On the merits of competition in government services

Perhaps we should be having more competition with government services? A businessman who built his own £325,000 toll road to bypass roadworks is to close the shortcut after the local council invested £660,000 to finish repairs five weeks early.

Mike Watts, 63, claims he will now not make a penny and will lose out on a profit of several thousand pounds after Bath and North East Somerset completed the work ahead of schedule.

He became the first private individual to build a British toll road in more than a century when a crucial road in Kelston, Somerset, was closed by a landslip, leaving locals with a 14-mile diversion.

The roadworks were scheduled to last until Christmas, which would have given Mr Watts and his wife Wendy, 52, a healthy profit on their £325,000 investment.

But instead the A431 Kelston Road between Bristol and Bath will re-open tomorrow, meaning he couple will just break even after spending £150,000 to build the road and £150,000 on upkeep.

That he won't make a profit is no doubt distressing to him but it's of no importance at all over public policy. And there's more than a suspicion (look, your humble writer is a Bathonian and he's absolutely convinced that there's no suspicion at all, this is simple fact) that the speed up was done out of spite. Can't have the council being made to look bad or incompetent, can we, people will wonder what they're paying their taxes for! But again that's of no real import here.

What is important is that the landslip has been corrected, the public road opened 5 weeks earlier than it would have been without the competition. And yes, even if is simply spite that drove that decision the consumers are all better off as a result. So, more competition in public services please: for we are supposed to be running this whole economy and government thing in order to benefit the consumers.

Just send money!

In an extremely rude thank you letter, Horrid Henry tells his Aunt Ruby that her (admittedly terrible) birthday present is rubbish and she should, next time, send him cash. Beneficiaries of anti-poverty programmes could be forgiven for saying the same thing to welfare authorities. Their schemes are expensive to administer, involve grand ideas, social theories and detailed plans, and yet their results are substantially worse than letting people live where they want to, or just sending them cash to alleviate their bad circumstances. A new paper from the Institute for Fiscal Studies, by authors Laura Abramovsky, Orazio Attanasio, Kai Barron, Pedro Carneiro and George Stoye and entitled "Challenges to Promoting Social Inclusion of the Extreme Poor: Evidence from a Large Scale Experiment in Colombia" only adds to this literature. We can only be glad that the Colombian authorities thought to do a randomized and controlled pilot study, although perhaps they should have waited for its results to come in before rolling it out generally!

We evaluate the large scale pilot of an innovative and major welfare intervention in Colombia, which combines homes visits by trained social workers to households in extreme poverty with preferential access to social programs. We use a randomized control trial and a very rich dataset collected as part of the evaluation to identify program impacts on the knowledge and take-up of social programs and the labor supply of targeted households.

We find no consistent impact of the program on these outcomes, possibly because the way the pilot was implemented resulted in very light treatment in terms of home visits. Importantly, administrative data indicates that the program has been rolled out nationally in a very similar fashion, suggesting that this major national program is likely to fail in making a significant contribution to reducing extreme poverty. We suggest that the program should undergo substantial reforms, which in turn should be evaluated.

Really we ought already to have known this. Anti-poverty schemes seem smart but rarely or never report successes in randomised controlled trials unless they are cash handouts or removals of restrictions that were stopping people from generating wealth themselves (e.g. immigration liberalisation). But, as slow as academic progress works, it does seem like every extra contribution helps push the debate in the correct direction.

Are immigrants dangerous criminals?

Sometimes supporters of strict migration controls criticise my focus on the economics of immigration. They more or less accept that free movement leads to productivity gains, innovation gains, entrepreneurial gains and fiscal gains for the receiving countries, ‘brain gains’ for the migrants’ home countries, and even that it leads to massive welfare gains for the immigrants themselves, but suggest that the non-economic costs of immigration are very large too, and we basically ignore them. 

They have in mind costs like increased crime, reductions in social trust, a decline in democratic support for important institutions like the rule of law and free speech, and the dilution of the native culture. To some extent I believe all of these things are costs of certain kinds of immigration, and may justify certain controls on immigration, but none are reasons to support the immigration controls that we currently have.

