The Face the Difference Report from the Fair Pay Network

This report from the Fair Pay Network. It's really very cute indeed. Cute as in naive, childlike innocence.

Poor peeps who get poor wages working in supermarkets should get higher wages because it's just right that they should get higher wages. There is absolutely no acknowledgement at all that the amount of labour required, the number of jobs there are to be had, the number of people who will, can be or might be employed, is not a fixed number. They're seeing the whole thing in entirely static terms.

Yah boo sucks! to high profits and high executive pay, Hurrah! for raising the workers' wages.

No, I'm sorry, it really just doesn't work that way. It really is necessary to address, even if only to reject after having given us the empirical evidence that justifies such rejection, what a change in the relative prices of labour and capital will have upon the employment of labour. Or, if you want to put it another way, how many jobs will be lost by increasing the price of labour? And I'm afraid that you cannot say "none". That really isn't a believable answer.

See those self-check out lines? That's a sign that, at the margin, labour is already more expensive than capital in servicing the needs of some customers. See the Aldis and Lidls? Where they don't in fact do shelf stacking, they just cut the top off the manufacturers' boxes and you help yourself? That's a sign that at least for some shoppers that the labour that goes into shelf stacking isn't worth it. We have simple and direct evidence that, at that margin where all economics happens, the price of labour is already leading to substitution by capital, to doing away with certain labour altogether. Raising the price of labour will only move more currently employed labour over this line, to where it is more profitable to substitute the labour or even do without it entirely.

If the report had mentioned, even to dismiss as excessive or not believable, that a 10% increase in wages (just to pluck a number from the air) would lead to a 5% reduction in jobs (or 10%, or 1%, any number at all really, just acknowledging the relationship between the price of labour and the amount of labour demanded) then we might be able to take it seriously. Better wages for 800,000 people and none for 90,000 of the 890,000 employed in the sector is a position that can be argued about, defended from certain angles, attacked from certain others. But they don't mention it, not even to dismiss it.

There is an airy assumption that there are no costs to such an action, only benefits. Which means that they are ignoring the core truth at the heart of economics, that there are no solutions, there are only trade offs. Thus they're not being serious and we cannot take the report, the campaign or them seriously. Into the dustbin of history with them.

Thank you

Every year the Think Tanks and Civil Societies Programme at the University of Pennsylvania compiles its "Global Go To Think Tanks Report", which ranks the leading public policy research organizations in the world. For another year, the Adam Smith Institute has performed exceptionally well:

Top Think Tanks – Worldwide (US and Non-US)
No. 20

Top Think Tanks – Worldwide (Non-US)
No.8

Top Think Tanks in Western Europe
No.9

Top Domestic Economic Policy Think Tanks
No.7

Think Tanks with the Greatest Impact on Public Policy
No.23

Think Tanks with Outstanding Policy-Oriented Public Policy Research Programs
No.17

Top International Economic Policy Think Tanks
No.21

We're thrilled with these results. From everyone here at the ASI, to everybody who has supported us through donations, attending events, writing, reading or spreading the ideas we hold dear: thank you for helping to make this happen. We're determined to build on what we've achieved so far, and make 2012 our best year yet.

Immigrant benefit claims are an argument against the welfare state, not an argument against immigration

Research released by the Department for Work and Pensions reveals that an estimated 371,000 non-UK nationals were claiming work-related benefits when they first registered for a NI number. Sir Andrew Green of Migration watch was quick to use this as a means to lobby for stricter controls on immigration.

The BBC article quotes Keith Best of the defunct Immigration Advisory Service as stating that ‘it was "very, very difficult" for migrants to claim benefits in the UK. He said you have to have "status" to claim and you were not entitled if you came in as a student or on a work permit, for example.’

