Slack in the USSR

It's funny how some things just slip down the memory hole. It's now been more than a quarter of a century since the Soviet Union collapsed, so it feels like ancient history. It's completely intangible, and the world it inhabited is totally gone. We know the USSR failed, but does anyone think much about why and in what ways?

Lucky for us, Jose Luis Ricón has, in a series of posts, combed through the evidence on communist Russia's healthcare, GDP growth, and food consumption.

On healthcare, he concludes:

The Soviet healthcare system heavily underperformed most of the countries that we can use as meaningful comparatives. Relative to other countries that began from the same situation of poverty as the SU, its performance wasn’t better than the systems of those countries. After the 70s, health outcomes deteriorated, and the utter failure of the system became apparent.

Despite the high number of hospital beds and physicians, the Soviet Union wasn’t able to deliver better healthcare outcomes to its population, relative to developed countries, even though they made great improvements in the 20-50s era. This should make us wary of making hasty comparisons based just in some indicators instead of considering the bigger picture.

On GDP growth:

Given this data, the Soviet Union was the mediocre economy economists say it was, not a healthy, growing, superpower. If the USSR had an impact in the world, it was due to its size, natural resources, population, and strong military, not because it was more productive than other countries.

And on food consumption:

Was Soviet caloric intake higher than the US’?

No. In saying this, I’m saying the FAO is wrong, and that Robert Allen, who based his calculations in FAO data (and used their multipliers), didn’t notice. To say this, I had to go through a full literature review, and I come to this opinion. Before reading my post, you were totally justified in believing that caloric intake was higher. Not anymore. Unless some FAO official tells us why did they used their coefficients, that seem to go against the Sovietological literature.

Go read the whole things!

Can we stop this nostalgia for manufacturing jobs please?

We're told, endlessly, that we must do more manufacturing here in Britain. The underlying argument being that manufacturing jobs are good jobs, that they pay well, and that given that we'd like to have more well paid jobs therefore we must do more manufacturing. This argument is really just evidence of the ghastly conservatism of large portions of the British commentariat. For the truth is that the marginal manufacturing job is not well paid.

OK, so these figures are from the US but the same basic story will be true here too: Recent research by the National Employment Law Project (NELP), however, found that manufacturing production wages now rank in the bottom half of all jobs in the United States. In decades past, production workers employed in manufacturing earned wages significantly higher than the U.S. average, but by 2013 the typical manufacturing production worker made 7.7 percent below the median wage for all occupations. During the same time period productivity in the U.S. manufacturing sector increased at a rate one-third higher than in the private, non-farm economy overall. The median wage for production workers in the manufacturing industry in 2013 was $15.66, with 25 percent of these workers earning $11.91 or less.

The actual figures themselves can be checked in this table here.

There are of course very well paid manufacturing jobs: just as there are very well paid services jobs. But the marginal manufacturing job pays less than the average wage. Meaning that if we expand this sector, move people into it, then we will be lowering the average wage of the country. This is also known as making us all poorer.

We could argue two different ways about why this is so. One would simply be that there's people half a world away willing to do those manufacturing jobs for £1 an hour. That inevitably puts pressure on whatever anyone is willing to pay labour here. The second would be that we appear to value the marginal production of more services more than we do the marginal production of manufacturing: thus we are made richer by having more of those services.

But whichever argument we use to explain it it is still true that the marginal manufacturing job these days is not a well paid job. Thus we're not going to increase the number of well paid jobs by increasing the amount of manufacturing we do.

Who has actually gained from globalisation?

An interesting restatement from Branko Milanovic of his earlier work on who has actually gained from the process of globalisation. In effect, absolutely everyone except those on around and about less than median income in the already rich countries as that chart shows. Or, in more detail, it can be seen here.

Real incomes more than doubled between 1988 and 2011

That's globally of course, but that's a vast improvement. 

...it is still the first time since 1820 that global inequality is deemed to have gone down..

For those that worry about inequality that is also a vast improvement. It seems there really is something to this neoliberal globalisation thing then. In detail:

...but whatever adjustment one does, the essential features –the supine S shape—with the peak around the global median and the trough around the 80th -90th global percentile, remain. It is precisely the growth in the middle, fueled by the resurgent Asia, and the quasi-stagnation of incomes around the 80-90th percentile of the global income distribution where Western middle classes are, that have attracted most attention. 

It isn't quite true that "middle class" bit. Not in the English sense that is, although it might be true in the American. It is really those on less than median incomes in the rich countries, that 80th to 90th percentile. And it's worth noting that they have not become worse off in any absolute sense. Sure, their relative position has declined, given the large rises in income of those both below and above them in the income distribution. But their absolute position hasn't changed at all: that's actually the thing being complained about.

We have a word, or phrase for this. If we're able to make someone better off without making anyone worse off then this is a Pareto Improvement. And Pareto Improvements are thought to be a good thing. And what we've managed to do with this neoliberal globalisation stuff is make 90% of humanity better off, 10% no worse off even if not better off. It's thus, quite possibly, the largest Pareto Improvement ever. And thus, of course, this neoliberal globalisation is a good thing. Even, a Good Thing.

