of the women - than the men - who qualify to be lawyers don't progress in their careers to the point where they might be considered as QCs. Yes, obviously, family life and children.

That is, those who take the career breaks - or, as is mentioned, restrict their travel or activities for the same reason - to raise their children tend not to reach the upper reaches of the profession. We are really quite certain that the same would be true of men who took such breaks, restricted their activities in such a manner.  

Which is why we can't see what the problem is. Those who strive for the brass ring seem to have, whatever their gender (and the same seems to be true of ethnicity), the same opportunity to grasp it. Which is about what we would hope society did and does. People should indeed have the liberty, even the right, to organise their lives as they wish, to pursue their own goals. That's rather what being a liberal means and we're most definitely that, liberal.

That those who don't work nose to the grindstone for 20 years don't become QCs does not worry us. For the same reason that those who do not qualify as lawyers don't become QCs does not worry us. People make choices in life, they get to enjoy living as they wish. But, as ever, making one choice does rather preclude some other outcomes - opportunity costs do always exist of course.

The ASI at Tory Conference: cannabis, vaping, clubbing and winning over Millennials

Let's face it, Conservative Party Conference can get a bit stuffy. But that's definitely not the case when it comes to the ASI's conference fringe line-up. We're discussing issues that really matter on topics that are often neglected, but vitally important if you care about a free society.

We're hosting three events inside the secure zone (that means to attend you'll need a conference pass) over the Monday and Tuesday covering e-cigarettes, cannabis legalisation and winning over young voters with free market policies.

On the Monday we've got two panels. The first (at 1pm-2pm in the Stanley Suite at the Midland Hotel) will cover how innovation (and not nanny state regulation) has been the driving force behind millions quitting smoking, and what we can do to ensure that more people can benefit from innovations like e-cigarettes. Regulations from Brussels are threatening the harm reduction revolution, imposing silly rules on vape canister sizes and preventing vendors from fully informing customers that e-cigs are (at the very least) 95% than tobacco.

We've got a great panel for it. Media GP, Spectator Columnist and author Dr Roger Henderson will be speaking about the public health divide on harm reduction. Roger probably knows more about giving up smoking than anyone else, indeed he's been the face of NHS stop smoking campaigns. He'll be joined by Christopher Snowdon, who's work as Head of Lifestyle Economics should be known to every reader of the ASI blog. Chris is a fierce opponent of the nanny state and a strong critic of the EU's Tobacco Products Directive. He vapes. Representing the ASI will be Sam Bowman, our Executive Director. He's a big advocate of Sinnovation, the idea that innovations in vice products like heat-not-burn cigarettes could have massive benefits for public health and reach people who'll never sign on to a public health campaign. Also from the ASI will be our Director, Eamonn Butler who'll be chairing the panel. Given the sheer number of people who suffer from smoking-related illnesses and the massive prospects for e-cigs to dent that, this could be the most important discussion you will see at Tory conference. For more info, click here.

Sticking with the harm reduction theme, we've partnered once again with Volteface, Britain's best drug reform think tank on an event (4pm to 5pm - Central 3) entitled 'how to stamp out street cannabis'. We'll be talking about how cannabis legalisation can address the drug problems that Conservative voters really care about. Just as alcohol prohibition led to stronger booze, no ID checks and violent crime, so to does the legal fudge on cannabis. States in the US that have legalised cannabis have been able to regulate purity and strength, force sellers to check IDs, and tax it to pay for drug treatment. 

We've got a great panel to discuss what we can learn from the US and Canadian experience. Crispin Blunt MP (a former criminal justice minister) will be speaking. He's always worth listening to, especially since last year he declared his support for full drug legalisation at an ASI party conference event. His experience on the foreign affairs select committee gives him a unique perspective on the harms of cannabis prohibition. Joining Crispin will be Steve Moore who's the Director of Volteface. Steve's, one of the few drug reformers who really gets the need to win over and address the concerns of Conservatives as well as liberals. He's a true expert on drug policy. Rounding out the panel will be Sam Bowman, who's been leading the ASI's drug reform push. For more info, click here.

Cannabis and vaping lead in nicely to our third secure zone panel on Tuesday, 'The Millennial Manifesto: how to win over young voters' (4pm - 5pm - Central 3, ICC). Young voters opted for Corbyn's socialist agenda at an overwhelming rate. If the Tories are ever going to win another majority they'll need to have a message that appeals to young people. We've already chipped in to the debate with Dr Madsen Pirie's Millennial Manifesto grabbing headlines with policies that cut taxes, build houses and prioritise mental health. 