In this post I’ll consider how much impact immigrants have on the crime rate. I’ll come back to some of the other points in future posts.

So: crime. Crime only seems to rise in line with certain kinds of immigration, and does so for basically economic reasons. A 2013 study looked at two different waves of immigration to the UK – asylum seekers in the 1990s and early 2000s (mostly from places like Afghanistan, Iraq and Somalia); and immigration from the “A8” countries (Poland, Czech Republic and the six other Eastern European states that joined the EU in 2004). 

The paper looked at crime rates according to areas where these waves of immigrants settled. It found that neither of these waves had any statistically significant impact on the overall rate of violent crime. A8 immigration actually had a small negative impact on crime rates, driven by a reduction in property crime rates. 

On the other hand, asylum seekers did cause a statistically significant rise in property crime, but still a small one. This  equivalent to an increase of 0.7% in property crime rates per 1% percentage point share of the local adult that was asylum seekers. Note that this is a percentage increase to the existing crime rate – if crime rates were already 10% and a new wave of asylum seekers suddenly accounted for 1% of the population, crime rates would rise to 10.07%, not 10.7%.

According to the report’s authors,

“Across all England and Wales [asylum seekers] averaged 0.1% of the local adult population, so the average property crime rate might be 0.07% higher as a result – only around 2% of the average property crime rate of around 2.7%. Of course, some authorities had appreciably more asylum seekers located in the area, though shares larger than 1% of the local population were extremely rare.”

What explains this? There might be because of some inherent difference between, say, Polish and Iraqi people, but violent crime levels were not significantly different (in fact, A8 migrants were slightly worse here than asylum seekers). What may explain the difference is that A8 immigrants were free to work however they wished, whereas asylum seekers are not allowed to seek legal employment. The authors of the 2013 report suggest that this explains why only property crime was higher for asylum seekers.

This data is not broken down by nationality, so it is rather blunt. According to another 2013 paper, arrest rates (which are broken down by nationality) were significantly higher for immigrants than non-immigrants – 2.8 arrests per 1000 for UK nationals and 3.5 arrests per 1000 for non-nationals (excluding immigration-related arrests). However, controlling for age this difference disappears. Having more young people seems to lead to more arrests; in and of itself having more immigrants does not.

Finally, there is the issue of second- and third-generation immigrant groups who cause disproportionately more crime. According to the Metropolitan Police, the majority of men held by police for gun crimes (67%), robberies (59%) and street crimes (54%) in London in 2009-10 were black, even though only 10.6% of London’s population is black. There is no easy explanation for this, and it may be due to a combination of factors that we cannot control – or, indeed, easily change.

The ultimate lesson of all this may be that immigration in general does not have a big impact on crime, but certain immigrant groups might if they do not assimilate culturally. Then again, Eastern Europeans don’t seem to be a problem at all, and they seem to be the ones we’re most concerned about right now. 

My friend Ed West has a point when he says that there is no such thing as an ‘immigrant’ – only an American, a Pole, a Somali, and so on. In the course of my posts on the non-economic impacts of immigration, I will suggest that a compromise position between my libertarian preference for very free movement and Ed’s conservative preference for restrictions. We may yet be able to square the circle of immigration policy.

Hey, sometimes the lefty lot are actually correct

Galling though it may be to have to admit it there are times when those over on the left side of the political aisle are correct. Take, for example, the case of supermarkets. They've been telling us for the past couple of decades that they're wrong,. That they rip the heart out of the High Street and that something must be done to stop them. And it even looks like they might have been right:

Supermarkets in Britain could start to close as the grocery industry struggles to cope with an unprecedented slide in sales and profits, the head of Waitrose has warned.

Mark Price, the managing director of the upmarket grocer, said it was “incredibly hard to call” whether all of Britain’s food retailers would survive tumultuous shifts in shopping habits.

The “Big Four” supermarket groups have been forced to dramatically rein in plans to open new stores in UK in order to save cash to shore up their balance sheet. In recent weeks Tesco has scrapped two supermarket openings despite actually building the stores.

However, Mr Price warned that food retailers could be forced to go a step further and close existing stores, just as non-food retailers have done in Britain since the onset of recession.

