The Guardian

So who did cook Adam Smith's dinner then?

The portrait of Adam Smith’s mother above has been published here with the kind permission of her owner Rory Cunningham

The portrait of Adam Smith’s mother above has been published here with the kind permission of her owner Rory Cunningham

Much excitement over in Grauniadland as a new book comes out talking about why that economically rational man so beloved of us neoliberals could not ever be the economically rational woman. Because, you know, women do all that caring and cleaning and stuff for love, not for reasons of calculated rational self-interest:

But a polemical and entertaining new book by journalist Katrine Marçal suggests that Economic Man has another major shortcoming: he’s not, and never could be, a woman.

Hmm. The book's blurb says:

It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest When Adam Smith wrote that all our actions stem from self-interest and the world turns because of financial gain he brought to life 'economic man'. Selfish and cynical, economic man has dominated our thinking ever since and his influence has spread from the market to how we shop, work and date. But every night Adam Smith's mother served him his dinner, not out of self-interest but out of love. Today, our economics focuses on self-interest and excludes all other motivations. It disregards the unpaid work of mothering, caring, cleaning and cooking. It insists that if women are paid less, then that's because their labour is worth less - how could it be otherwise? Economics has told us a story about how the world works and we have swallowed it, hook, line and sinker. Now it's time to change the story. In this courageous look at the mess we're in, Katrine Marcal tackles the biggest myth of our time and invites us to kick out economic man once and for all.

The contention is entirely poppycock of course. For we can only make sense of gender roles and how they have changed within that very concept of economic rationality. The work of Gary Becker explores this world, where the decision to form a family for example, is explained in those rational economic terms. In a world reliant upon human muscle power to feed itself (ie, all of history until the tractor) there was obviously going to be a gender divide in who did what. And as the biologists tell us it really does take two to raise a family (historically one agricultural labourer could produce enough in a year to feed 1.7 to 2.3 people in total). So many other things about men and women only make sense if there is a division of labour (as Smith repeatedly pointed out, this is the basis of wealth creation) and trade in the subsequent produce. "Hunter Gatherer" as a decription of pre-agriculture societies is in itself a gender distinction of roles on the grounds of comparative advantage (which is all about David Ricardo).

We might also look at the work of Amartya Sen and Joe Stiglitz on the Sarkozy Commission. One of the questions they considered is what is the economic value of that unpaid household production that women tend to do? Given that it is undifferentiated labour (while there is that gender divide the specialisation and division rarely extends beyond two people) then it should be valued at the undifferentiated labour rate: minimum wage.

So two of the founding figures of economics address exactly this point, Smith and Ricardo, three Nobel Laureates point out the implications and then some journalist comes along to shout that of course economic rationality doesn't apply to women?

Yes, we'll probably file that under poppycock.

Quite apart from anything else it's impossible to explain the changes in society in the past century without using that structure of economic rationality. Why have fertility levels fallen so much? Because children now generally survive into adulthood, the name of the game is to have grandchildren, thus one needs fewer children to have them. Why have male happiness rates stayed largely static while female ones have fallen as they gain ever more choice over their lives? Because having more choices means that the opportunity cost of making any single one of them rises. Why have female paid working hours risen? Because automation has meant that the gender division of labour based upon muscle power is no longer useful.

You simply cannot explain this modern world without that assumption that we're all, men and women together, acting as economically rational beings to at least some extent. For, as Marx pointed out, the level of technology determines social relations: the inventions of the reasonable cooker, the microwave, the vacuum cleaner, the washing machine, the steam iron and so on quite killed off the servant class just as one example.

Sorry, but the concept that there's a male world which is economically rational and a female one that isn't is simply poppycock. Otherwise we wouldn't be in a world where one female journalist writes about a book by another one instead of them both being tied to the domestic treadmill in that game of producing grandchildren.

A rousing defence of private property in The Guardian of all places


This is all rather Dr. Johnson in a way, as with seeing a woman preacher. It's that thing with a dog walking on its hind legs: not to see the thing being done so well but to see it being done at all. So it is with Aditya Chakrabortty and his tale of how some council house tenants in East London are being railroaded.