Our panel will tackle the issues that young voters care about and make the case that the Conservatives change to win over the young. Dr Madsen Pirie, President of the ASI will make the case for his Millennial policy agenda. Alongside Madsen, will be the ASI's former head of comms and current IEA News Editor, Kate Andrews. Our Head of Research Ben Southwood will be joining the fray making the case that bribes won't work and that the only real way to win over young people is to start building more houses. Grant Tucker, Diary Reporter for The Times will be chairing the panel. For more info, click here.

As well as our secure zone panels, we're doing an invite-only one outside the secure zone at a nearby music venue on Tuesday at 6pm (email samd@adamsmith.org if you want a place) on a new approach to 'preventing club drug deaths'. Clubbing may not be the first thing you think of when you hear the words Conservative Party Conference, but with the Conference returning to Manchester, a city that can claim ownership of clubbing culture like no other in the UK, it is a perfect fit for a debate on the opportunities and the threats to the industry.

We'll be discussing how to prevent club drug deaths and how innovative harm reduction solutions like The Loop's Multi Agency Safety Testing are having a real impact. Working with Volteface and The Night Time Industries' Association we've assembled an incredibly cool panel.

We've got Paul Staines (aka Guido Fawkes) chairing the panel, who before becoming the most feared voice in Westminster stood up against anti-rave regulations with the Freedom to Party campaign. We've got Volteface's Policy Director, Henry Fisher, who's heavily involved in The Loop's drug testing. Alan Miller, Director of the Night Time Industries Association will be making the case against excessive regulation of venues, and Sacha Lord Marchionne, founder of Parklife and The Warehouse Project (Manchester's superclub) will be talking about how venues can be a force for good by working with the police and groups like The Loop. If that wasn't enough, we've also got The Loop's Director Prof Fiona Measham joining us via videolink from New York.

It's sure to be a cracking couple of days.  If you'd like more info or to request a place at our club drugs event, then send an email to samd@adamsmith.org

Once again the NHS is evidence of Baumol's central contention

Or as we should put it, the NHS is evidence of both of Baumol's central contentions. The first is that one that many know, the Cost Disease. As technology marches on it is easier to increase productivity in manufacturing rather than services. But wage rates are set by average productivity across the economy thus services will rise in price as against manufactures over time. The NHS is largely a service and this then explains the NHS having an inflation rate above that of the general economy.

We're perfectly happy with that basic analysis by the way, we just don't think that it explains all of the NHS' higher inflation rate. However, here's the other of Baumol's major contentions coming into view:

Maternity wards have done ‘very little’ to prevent serious medical errors in the past 20 years, a damning report warns.

Babies are today just as likely to suffer brain damage as a result of blunders made by midwives and doctors as they were during the late 90s.

Midwives are failing to properly monitor heartbeats and junior doctors are attempting to perform complex deliveries with no previous experience.

The report by NHS Resolution – the health service’s legal body – examined 50 cases where the health service admitted liability for babies being born with cerebral palsy, a form of brain damage, between 2012 and 2016.

That other major contention being about invention and innovation, those things which lead to those increases in productivity in the first place. The two, the Cost Disease and the creation of innovation making up a unified whole. 

His observation being that governments and planned systems can do invention just as well a market and competitive systems. However, they are considerably worse at innovation, the gradual and continual refinement of processes so as to increase that productivity. Actually to the point that entirely planned systems, like say the Soviet Union, manage to make no, none, advance in such innovative productivity even while they can indeed invent satellites and so on.

Productivity here is clearly the amount of labour being used in maternity wards as against the number of children damaged by errors on those same wards. Fewer damaged would be an increase in productivity.

The point is not that the errors happen - no human based system is ever going to be free of those. Rather, that there has been no improvement in this planned system over the decades. Exactly Baumol's point, planned systems don't manage to do this.

Rather why we should indeed be having a market - even if government funded - in health care, yea even in the NHS. It's for the children, you see?

Which groups are most affected by minimum wage increases?

A new NBER paper released last month examines how minimum wage increases in the U.S. affect employment in low-skilled automatable jobs. Consistent with the majority of papers on the subject, it finds that low-skilled workers (high school diploma equivalent or less) holding such jobs become unemployed as a result of minimum wage increases.