However, as the DWP research points out:

‘Non-EEA nationals who are subject to immigration control within the meaning of section 115 of the Immigration Act 1999 are excluded from income-related benefits. This prevents access by persons, for example, who are subject to public funds conditions or do not have lawful status.  People given certain types of leave to enter or remain in the UK may be eligible for income related benefits, including people who have been granted:-

• Refugee status;
• Exceptional leave to enter or remain;
• Humanitarian Protection; 
• Discretionary leave; or
• Indefinite leave to enter/remain’

Furthermore, under EU law EEA nationals with ‘worker status’ are automatically eligible for the same benefits available to UK nationals. Nationals from accession states can also be eligible for benefits, a condition which has prompted the most lurid newspaper stories about Bulgarian Big Issue sellers. It should also be observed that these benefits are only those administered by the DWP and do not include the health, housing and educational benefits which are far more easily accessed. Migrant access to these services provokes protest from prior residents who, justifiably, feel they have a prior claim and are being ‘queue-jumped’ or excluded. Benefits are, therefore, the cause of some of the friction between immigrant and pre-existing communities who perceive themselves in competition for state largesse. Surely the solution is to remove the source of the tension altogether?

Simply reducing immigrants’ access to benefits would be difficult because of EU and other legislation. In some cases it would simply be impossible; the NHS for instance, but we should also remember that transportation is heavily subsidised. It would also represent discriminatory treatment of immigrants – why should they be denied certain benefits available to others especially as such benefits are not based upon a contributory principle?

To my mind, however, the logical conclusion of this research is not tighter controls on immigration. I am a supporter of freedom of migration but this is actually irrelevant to the issue at stake here, contra Sir Andrew Green. This is an issue of state benefits and not migration. From an anti-migration perspective removing state benefits as a whole would be a more effective means of ‘selecting’ which migrants we would prefer to have than those currently being put forward (short of free movement, Gary Becker’s solution may be the best I’ve seen).

It would certainly eliminate the present absurdity of incentivising migrants to come to the UK, especially those who are likely to be a burden rather than an asset, and then erecting costly means of screening them. It would also radically alter the cost-benefit equation of immigration – without a state welfare system an immigrant would only be an economic asset. They would probably find fewer vacant jobs to come for – without the high marginal withdrawal rates created by the state benefits system we would find a far larger number of those currently in receipt of benefits willing to enter the job market fully. We need hardly repeat the fallacious idea that migrants are ‘taking our jobs’, as if there were a fixed amount of employment in the economy.

The root of the problem here is the existence of the benefits themselves and not the fact that migrants are claiming them. As the DWP research remarks, over 5.5 million people in the UK are claiming DWP benefits (of a working age population of around 29 million) so that migrants only constitute 6.4% of claimants. Education, health, transportation etc are ‘freely’ available to all. If social welfare, health and education were entirely or even largely based on private contribution mechanisms then the issue would not even arise or would only arise in a very few cases.

As Hayek observed in The Constitution of Liberty, ‘There is clearly no merit in being born into a particular community, and no argument of justice can be put forward in favour of a particular individual’s being born in one place rather than another... Rather than admit people to the advantages [gained by the reallocation of wealth] that living in their country offers, a nation will prefer to keep them out altogether.’ This latter option is a mistake, even if it were available. Of course, such an outcome as that hoped for here is hardly likely, but it does serve to demonstrate one of the many unintended problems that the welfare state creates. The solution to them is to eliminate the cause and not to try and treat symptoms.

Stuck in a rut

The McKinsey Global Institute’s latest report on debt and deleveraging contains the following diagram, which shows combined public and private debt in the ten largest developed economies over the last 20 years:

In case the image is unclear, the sharply rising dark blue line is the United Kingdom’s total debt. Only Japan keeps us from the top spot. For someone like me who broadly subscribes to the Austrian theory of the business cycle (for a musical explanation, click here) this is a very troubling image.

Simplifying somewhat, unsustainable booms usually have their roots in government or central bank action, which is amplified by the commercial banks, and serves to push market interest rates below their ‘natural’ level.

This distorts the economy: people borrow more and save less, and those sectors of the economy which are fuelled by availability of cheap credit – housing and finance, for instance – grow rapidly. This creates a vicious cycle. As the bubbles grow, more and more resources are sucked towards these sectors rather than others. The boom, though ultimately unsustainable, is self-reinforcing and the economy becomes increasingly unbalanced.