He was speaking in the week that rival J Sainsbury slumped to a £290m pre-tax loss, scrapped plans to open new stores, and warned that sales in supermarkets will be falling “for the next few years”.

However, let's not go overboard in our appreciation of their perspicacity here. For all those years they were complaining they were in fact wrong. For we, the consumers, by the very fact that we went shopping at the supermarkets, showed that we liked shopping at supermarkets. Further, said supermarkets aren't about to be replaced by the High Street of old. Instead they're being outcompeted by online shopping and the budget retailers. Meaning that we value convenience and low prices even more than we all thought we did.

And the other point that we really must make about this is that, of course, nothing at all "needed to be done". Whether we think this is as a result of changing consumer tastes, or merely as a revelation of extant tastes now that we can sample these alternatives, no one at all has had to intervene in the shopping market in order to overturn those supermarkets. The market itself has done all of that for us: the aggregate effect of us spending our own pounds in our own manner has led to the results that obviously we all, in aggregate, prefer.

So those lefties, those campaigners, might well have been right, correct, in their insistence that there was something better than supermarkets. But they were obviously entirely wrong in whether anyone needed to do anything about it for one thing that markets really are very good indeed at is reflecting consumer preferences.

Subsidising green tech could be self-defeating

One of the only arguably beneficial impacts of taxing petrol as heavily as the government does is, theoretically, to encourage the production of ‘fuel-efficient’ vehicles. A tax on fuel increases its price and consumers will seek fuel-efficient alternatives to current vehicles. This increased demand has encouraged car manufacturers to develop vehicles that are more fuel-efficient. Since subsidies are the inverse of taxation, the effect of subsidising green technology on innovation is inverted. Subsidising green technology means that producers have less incentive to continue innovating and producing even more efficient technology since the government basically favours the status quo or a particular benchmark. If we must have subsidies, this benchmark (as in, a certain level of efficiency) must be constantly revised upwards so that: 1. We don’t subsidise as many firms’ products, 2. Cash transfers to firms require constant innovation and improvement. Cutting back subsidies for fuel-efficiency and green technology in conjunction with these high fuel taxes (let’s face it, they’re not coming down anytime soon) should encourage innovation whilst tackling the budget deficit.

A similar logic applies to subsidising solar panels, wind farms etc. because the government has essentially signalled to the producers that, although their inventions are not cost-effective, the remaining burden will be imposed upon the taxpayer. This means that these alternative energy sources will not be developed to their full potential as quickly as they would otherwise be. Why delay innovation on the basis that we are happy with what we have compared to what we used to have? Surely, we should encourage the production of new, more efficient ‘green’ energy technologies sooner rather than later; this can be achieved by cutting subsidies for existing green technologies and thereby preventing such firms from being comfortable with inefficiency.

In support of unions

Over in The Guardian Ellie Mae O'Hagan has a piece telling us all that we don't really understand how wonderful unions are. We can argue about her specific examples but that's not our point here. Which is to point out that yes, unions really are pretty wonderful things. Although not for the reasons usually given. Unions are the result of the freedom of association. This is a freedom as essential to any civilised society as the freedom of speech and, if we add the rule of law the three are the cornerstone of any decent society. Rather more important that representative democracy in fact.

But of course the existence of unions is not the only thing that freedom of association allows. That also allows the London Library, the Women's Institute, the RNLI and RSPCA, companies, co ops, the Kennel Club, Arsenal Football Club and yes, even, sadly, the Simon Cowell Fan Club.

It's said that the French had to ask permission of Paris for any organisation that contained more than 25 French men well up into the 1950s. Apart from our own diversion into  repression of unions before 1824 we've not done that at all. To our great benefit of course.

The existence of unions is thus to be applauded: not because the existence of unions is in itself a wondrous thing but because it's a symbol, and a symptom, of that larger freedom that we all enjoy, that freedom of association.

There is only one thing that we might want to change though. We might want to remove any legal privileges that unions have over other forms of voluntary association, like, you know, the London Library, the Women's Institute, the RNLI and RSPCA, companies, co ops, the Kennel Club, Arsenal Football Club and yes, even, sadly, the Simon Cowell Fan Club.