As the authors explain, many papers examining the effects of increasing the minimum wage focus on teenagers and restaurant workers. However, this study aims to shed light on how other subgroups are disproportionately affected by minimum wage increases:

...the perspective we adopt in this paper suggests there may be subgroups of workers among those groups not usually considered in the minimum wage literature who may be adversely affected by minimum wages, because they tend to be employed in automatable jobs.

My colleague Sam Bowman has previously explained what elasticities mean in the context of the minimum wage debate: “an elasticity of -0.5 means that a 1% rise in the minimum wage is associated with a 0.5% fall in employment for the affected group.” Although the paper measures the effects of a minimum wage increase in a different way, the corresponding elasticities can easily be calculated.

Overall, the estimated elasticity for low skilled automatable jobs is -0.08: a small but negative effect on employment. However, the effects are markedly more pronounced for older workers (age >40) in automatable jobs and their young counterparts (age ≤25). In the case of automatable service industry jobs, low-skilled young people saw an elasticity of -0.28, with the figure for older workers being -0.22. Older manufacturing workers faced an elasticity of -0.19. Younger manufacturing workers fared even worse, with an elasticity of -0.53.

The authors also find that women in automatable jobs are more likely than men to become unemployed as a result of minimum wage increases. For men, overall elasticity was -0.09. For women, it was -0.13.

As for those low-skilled workers that managed to hold onto their automatable jobs post-minimum wage hike, the paper finds a decrease in the amount of hours worked:

...a $1 increase in the minimum wage generates a 0.23 decrease in hours worked for low-skilled individuals who held an automatable job in the previous period. The decline is negative and statistically significant in manufacturing, transport, wholesale, retail, and services (sometimes only at the 10-percent level).

Perhaps the most interesting finding is that the effects of minimum wage increases on automatable jobs seem to be getting larger over time. The Bureau of Labor Statistics dataset used by the authors runs from 1980-2015, but using data from 1995-2016, the authors find a noticeably higher disemployment effect (an overall elasticity of -0.27). This is hardly surprising; as technology advances, the cost of substituting labour for capital goes down. But there is now empirical evidence to support the claim that the disemployment effects of the minimum wage are getting worse over time.

Of course, this is just one paper in a sea of economic literature on the effects of the minimum wage. But it’s worth remembering that even if the minimum wage doesn’t kill jobs, or lower overall hours worked among the least well-off, it may still hurt the poor in other ways.

We confess to finding this amusing rather than worrying

Boris is being shouted at over that £350 million figure and perhaps he should be and perhaps he shouldn't. But it takes Mr. Polly Toynbee to tell us that this is a constitutional crisis:

The Boris Johnson affair – especially his dismissive rejection of the UK Statistics Authority – provokes a constitutional crisis. Not constitutional in the formal sense of the workings of parliament and the Crown, but in the spirit and procedures of Whitehall.

The head statistics bod tells us and Boris that £350 million might not be the correct number, could even be a misleading statistic.

We will confess that we don't monitor the slapdowns that head statistics bods give to Ministers but we do recall just the one earlier example, Harriet Harman and various Labour Ministers talking about the gender pay gap. A number then wrongly used by Gloria del Peiro some years later, also by the EHRC. We're absolutely certain that there are examples of Polly repeating it.

What we don't recall is The Guardian (except in that piece by one of us) pointing this out and we most certainly don't recall anyone, not even us, describing it as a constitutional crisis.

No, not worrying, for we are far too mature in years to even dream that people would use statistics to illuminate rather than obfuscate in politics. We're also well aware that if politics didn't have double standards it wouldn't have any standards at all.

Tu quoque is indeed a logical error but it is amusing when it can be pointed out.

Coal kills people apparently - sadly, so does everything else

What is assumed to be a top and trumping argument from Australia:

Coal kills people. This isn’t even slightly scientifically controversial.
From the mines to the trains to the climate disruption; from black lung to asthma, heat stress to hunger, fires to floods: coal is killing people in Australia and around the world right now.

Yet we are once again having what passes for political debate about extending the life of coal-fired power stations and, extraordinarily, building new ones.

