If we could just remind: Incentives matter
The first big stand out message of economics is that incentives matter. The only other one of any grand importance is that there are always opportunity costs. We would all hope that those who rules grasp at least the first of these - asking politicians to know two things might be a bit too hopeful after all. This does not appear to be the case.
One example:
Nearly a million young people are not in education, employment or training (Neet). Over the past six months as Work and Pensions Secretary, I’ve heard some of their stories – and what they have told me should concern us all.
The minimum wage has been raised, making employing the young, untried and untrained, more expensive. The NI limit reduced, the ability to fire - sorry, release - those who don’t work out reduced and so on. The incentive to give the young a fair shake at employment has been reduced. Therefore fewer get that shake. This is not complicated even as it appears to come as a surprise.
Or:
The House of Lords has struck down the government’s controversial proposal to direct where pension schemes invest, handing Rachel Reeves' Treasury a significant defeat.
The government had sought to give itself a controversial "reserve power" in the Pension Schemes Bill, which would allow it to direct where pension schemes invest, in a bid to boost U.K. and private assets.
Near three decades back pensions funds lost their tax credit for investing in British shares. Since then they have been reducing their investments in British shares. Incentives matter - this is not complicated.
There’s also the more general point. The general consensus is that we do desire much more investment in Britain. At the same time as the howling mob is demanding confiscatory taxation of the result of having invested successfully - wealth. That’s really not going to work and this is not a complicated idea either.
As ever we’re fine with people differing on what is the Good Society, the thing that is to be aimed at. We’ll argue our corner on that quite happily too. But we really do have to insist that there are some immutables that all need to grasp. Prime among those is that incentives matter. Absolutely nothing at all sensible is going to come from any attempt at economic policy that doesn’t grasp that simple and basic fact about us humans.
Tim Worstall