Then comes the credit crunch. Maybe the central bank raises interest rates, or the financial regulator increases capital requirements, or maybe a particular market (think sub-prime mortgages) tanks and sets off a confidence-sapping chain reaction. Whatever the trigger, the bubble bursts. Or as the song I linked to above has it, “the boom turns to bust as the interest rates rise”.

Now, what should happen here – assuming government policy is ‘neutral’ – is the liquidation of bad investments, deleveraging, and the reallocation of resources so that they realign with changed consumer preferences. This may be a painful process, but is also a necessary, remedial one. A return to real, sustainable growth cannot and will not happen until this adjustment and recalculation has taken place.

What the diagram above suggests very clearly is that this adjustment has not happened: on the macro level, no significant deleveraging has taken place. Total debt is, of course, only one metric among many – but the story this picture tells is nevertheless a persuasive one. 

So why hasn’t the economy adjusted the way I claim it should have? One word: policy. We bailed out the banks, and we’ve propped up housing and other asset markets with low interest rates and quantitative easing. Indeed, the coalition government’s entire economic strategy is to keep interest rates as low as possible and boost lending. The necessary economic adjustment hasn’t been allowed to happen, and so we’re stuck in a rut.

The silvery-grey line on the McKinsey diagram contains a worrying indication of our economic future: are we going to end up like Japan, and have to endure a decade or two of stagnation? Or will renewed crisis in the Eurozone bring matters to a head? The answer to those questions may become clearer as 2012 progresses.

Moral and responsible capitalism

Let's face it: capitalism is a lot more moral and responsible than politics. Many people think capitalism can never be moral because it's rooted in self-interest. But that confuses self-interest with greed. Self-interest is natural and indeed essential: none of us would survive long if we neglected our own needs. Equally, nobody survives long in business if they get a reputation for being greedy.

Politicians pursue their party interests by doing down others, but capitalists can serve their own interests only by serving other people's. If they deliver excellent products, services and value to customers, they will prosper. If they deliver bad value, they will fall to the competition.

Where politics creates conflict, capitalism creates peaceful cooperation on an international scale. Creating the simplest product involves thousands of people. A cotton T-shirt, for example, requires the work and collaboration of farmers, truckers, designers, machine-makers, weavers, dyers, packagers, exporters, retailers and many others from all over the world. Each contributes their effort willingly, for the reward it bring them; and their efforts are coordinated by the market to produce benefits for us all.

Some people imagine that capitalism creates conflict, citing the tension between buyers and sellers. But when things are decided politically, the conflict is far greater. Capitalism produces a wide variety of goods, serving the diverse needs and tastes of the public; political decisions are all or nothing, delivering only what the majority choose.

Capitalism reduces conflict, but is it fair? People often complain that nurses are paid just a fraction of what a premier league footballer earns. But this is simply the result of voluntary choices. Very few people have the talent to play in the premier league, and millions of people are willing to pay handsomely to watch them do so. Many people could become nurses, but they can care for only a few people at a time. Those factors create a disparity in pay; but nobody has acted unjustly.

And even with such obvious difference, capitalist societies are actually more equal, more prosperous, and happier than others. Inequalities are greatest where power, not money, is what counts. And there is more social mobility and opportunity in capitalist societies. In politically dominated society, your success depends on you being a member of the right party, or race, or family.

People in businesses, large or small, are no different from anyone else. Some are upright, virtuous characters, and some are not. But capitalism pushes them in the direction of virtue. If markets are open and competitive, producers can survive only by producing good value for others; anything less and they will quickly lose customers to other producers. And what is it that reduces market competition and openness? Things like government regulations that raise barriers to entry or dictate how people should run their business, or taxes that distort investment decisions or whittle away the incentive to profit by serving others. Capitalism is perfectly moral and responsible, if only politicians let it be.

Eamonn Butler is author of The Best Book on the Market.

Why I hate being a libertarian

For as long as I can remember I have believed that decisions should be made at the lowest level possible. When I was younger, I used this thinking to justify the existence of supranational organisations such as the EU and a whole host of government regulations that to my older, but still young, eyes now seem to be ridiculous. Many of my conclusions have changed over the last fifteen years but my core ideology remains the same. It's just that now I see that the lowest level possible is often the individual.