It's entirely true that the mining of coal, the use of it, does indeed kill people. But this is not a top and trumping argument, because everything kills people. Solar power kills people, nuclear does too (rather fewer in the second case but still), hydro has killed hundreds of thousands in catastrophic failures, people have been falling off windmills since at least the 12 th century AD in Western Europe when the technology first arrived.

Not having energy also kills people. Having only expensive energy kills people.

Every method and mode of producing energy kills people, every method of organising the economy kills people as does not having an economy organised in any manner, every mode and method of life kills people too. What matters is which kills the fewest and the answer is that, yes, coal kills people, rather fewer than not having any energy. That's actually our entire problem with climate change, that emitting or polluting energy sources have their downsides, but so does no or expensive energy.

But we would really reserve our ire for this misunderstanding:

In capitalism, we have created the first social organising principle based on selfishness, the first system to make greed, competition, non-cooperation its credo.

Capitalism, or if you prefer, global markets - which is what is being complained about here - enables the some 5 billion of us (some 2 billion are still as yet, and sadly, not quite plugged into the global economy) to cooperate with each other to our ever greater enrichment. To insist that the one system which enables that widespread cooperation is based upon non-cooperation is indeed a misunderstanding. Perhaps one so egregious that it rises to the level of idiocy.

Airbnb and discrimination

I have repeatedly blogged about discrimination, especially against women and non-whites in labour markets. On raw numbers we often see different outcomes between groups, and since we know that discrimination goes on, we often instinctively attribute these "gaps" to discrimination, as Tim Harford does in an otherwise nice piece here. But once we dial down and get more detail, the gaps often evaporate—the more employers or clients have about individuals, the less they use averages about groups.

Three recent papers looking at room rental service Airbnb find things that point towards a similar conclusion. The first, by Ben Edelman, Michael Luca and Dan Svirsky (pdf) finds that applications from guests with distinctively African-American names are 16pp less likely to be accepted. It looks like an instance of straightforward discrimination, but the authors don't test for alternate possibilities (e.g. controlling for crime rates or socioeconomic status what is the effect of race), so it's impossible to say for sure. However, they do find that African-American hosts accept African-American applicants at the same rate as white hosts, implying sheer racism is unlikely to be the explanation—although of course it very reasonably may not feel that way to black Americans unable to find a room.

A second paper, from Morgane Laouénan and Roland Rathelot (pdf), also finds a raw gap between races, but they have the sorts of data that can distinguish between bigotry and statistical discrimination. Guests demand ethnic minority hosts' apartments less—resulting in prices 3.2% lower on average—but when minority hosts have reviews on the system this gap mostly goes away. It is not completely overturned, and guests do seem to have some sort of "taste" for same-ethnicity hosts, but this forms a relatively small portion of the gap, less than a quarter. They hypothesise that an even better feedback and information system would narrow the gap further.

Finally, a third paper, from Ruomeng Cui, Jun Li, and Dennis J Zhang (pdf) finds the same thing. Absent reviews, people discriminate against groups based on lower intra-ethnic trust, and facts like average crime rates. But as reviews accumulate—even bad ones that are not that bad—the gap falls towards zero. They call on platform owners like Airbnb to more strongly motivate reviewing to add information and shift judgements from "coarse grained" info like averages towards things centred on the individual.

As I said above, statistical discrimination may not feel fair. Yes, it's based on true facts (or it's driven out) and yes it's efficient (in the absence of better info), but it still judges you not like an individual, but like an average of your observable characteristics. But, satisfyingly, increasing info seems to work, driving out even statistical discrimination through robust endogenous incentives. People aren't incorrigibly discriminatory, they just need more data.

Immigrants are taking our jobs, but..

The government has targeted low-skilled workers in the recently leaked government papers, suggesting a restriction on the amount of foreigners in low-skilled occupations. The paper insinuates that low-skilled immigrants are not valuable to the country because they don’t make existing residents better off. The argument consists of beliefs that UK wages are being driven down and that UK jobs are being taken away from natives. This is a common fallacy in the public debate and I beg to differ. Here’s why:

A paper from 2016 written by Mette Foged and Giovanni Peri looks on the longitudinal data from the period 1991 to 2008. Throughout that period, Denmark experienced an immense inflow of low-skilled workers from Bosnia, Somalia, Iraq and Afghanistan and it therefore gives Foged and Peri a good foundation to assess data from this period.
The three main findings in their analysis are as follows:

First, the increase in refugee-country immigrants pushed less educated native workers to change occupation. [...]  Second, less educated natives experienced positive or null wage effects and positive or null employment effects. [...] Third, as we compare a cohort-based analysis and an area-based analysis we find that the direction and magnitude of the effects on native outcomes are similar using either method and the wage and specialisation effects persist in the long run.