What is powerlessness? Try this for a definition: you stand to lose the home where you’ve lived for more than 20 years and raised two boys. And all your neighbours stand to lose theirs. None of you have any say in the matter. Play whatever card you like – loud protest, sound reason, an artillery of facts – you can’t change what will happen to your own lives.

Imagine that, and you have some idea of what Sonia Mckenzie is going through. In one of the most powerful societies in human history – armed to the teeth and richer than ever before – she apparently counts for nothing. No one will listen to her, or the 230-odd neighbouring households who face being wrenched from their families and friends. All their arguments are swallowed up by silence. And the only reason I can come up with for why that might be is that they’ve committed the cardinal sin of being poor in a rich city.

It's as if the assembled plutocrats of the planet are descending to feast upon the bones of good honest working class Brits, isn't it? So, who are the villains here?

Sonia lives in one of the most famous landmarks in east London. The Fred Wigg and John Walsh towers are the first things you see getting off the train at Leytonstone High Road station; they hulk over every conversation on the surrounding streets and the football matches on Wanstead Flats. Since completion in the 1960s, they’ve provided affordable council homes with secure tenancies to thousands of families. Named after two local councillors, they are a testament in bricks and mortar to a time when the public sector felt more of a responsibility to the people it was meant to protect, and exercised it too.

And so they must go. Last month, Waltham Forest council agreed on a plan to strip back the two high-rises to their concrete shells, rebuild the flats, and in effect flog off one of the towers to the private sector. In between Fred and John, it will put up a third block.

Difficult to think of a more rousing argument in favour of private property and against council housing really, isn't it? If you owned the home you lived in, or if the tenants collectively owned the building (as is common enough in buildings of flats) then they, the people who lived in that housing, would be able to control what happened to that housing.

Given that they don't, that it is owned by the local council, they have no such rights. They are subject to the whims of whatever turnips in red rosettes the local Labour Party put up for election. This isn't an argument in favour of "democratic control" of housing or anything else, is it? It is however a very strong argument in favour of private ownership, that private ownership which protects property from such "democratic control".

Chakrabortty doesn't quite manage to spot that logical conclusion to his argument, so we cannot say that he's done it well. But it is still interesting to see this argument in The Guardian, as with the dog on two legs.

Zoe gets horribly confused about the difference between charity and taxes


An alternative headline for this would be since when did Zoe Williams become a libertarian? For she's managed to get herself horribly confused over the difference between charity and taxation.

It is impossible to devise good tax policy on the basis that reasonable people don’t want to pay it and have to be either coerced or conned into doing so. .... You cannot collect tax unless you believe in tax; likewise you cannot pay tax gladly unless you love it, not for the useful stuff it might buy but in itself. This is seen as a political impossibility. But why? Tax is no more and no less than an investment in the future.

What is being described there is charity, not tax. And any good libertarian would rub their hands with glee at the idea that we should all be paying only what we voluntarily wish to pay for the good of our souls and of the society at large. And it's also a goodly part of the classical liberal point that if taxation were lower then there would be more charitable giving as we all gladly would alleviate the suffering of our fellows.

Quite how this got published in The Guardian I'm really not sure. For she really is insisting that we should be forking out only that amount that we love to: and let the coercive aspects of the State demanding money from us go hang. At which point, if that really happened, quite a lot of us would have to pack up and go home, job done.

Think of it another way. I'd certainly be happy enough to pay, voluntarily, for, say, food banks which feed the hungry in their time of need. Come to think of it, where I actually live, I do (and the fire and ambulance service in fact). It's the paying for the State professional class that reads The Guardian that I'm not so keen on the State forcing me to do. So, let us bring on Zoe's system forthwith! Tax is only what we will voluntarily pay, as with charity. All we're left with now is the thorny question of what on earth Zoe would do for a living....

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.

It's a pity to see Larry Elliott going off the rails


We always thought that Larry Elliott was a little oasis of comparative sanity over at that small part of The Guardian that has actually heard of the basic concepts of economics. So it's something of a pity to see him coming off the rails over the desirability of limited liability:

Finally, there’s the nuclear option: stripping companies of the protection provided by limited liability. The owners, the shareholders and those running companies wield enormous power but don’t bear full responsibility for their actions because their liability is limited to the size of their investment in a company or partnership. But limited liability is a privilege not a right, and in return for granting it society should get something back in return. The argument the Thatcher government used when it said employers could sue unions for damages caused by strikes was that there was no such thing as a something-for-nothing world, and the same argument applies to companies.