Voltaire is often misquoted as having said, “I disapprove of what you say, but I will defend to the death your right to say it.” I often find it odd the way this quotation is used. Should it not be followed with “and if you're a sexist, racist or homophobic I will use the same right to follow you around and ridicule you at every opportunity”? I have come to take a broadly similar attitude to actions, at least those which do not involve the use of either force or deception, though I probably would not go quite
a far as Voltaire in defending them to the death. Unfortunately one of the logical conclusions of my ideology is that when one sees injustice which involves neither force nor deception, I can't utter phrases such as “someone should put them away” or “there should be a law against that.” This is why I hate being a libertarian.

Yesterday there was quite a twitter storm over a user who goes by the alias @badlydrawnroy. His twitter feed describes how he has been feeling depressed of late and after taking some advice from the twittersphere decided to tell his employers about his predicament. Unfortunately it transpires that his employer is about as unenlightened as the mouldy cheese inside my fridge when the door is closed, and her response appears to have been to summarily dismiss him for being ill.

There is no denying that if, as I would prefer, employers did not pay your sick leave, maternity leave and holidays to you when they became due but instead put money into an account which was entirely under the employees control for the expected cost, this would be much less of an issue. Particularly since this would lead to a situation where employers would be paying all employees for their actual work done and insurance companies and private providers would be the ones taking all the risks. However, the fact remains that an employer has decided to sack a man for having depression. While in an ideal world I wouldn't want the government to intervene, I do disapprove.

The worst thing, in my opinion, is that this is exactly the reason why our country is so completely drowned in red tape. It's because when many people hear stories like this they get angry and demand that 'something must be done'. Politicians who like to be seen to be doing something then cobble together some atrociously-worded legislation which increases the burden on small businesses making themless inclined to be flexible and continuing the drowning spiral.

Therefore I find myself wanting to cry out that 'something must be done' and hating that, as I am a libertarian, it would make me a hypocrite. Then I recall that there is an option open to me. I can choose to boycott this company and use my free speech to encourage others to do so also. Therefore, if you agree with me that sacking a person for being ill, without having first tried to make the situation work either by offering them the option to go part time, with a proportionate cut in pay, or at the very least statutory sick pay (which would cost an employer little), is totally unacceptable, then I encourage you to boycott this company until either it reinstate Roy or goes bust. Of course, if you don't agree with me you're free to continue purchasing their goods and services. That's the voluntary way.

What Queen Elizabeth I's silk stockings tell us about inequality

Inequality drives civilisation.  Unequal distribution of income indicates which behaviour needs to be copied to prosper, and which doesn’t.  If you stay in bed you earn nothing; if you get on your bike to work you do: the unequal income incentivises behaviour which will create growth and prosperity from which ultimately the whole of society benefits. 

Inequality does not only benefit everybody with regards to income – but also in spending patterns.  Wealthy individuals will typically buy luxury goods while they are still exclusive.  Spurred on by the high income, manufacturers will produce more – and this leads to those previously exclusive goods becoming cheaply available to all.  Silk stockings once were a luxury which only Queen Elizabeth I and the richest in the land could afford – now everybody can buy them for £28.95.

What is important is that everyone should have enough food to eat, clothes, and a roof above one’s head – not whether or not your neighbour drives a Rolls Royce or just a bicycle.  It is perfectly possible to  have a reduction in inequality through high taxes for the rich, while seeing an increase in absolute poverty at the same time.

Inequality as indicated by the Gini Coefficient therefore misses the point completely.  Poverty is absolute, not relative.  Read more in our report, Does Inequality Matter.

The fiasco of state financial regulation

In August 2010, the Institute of Economic Affairs published a monograph “Does Britain need a Financial Regulator?” .Written by Professor Philip Booth and myself, with a particular focus on Stock Exchanges around the world, our conclusion was no, it does not. 

Within days of publication we were vilified by several commentators, including a barrage from readers of my blog article on the website of Conservative Home.