Minimum wages encourage hostility towards migrants

Having a minimum wage is what makes ‘illegal immigration’ feasible. Most illegal immigrants are unskilled, poorly paid workers; Epstein & Hezler (2013) say that “Minimum wages play an essential role since they put a limit on local workers’ and legal migrants’ wages. Thus, under certain circumstances, the probability of employing illegal workers is increased.” Incidentally, the authors also suggested that one way to reduce illegal immigration would be to increase legal immigration (assuming a constant minimum wage). According to a survey commissioned by the Migration Observatory at the University of Oxford, “Among respondents who want immigration reduced overall, 54% said that they would like reductions either “only” (28%) or “mostly” (26%) among illegal immigrants”. Illegal immigrants fill a gap for employers who cannot survive by hiring people at or above the minimum wage and who also cannot attract legal residents that are willing to break the law and work for less than minimum wage. Firstly, if there were no minimum wage, then employers would have less incentive to employ illegal immigrants and would, instead, turn to legal residents to offer their labour for these rates. This would simultaneously empower the unemployed with more opportunities to offer their labour, make entrepreneurship increasingly feasible (especially that of the labour-intensive variety) and significantly reduce illegal immigration.

Whether the contempt toward illegal immigrants is from allegations of criminal activity, taking jobs, etc., this has a spill over effect on the perceptions of immigrants in general. There is an oft-documented tendency for people to stereotype and make sweeping generalisations (even if we are subsequently ashamed of doing so). Hence, any negative perceptions of illegal immigrants contribute to the general degradation of legal immigrants’ status in society.

Furthermore, and perhaps most importantly (depending on who you are), via a combination of both the inflexibility of the labour markets that it contributes toward (and, therefore, of price levels in various other markets) and the controversial illegal immigration that it makes feasible, the minimum wage is one of the greatest barriers to the possibility of free immigration and, therefore, of a world where greater understanding and co-operation between people flourishes.

The Annals of Bad Research; public health edition

A quite delightful misinterpretation of a piece of public health research over at Salon:

States with lower HPV vaccination rates have higher cervical cancer rates Science confirms what we probably could have guessed

Well, no actually, Science would tell us that HPV vaccination rates would have no effect whatsoever on current rates of cervical cancer.

A new study presented at a conference for the American Association for Cancer Research found that states with the lowest rates of human papillomavirus (HPV) vaccination have the highest rates of cervical cancer and deaths from the disease. This is not surprising.

Well, actually, yes it is.

Low rates of HPV vaccination in Southern states have troubled medical professionals for some time.

Ah, yes, all those religious (and possibly even Republican!) Southerners not vaccinating their daughters.

What the paper itself actually says is that those places which have more preventive medicine have more preventive medicine. Vaccines are preventive medicine: as are things like Pap smears which can find potential cancers that can be treated before they become cancers.

But there's absolutely no causal connection at all between high vaccination rates and the subsequent lower cervical cancer rates. As science would tell us.

For cervical cancer takes 10-20 years to develop. And Gardasil, the first HPV vaccine, has only been on the market since 2006. To a reasonable approximation exactly no cases, yet, of cervical cancer have been prevented by the vaccine. It's also true that the likely age group to present with the cancer is women between 35 and 55. Absolutely none of whom will have had the vaccine as it is not offered to those who have already become sexually active (again, to a realistic level the number of those in that age group who were virgins in 2006 is going to be zero or darn close).

The vaccine itself is a wonderful idea and we thoroughly support everyone who will benefit from it getting it (and that includes men too, on the grounds that the tango does take two). However, let's not make up stories about it all. An 8 year old vaccine for a disease that takes 10-20 years to present will have had, as yet, absolutely no effect on the numbers presenting with that disease.

Some might think this not important but come along now, we've got it on good authority that comment is free but facts are sacred.