The deal should be that companies get the protection limited liability provides in return for looking after all their stakeholders: the workers they employ, the customers they serve, the companies that form their supply chains, the taxpayers who pay for the transport infrastructure and the education system that businesses require. The deal should not be limited liability in return for boardroom greed, running rings round the taxman and breaking the law.

As Prem Sikka said in this series, any change to limited liability would be fiercely resisted. But even the suggestion of change would concentrate minds. Imagine, for example, that a future government set up a royal commission to look into the issue. Would this lead to companies treating their staff better and paying more tax? You bet it would.

Limited liability has been called the third great invention, after agriculture and the scientific method. That might be rather overegging the argument but we do face Chesterston's Fence here. We shouldn't be thinking about removing something until we've worked out why it was introduced in the first place. And the reason we have limited liability isn't particularly because it's a necessary feature of capitalism, neoliberalism, corporatism or any other -ism that might currently be unfashionable. It's because it's a necessary precondition of having any large scale economic activity.

Some economic projects require the mobilisation of the assets of tens of thousands to tens of millions of people. Or some reasonable fraction of those individual assets. And it doesn't matter, for our argument here, whether that's done through the State, a workers' coop, a capitalist style corporation or any other method. If all those thousands to millions are to be held jointly and severally liable for all of the risks of however many projects their assets support then that mobilisation simply will not happen. Limited liability is simply a precondition of being able to have large scale projects undertaken.

So Prem Sikka is howling at the Moon here but then we knew about the Professor's tendency to do that already. what's disappointing is Elliott's support for the argument. For Elliott is missing something we've mentioned around here a number of times. The value to us of an organisation that produces things is not in the tax they pay, the wages they cough up, the manner in which they treat their suppliers. The value to us of a producing organisation is in what they produce. And, as above, limited liability allows large scale producing organisations to exist. And that's the benefit that we the wider society get from it.

Nothing else is necessary.

Someone's lost their marbles here and it's not us


This little video by Owen Jones over on The Guardian's website simply has to be seen to be believed. It starts out with a reasonable enough analysis of property prices in London. They're high, perhaps it might be a good idea if they weren't so high and so on. At which point it might be useful to start thinking about what might be done. Perhaps more properties could be built for example, that seems a reasonable enough idea. Prices do rise when there's not that much supply and increasing supply does tend to have the effect of reducing prices. But of course this is Oor Lad Owen so someone must be to blame for this. And who does he blame? The politicians who don't seem to be addressing the problem very well? The bureaucrats who don't issue enough of the planning chitties? Us, the citizenry for having the temerity to desire somewhere to live? Nope, the enemy is apparently property developers. Yes, that's correct. The people who actually build housing are the declared enemy. He's not saying that they're just not building enough, nor that they're building the wrong type or anything. He is quite flat out stating that those who build housing are the wrong 'uns in this campaign that desires more housing. That the solution to his claimed problem would actually be to have more property developers developing more properties just doesn't seem to occur to Jones. Entirely bizarre.

Today's prize for economic illiteracy goes to Aditya Chakrabortty


This is painful, even for The Guardian, even for the history graduate that writes their economic leaders:

This is what the Centre for Research in Socio-Cultural Change terms “social licensing” in its latest book, The End of the Experiment. The academics’ suggestions have been followed by one council in north London, Enfield. Officers and researchers sat down and worked out how much money its 300,000 residents sent the way of big businesses: 11 Tesco stores, for instance, provided the PLC with around £8m of its annual profit. And what did the area get back? Not very much, but the highlight included a community toilet scheme and some charitable giving from the supermarket’s corporate social responsibility department.

And so the council has started asking big businesses, such as utility firms, what they had done for Enfield recently. They’ve begun hassling banks to lend more to local businesses, the likes of British Gas to give more of their local work to local contractors with local staff – or run the risk of being named and shamed in the local press. It may sound small, but imagine if the same approach were taken by Holyrood or Cardiff – or by Westminster.