Given the subsequent performance of the Financial Services Authority in several areas perhaps we can now hope for a little more support.  Take, for example, the fiasco of the FSA report on the demise of the Royal Bank of Scotland (the latest trick being the appointment of the insider Sir David Walker), or the FSA veto (yes, veto) of a proposal to put all RBS directors up for re-election, thus ensuring that Sir Fred Goodwin stayed for another six months and a doubling of his pension.  Or take the FSA’s own almost unbelievable empire building, supported by the government and heavily driven by levying unlimited fines of its own choosing. Or its clampdown on communications between journalists and their city contacts.  And, of course, its complete failure to foresee the financial crisis because of its total lack of nous. (I have kept an interesting e-mail exchange between myself and Hector Sants on this but that had better stay private.)

Financial entities and in particular Stock Exchanges, would be far better left to their own devices – as they once were, making their own rules which had to attract both corporate listings on the one hand and buyers and sellers on the other, thus leading to a race to the top; emphatically not a race to the bottom which State regulators everywhere would have us believe.

As an example of possible rules for a private Stock Exchange, take the contentious case of insider trading.  There is no reason why such a feature should be a criminal offence. As the US lawyer Richard Epstein wrote, “for a company to legitimize insider trading all it needs is a provision in its charter saying “if you want to deal in shares with this company, please understand that every employee and every director is entitled to trade on insider information to their heart’s content.  If you do not want to trade with us you are free to buy shares in our competitor which does not allow that option”2.

I can just imagine Lord Turner shouting the odds here; “Make insider trading a matter for contracts between the company and its investors? You must be joking. You’ll be suggesting that companies have control over their Memorandum and Articles next!”

In fact the criminality lies with the regulator. There are clear reasons why insider trading would often be helpful; under free markets, there is a raft of devices which would enable shareholders to control insiders. Not the least of these is a thriving takeover market. It is all of a piece that the FSA looks upon such a market as necessarily hostile. In the majority of cases any hostility is directed at incompetent management, where a takeover would enable shareholders to dismiss the incumbents in favour of a new and better management. In other words the FSA protects incompetence at the expense of shareholders.

Another incontrovertible point is that an insider not trading may be just as important a signal as trading, but naturally it can’t be spotted!

The activities of successful speculators in short-selling have many similarities to insider trading. In both cases the essential point is that such activities get market prices nearer to where they should be faster, so that those profiting, far from making a quick buck at the expense of others, are effectively sharing their knowledge with the rest of the world. It is the unsuccessful speculators and insiders that we should worry about, but fortunately they don’t last long!

It is true that for the present the FSA has nothing on the USA’s Securities and Exchange Commission. Formed in the early 1930s, it is even more scary, and the IEA monograph referred to herein highlights some dreadful abuses of power. For example, our research suggests strongly that at least two of the most notorious jailed insider-dealers (Martha Stewart and Kenneth Lay) were not guilty even as charged. But that’s cold comfort at best for those of us on this side of the pond.

Why Wikipedia is doing the right thing on SOPA and PIPA

Today, with the closure of one of the internet's richest resources. the English-speaking world stands greatly impoverished. In protest against two proposed bills in the U.S. House of Representatives and Senate (the 'Stop Online Piracy Act' (SOPA) and the 'Protect IP Act' (PIPA) respectively), the English-language version of Wikipedia has taken itself offline for 24 hours. [That includes the Wikipedia links in this post, lest ye take the open internet for granted — ed.]

The provisions put forward in SOPA and PIPA enable the closing down and harassment of websites (not even necessarily located in the US) on the flimsiest of pretences: government censorship masquerading as copyright protection. But what exactly makes the laws so odious? There are four key, objectionable provisions, all of which are ripe for manipulation by rent-seeking parties (summarised from this link):

1. The Anti-Circumvention Provision, allowing the US government to close sites who offer advise on merely circumventing censorship mechanisms;
2. The “Vigilante” Provision, which would grant immunity from prosecution to internet service providers who pre-emptively block potentially offending sites, leaving them inherently vulnerable to pressures from a host of interested parties;
3. The Corporate Right of Action, enabling copyright holders to obtain an unopposed court order which would cut off foreign websites from payment processors and advertisers;
4. Expanded Attorney General Powers: therein giving the Attorney General the power to block any domain name and have their results barred from search engines: they would effectively cease to exist.