QE cannot both boost asset prices and wreck pensions

Quantitative easing is complex and difficult to understand—economists aren't even sure exactly if and how it works. It would be unreasonable to expect non-economists to fully grok its workings even if journalistic explanations were clear and overall true. Since economics journalist's explanations have been largely lacking (including, I expect, my own, when I was an econ journo), it would be very difficult for others, further removed from economics, to 'get it'. Still, this piece on Bank of England staff pensions from Richard Dyson, the Telegraph's personal finance editor, has a number of problems which I can't help but try and correct. Dyson argues that (a) the Bank of England's pension scheme is 'eye-catchingly-generous'; (b) final salary pension schemes have died in the private sector substantially because of the BoE's quantitative easing (QE) programme; (c) QE has harmed pensioners; and (d) the Bank's policy of investing in pension pots in bonds is too low-risk and earns insufficient returns. All are substantially false.

Firstly, the Bank of England's 'generous' pensions are (as Dyson notes at the end) to compensate for lower regular and bonus pay than the jobs that very smart and qualified BoE staff could get elsewhere. Dyson might be right that this, overall, is larger in the public sector, indeed there is a literature suggesting that the total pay + benefits for public sector workers of a given skill and experience level is higher than for private sector workers. But the simple fact of a relatively large fraction of that coming out in pensions doesn't tell us anything on that point—and I would wager that the Bank is run much more like a profit-maximising private organisation than most arms of the state.

Secondly, as we see in Dyson's graph, private sector final salary/defined benefit pension schemes have been declining since a peak in the mid sixties, with about half of the drop coming in the 70s and about half in the 90s. Practically nothing has happened to them since the introduction of QE.

Which brings us onto thirdly: QE boosts asset prices. QE raises the value of stock markets and bonds and pretty much all securities that people hold in their pensions. QE makes pensioners better off, like it makes pretty much everyone better off. Yes, you've heard that QE leads to lower interest rates. I'm not sure that's true. Remember we are at the bottom of a 30-year slide in real risk-free interest rates, and it seems much less clear that QE is a big factor.

Finally and fourthly, is the Bank too careful with its money? I don't actually have an answer here but I'd suggest that Dyson (and Ros Altmann, who he quotes on this) are a tad too confident. If the Bank invested in riskier equities or emerging markets or whatever, then sure it would be likely to earn a higher return, but would the Bank's critics really give it any slack if these investments went bad, as they'd be more likely to do? I don't really know how the BoE should invest its pension fund, but it seems to me that they are going to be damned if they do and damned if they don't.

So I think we should leave off the Bank and its pension scheme, whatever issues we might have with its macroeconomic management. It pays high pensions to attract talent. It didn't cause the decline in private sector final salary pensions (I think government is probably to blame for that). It's not to blame for high interest rates and it has helped those with pension investments. And we probably don't have the right info to choose its investment portfolio for it.

So marriage is the preserve of the rich these days, is it?

This is something that helps to explain household income inequality in the UK. The idea that marriage is becoming something of a preserve of the rich.

Marriage is rapidly becoming the preserve of the wealthy, twice as common among those safely in the top tax bracket as among the least well-off.

Since 2001 those in the top social class, which includes company directors, military officers and university lecturers, have gone from being 24 per cent more likely to be married to 50 per cent more likely, figures from the Office for National Statistics show.

By the time they have children, nine in 10 of the wealthiest Britons are married. However, for those on the minimum wage or less, the figure is about half.

Cue all sorts of worries about the stability of family life and so on. And that's not what we're about here: chacun a son gout is our response to those sorts of concerns. However, this does link very strongly with something else that people claim to worry about a lot, the increasing inequality of household income in the UK.

For we've had something else happening as well. It's not just that the higher income people are more likely to marry: they're also more likely to marry other higher income people than they were in the past. This is of course part of the great economic emancipation of women of the past 50 years. Careers are something for both sexes, not only one. And as it happens people tend to marry those following much the same career path that they are. This is known as assortative mating.

Plug these two things together: professionals marrying professionals, non-professionals increasingly not marrying at all. We're going to end up with a lot of two high income households and a lot of low one income households. Thus, inevitably, household income inequality is going to increase.

And, short of telling people who they may marry or not, there's not a great deal that can be done about this.