To take that example of Tesco, so what did Enfield get back in return for that £8 million of profit? Given supermarket profit margins it got a couple of hundred million pounds worth of groceries. Something that's rather more important that piddling around with the community lavvies you might think.

This idea that the value to us of what an organisation does is in what it does not produce is simply insane. The value to us of a producing organisation is in what it produces. The value of Google to us is that we get to Google, the value of Starbucks to us is bad coffee and the value of Tesco in Enfield is that people have somewhere to buy their loo roll and something to eat. And it's absolutely no use trying to insist that a supermarket isn't providing value: if it wasn't the good people of Enfield wouldn't be spending £200 million a year there, would they?

Try to think about this rationally for a moment. The NHS provides absolutely nothing towards local loos for local people, pays not a bean in taxation and yet most would agree that it does provide something of value. Perhaps not as much value as the same amount spent in another manner would but we do indeed value the fact that it occasionally manages to treat patients. The value to us of the NHS is in what the NHS produces: medical treatment. The value of Tesco to Enfield is in what Tesco produces. Why is this so difficult for people to understand?

The lesson of not being able to find sandwich makers in Northampton


It would, of course, have to be The Guardian that manages to get the story of looking for sandwich makers in Hungary completely arse over tip. We mean, of course, come on, it would just have to be, wouldn't it? The story being that a company that makes pre-packaged sandwiches for the supermarkets and the like finds that its new factory in Northampton is finding it difficult to recruit workers. So, they go off to an agency in Hungary to see if anyone there would like to relocate. That's the story we're being told, don't worry over much about the details. At which point Mary Dejevsky (for it is she) tells us that:

The UK, I fear, persists in the delusion that it is a high-skilled high-productivity, high-pay economy when for at least a decade or more it has been nothing of the kind.


If this were a low-skill, low-pay economy then there would be armies of people willing to do low-skill, low-wage, jobs like making sandwiches. That there are Hungarians willing to relocate shows that Hungary quite probably is such a low-skill, low-wage, economy. Further, that the UK apparently needs to import such low-skill and low-wage labour shows that the UK economy is offering higher-skill and higher-wage jobs to the indigenes.

The very story being used to prove the contention in fact proves exactly the opposite of the contention being made. People have better options than low-skill, low-paid jobs. Thus the UK economy cannot be said to be reliant upon low-skill, low-pay jobs.

What is so difficult about this for people to understand?

This is a case of too little capitalism, not too much


The latest outrage that the Guardian tells us we should all be upset about is how the poor villagers of Nejapa, in El Salvador, get done over by the greedy capitalists taking all the water: Water everywhere for profit in Nejapa, but few drops for local people to drink While big companies make millions from El Salvador’s water-rich Nejapa municipality, locals have little or no access to water Hmm, gosh, that's bad. There is one very interesting little line in the piece though: Najarro says she pays $7 a month (£4.38; almost 10% of her salary) for municipal water, even though her taps often run dry and the water that runs from them may not be safe to drink. It's the local council that she gets her water through? And a quick look around tells me that pretty much all of the country gets its water through the government. And as Wikipedia itself says:

Tariffs and cost recovery ANDA tariffs ANDA tariffs average US$ 0.30/m³ and are below levels found in many other Latin American countries. Furthermore, ANDA tariffs are not socially equitable since the subsidies implicit in the low tariffs predominantly benefit the non-poor. First, users without access to the network, which are usually the poorest, do not receive the consumption subsidy. Second, users served by other providers than ANDA do not receive a subsidy for consumption. Third, among users that have ANDA service, the poor receive fewer subsidies than the non-poor as a consequence of the tariff structure. Tariffs are for both water and sewer services. As a result, there is a cross-subsidy from users without sewer connection to those with a sewer connection who are usually better off. For political reasons, adjustments of ANDA water tariffs have been infrequent. Between 1994 and 2006 ANDA tariffs were only adjusted twice, in 1994 and 2001. The inflation-adjusted tariff, however, barely changed. Tariffs by other service providers Tariffs paid by water users in rural areas do recover financial operating costs, since no direct subsidies are available. They are often much higher than tariffs paid by ANDA customers. Some rural water users in pumped systems receive a subsidy through the Fondo de Inversión Nacional en Electricidad y Telefonía (FINET), which subsidizes electricity tariffs. Cost recovery of ANDA The financial situation of service providers in 2006 did not provide any more for self-financing of investments. ANDA's working ratio was close to 1, indicating that the company barely covers its operating and routine maintenance costs. The reason for the reduced self-financing capacity is a significant increase in the unit costs of ANDA from US$0.21/m³ in 1994 to US$0.46/m³ in 2001, and US$0.63/m³ in 2004. The reason for the important increase of the unit cost in 2004 is not clear, but it could be due to the inauguration of the energy-intensive Río Lempa system that pumps water from the Rio Lempa to San Salvador in that year.