You don't need to be a rabid libertarian to realise both SOPA and PIPA are anathema to a society which readily proclaims its commitment to spreading liberal democracy; an integral part of which is the freedom of expression. After all, western nations have waged war purportedly in support of 'freedom' and regularly (this time rightly) criticise those nations which continually suppress freedom of expression online.

On their own turf however, governments seem evermore reluctant to allow the internet to remain the vital bastion of freedom that it is. Away from the stifling proclamations of state broadcasters and the mass media, the internet has revolutionised Joe Bloggs's ability to think independently: little wonder it is increasingly browbeaten from governments worldwide.

Economic consequences must considered too. If a website is to avoid being picked-off by the keen-eyed legal-sharpshooters that would undoubtedly thrive with the passing of these laws, they would have to employ an army of workers to constantly micromanage their site's content: one slip-up and it's potentially 'Game Over'. Who would want to invest in company stifled in a quagmire of draconian legislation, able to be shut down with the hit of 'Enter'? The internet's position as a motor of modern innovation would be seriously jeopardised.

Despite the promising words coming from the White House that freedom of speech and expression will be upheld, scepticism about Obama's commitment to liberty is well grounded: less than three weeks ago the 'National Defense Authorization Act' was passed, enabling the indefinite detention of almost anybody the US government sees fit – an unsettling omen.

Albeit not alone, the world's most powerful nation is walking down an increasingly questionable path. The internet is one of history's most momentous inventions: its fate is far, far too important to be left for politicians to decide.

Campus smoking bans are naked authoritarianism

When a Guardian journalist attended an Adam Smith Institute event in October, he came away convinced that libertarians are “obsessed” with smoking. This, of course, is an outrageous slur (everybody knows libertarians are obsessed with guns and drugs), but how can freedom-minded individuals not take an interest in the naked authoritarianism of the anti-smoking lobby in 2012? Take events on US college campuses, for example:

Looking for the designated smoking area at Florida International University? There is none.

Want to light a cigarette inside your car at the University of Florida? Don’t let let the cops see you.

Hoping to smoke during your break at Nova Southeastern University? You have six months left until NSU becomes the latest college to go tobacco-free. Come July 1, the covered smoking benches will come down and smoke-free-campus signs will go up.

This is part of a growing trend towards ‘smokefree’ campuses, of which there are more than 600 in the Land of the Free. And by smokefree they mean no smoking anywhere inside or outside: not in the grounds, not on the pavement, not in the fields, not even in your own car.

But isn’t a car, y’know, private property? Nova Southeastern University’s ‘director of campus recreation’ has an answer for that:

"We don't want your car to be a safe haven, where you do any activity you want as long as you're in your car."

Heaven forbid there should a safe haven, especially for legal activities...

Meanwhile, Californians have done what Californians always do and taken the lunacy a step further. The University of California, San Francisco has not only banned smoking across its entire grounds and student digs, but also banned students and staff from carrying any form of tobacco. Taking the paternalism to absurd lengths, it has also banned people from using and carrying e-cigarettes—a battery-powered, tobacco-free nicotine delivery system with no known health risks. The only nicotine products permitted on site are those made by the pharmaceutical industry, which just so happens to give lavish donations to anti-smoking groups around the world, including our very own Action on Smoking and Health.

The other nine University of California campuses have promised to follow San Francisco’s lead by 2014 and, if history is any guide, it is only a matter of time before the UK does likewise. What is remarkable about this new phase of the anti-smoking crusade is how effortlessly it has shifted from a position of “we must protect nonsmokers” to “this is for your own good”. Say what you like about smoking ban in Britain, but at least campaigners made an attempt to appeal to John Stuart Mill’s harm principle. No longer. None of the universities have pretended that smoking outdoors is a threat to passers-by, just as the British Medical Association does not pretend that smoking alone in one’s own car has implications for nonsmokers, but all they demanded a ban all the same.

Velvet glove, meet iron fist. Trampling on property rights; paternalism run riot; the tyranny of the majority—why would libertarians not be interested in this?

(Hat tip to Dr Michael Siegel, who wages a lonely war against cant and junk science from within the the anti-smoking movement)