Nonetheless, it’s true that immigrants are taking native jobs. However, it’s not because of the reasons normally stated in the public debate. Rather, it’s because immigrants basically forces natives to be mobile and specialise themselves and thus gain entry to a higher paying job. Therefore, immigrants are stepping onto the lowest step on the ladder while pushing the natives upwards in the process.

Although, the paper states that there is not necessarily a positive change in natives’ wages, but there is not necessarily a negative effect as well. If there are any positive effects, they occur after three years and are permanent afterwards.

The reason for this potential gain in wages is explained in another paper and is complementary to the paper referred to above.
It too suggests that native workers are able to generate higher wages through specialization. According to this study, production consists of different kinds of skills. Immigrants who are less educated have a comparative advantage when it comes to physically demanding tasks, whereas natives of the same level of education have an advantage in tasks demanding better communication and language skills. Therefore, when the increase in physical labour supply pushes native working to a job demanding better communication and language skills, the natives are rewarded through their wages.

As it turns out, immigrants can in fact be an asset in the future and make the current residents better off. The leaked government proposal therefore seems to be projected at addressing the concerns of the public rather than actually looking at the reality of things.

Our Executive Director, Sam Bowman, wrote an article on this a few years back. If you enjoyed this piece, have a look at his piece as well.

The right is to blame for the proliferation of dangerous leftist eco-nonsense

“This changes everything” is perhaps the leading siren call in the face of climate
change. For a certain sub-genre of leftist, the existence of environmental issues
means only one thing. Capitalism, modernity, growth, consumerism, and
industrialism are to blame, and a paradigm shift is necessary to save humanity
and the earth. We must embrace a zero-growth, or even degrowth, economy with
significant central planning and curtailment of consumption. The alternative is
global catastrophe.

This is, of course, absolute nonsense. As Tim Worstall has pointed out in
response to George Monbiot’s opportunistic take on Hurricane Irma, a grandiose
quixotic paradigm shift in values and economic organisation is entirely
unnecessary. The answer to climate change, and indeed pollution, lies in the
market price system generally and intelligent policy, such as a carbon tax,
specifically. Other free market policies, such as deregulating nuclear energy and
removing subsidies for fossil fuels, are also viable and important tools for
mitigating climate change. Likewise, imposing specific environmental
regulations does not amount to “changing everything” much as banning dumping
toxic waste in rivers is not some kind of refutation of the profit motive.

These are not merely alternative solutions to the problem. The puritanical-
luddite route of demonising consumerism is a grotesque vision, even if it could
work. Whilst the likes of Monbiot may relish a poorer, more regimented, and
guilt-fetishizing world, I’d suggest that most people would not. In any case, even
if prices cannot take account of environmental risk this is no way implies that
central planning has been vindicated. In lieu of prices there is no way, at all, of
assessing value at an economy-wide or global level, let alone of organising
efficient allocation.

So, why do the worst kinds of environmentalism gain so much traction? Simply,
for far too long, far too many on the right have endorsed or enabled denialism
and a caricatured version of the case for free markets. I dislike the term “market
fundamentalism”, but the resistance of some libertarians to any role for
government has caused significant damage to our cause. Pigouvian taxes to
internalise and correctly price externalities are not socialism or anathema to a
free market economy. Preventing or reducing activities that impose on and harm
others is not a violation of self-ownership or inherently illiberal.

Some measure of skepticism regarding climate change is not necessarily
misguided. When data was less comprehensive and there was less of a scientific
consensus, it was right to treat claims of catastrophe with caution. Likewise, the
fact that there is a serious risk of environmental damage does not mean that any
proposed solution should just be accepted without taking account of other
factors, such as the wider economic implications of said policy. Nevertheless,
verging into conspiratorial thinking and amateur attempts to debunk the bulk of
climate science is in no way laudable.

Failure to engage with addressing, and minimising the magnitude of,
environmental problems is, of course, damaging in its own right. It has also left
the door open for uninformed and outright dangerous agendas, which gain
traction in a relative vacuum. Making the case for serious solutions that are
compatible with prosperity and liberty has been made considerably harder by
this context.