So, the government charges very little for water but this doesn't help the poorest as they're not even on the water system. And so little is charged for water that they're not able to actually build out the water system simply because they've not the money to do so. And this might also have an effect upon how much water there is to go around:

It is estimated that 90 percent of the surface water bodies are contaminated. Nearly all municipal wastewater (98 percent) and 90 percent of industrial wastewater is discharged to rivers and creeks without any treatment.

They "treat" sewage by dumping it in the nearest river. This is not a problem of excessive capitalism: this is a problem of too little capitalism. Recall what happened in our own water systems, here in Dear Old Blighty, when the nationalised water companies were sold off. Investment went up, water quality went up, environmental degradation went down. It's entirely true that in theory a government could, possibly, determine the optimal investment levels in a natural monopoly like water and sewage services. And that there's an argument why government should do so. Actual experience though seems to show that governments tend to allocate less than that optimal level. Which is why privatised systems almost always show a rise in the level of investment. Too little capitalism here, not too much.

In praise of subprime auto loans


We've another one of those laments, over at the Guardian, for the way in which the financial markets deliver financing to people who are poor. Apparently this is very bad, allowing poor people to finance capital expenditures in the same manner that we richer people are able to. You know, how nefarious Wall Street must be if it lets the poor, we mean really, poor people!, buy a car.

Many people are buying those cars with they help of Wall Street banks, which are lending money to people with bad credit again – just as they did prior to the financial crisis of 2007. In the last crisis, it was houses.

The $26bn worth of subprime car loans is far short of the $500bn of subprime real estate securitization in 2006, at the top of the housing bubble, partly because cars are a lot cheaper than houses.

This time, like last time, Wall Street isn’t directly lending poor people money. That part is done by an array of smaller financial companies in strip malls and office parks.

The smaller financial companies sell the loans to Wall Street. Wall Street puts them into big piles, sorts them from weakest to strongest credit scores, and then sells the pieces and parts of them to their customers. The customers can be hedge funds in Greenwich, Connecticut, or other banks. No part of the loan goes unsold: from the highest rates to the lowest-rated, buyers are always there.

This process is called subprime securitization, and about $26bn of it will be done this year in auto loans to poor people.

This is, according to the author, just terrible. And of course the reality is that it's just wonderful.People who would not be able to afford a car can now do so: this enables them to get to work, to the shops, and thus makes them less poor. And the miracle here is that securitisation, the securitisation that distributes the risk.

Now it is possible, of course, to associate this subprime securitisation with what happened with subprime mortgage securitisation and thus wonder whether there's going to be a replay of 2008. But there won't be for two reasons. The first being that there's just not enough of these auto loans to cause anything like a systemic crisis.

The second is that it wasn't securitisation, nor subprime, that caused the problem last time around. It was fractional reserve banking: more specifically, that the slices and dices of these loans were on the books of banks who were leveraged in their holdings of them. So, when the value of the loans slid the banks became illiquid and possibly insolvent. If those same slices and dices had been in non-leveraged hands, pension and or insurance funds for example, then there wouldn't actually have been those runs on those banks.

So, all we're left with here with these subprime auto loans and their securitisation is that poor people get to buy cars more cheaply than they would without that spreading of the risk. And maybe The Guardian thinks that's terrible but the rest of us should regard it as a pretty good idea. We are, after all, the people who are pro-poor, aren't we?