No, everyone’s tax returns should not be public

Following the Panama Papers scandal, publishing tax returns is in vogue. The pressure on politicians to release theirs has reached the point that it has essentially become a necessary pre-condition for leading a party or running for President. Those who don’t are assumed to be suspicious and those who do are scrutinised as immoral for paying too little or, apparently, immoral for paying too much because they’re too rich. 

Without being hyperbolic, it is fair to raise concerns about the effect this can have on how people judge what the grounds for electing someone are. Much more worrying, though, is the idea that all tax returns should automatically be in the public domain. As in Scandinavia, the details of how much each taxpayer declares and pays would be available for anyone to peruse online. 

One argument is that fear of scrutiny would reduce evasion and avoidance. In the case of evasion, which is illegal, this makes little sense. The fact that HMRC see your return is enough of a disincentive to evade tax. And if your accounting is good enough to get past the government, it can probably outwit over-zealous armchair tax experts.

As far as avoidance, which is legal, goes, it is ambiguous how much of a difference this would make. Would the ‘shame’ of your co-workers and neighbours knowing that you use offshore banking or pay yourself through a shell company be enough to dissuade most people to stop avoiding tax? For those who were dissuaded, it is just as likely that they would declare less rather than pay more, which would perversely promote more law breaking. 

In any case, a far more effective solution would be to simply close perverse or unfair loopholes. However, the real intent of ideas like this is to affect a societal shift that promotes the idea that obeying the law is insufficient and that there is a moral obligation to pay as much tax as you can.

This could result in unexpected and arbitrary changes in the tax system to respond to immediate public anger and increased focus on populist, rather than efficient, tax shifts. It would also foment an unhealthy culture of envy, resentment, and suspicion. Perversely, it could also entrench class divisions and snobbery towards people with below average incomes. Furthermore, Norway and Sweden have had to restrict availability of tax returns, as complete transparency abetted burglary and promoted tabloid voyeurism. 

The sentiment that ‘if you having nothing to hide, you have nothing to fear’ is always sinister and we are already in an era defined by a creeping erosion of privacy. Further attacks on the ability of individuals to conduct their own affairs without being constantly monitored by everyone else can only be negative.

Why shouldn’t companies sue governments?

Trade deals are always controversial and increasingly excite populist rage on left and right alike. The negotiations of the TTIP (between Europe and the US) and the TPP (between the US and East Asia) have attracted an even greater level of hostility than normal, with people who should (and do) know better jumping on the anti-trade bandwagon.

Admittedly, some of the criticism is well deserved. It is not necessary or wise to have conducted the negotiations in secrecy, with details being leaked incrementally. Increased protection for intellectual property may prove problematic. And both deals are regional as opposed to global deals that add to the growing spaghetti bowl network of exclusive deals, adding to complexity and undermining efforts at comprehensive and uniform global liberalisation.

However, the greatest ire magnet is the provision for facilitating investor-state dispute settlement (ISDS). Essentially this allows foreign companies to claim against governments who cause them to lose profits. Pressure has already caused ISDS to be dropped from the TTIP proposals, although it is likely to be brought back, given the US favour it and the EU’s mooted alternative of an investment court system has been held to be illegal by the German Association of Magistrates.

Although ISDS already exists and has been part of most trade agreements, the idea of corporations being able to sue governments is anathema to many people. Surely allowing multi-nationals to sue whenever their profits are curtailed is an attack on democracy, consumer protection, egalitarianism, and the environment?

Equally, though, governments should not have the power to act arbitrarily. Investors and businesses require a predictable environment that does not change at a bureaucrat’s whim. If, for instance, a country shuts down its nuclear power plants unexpectedly and without good reason, the owners of the plants are not being unreasonable in seeking compensation, given that they invested on the reasonable assumption that this would not happen.

Whilst companies act out of self-interest, this can produce good results. It may be popular for a country to, say, pass laws against smoking. A tobacco company seeking compensation may only be interested in its own bottom line. But the effect of this threat can be to prevent an incursion into the lives of individuals who should decide for themselves whether to take risks like smoking.

The biggest fear is that TTIP will force privatisation of state assets. This is mostly incoherent nonsense. It is true that companies who are victim to nationalisation of their assets will be able to sue for recovery of lost profits, hence the popular meme that, ‘privatisation of OURNHSTM could never be reversed’.  This is a distortion. 

ISDS does not give investors the power to change government policy, and allowing other providers to compete with OURNHSTM has been expressly ruled out. All that would be required is compensation of companies losing out from re-nationalisation, which is eminently fair. Also, privatisation would actually need to happen in the first place, which is highly unlikely, given the quasi-religious fervour surrounding OURNHSTM.

Execution of government policy is regularly challenged through judicial review. Suing for lost profits, and even loss of prospective profit, is a standard remedy in contract law and tort. The fact that ISDS is arbitrated through confidential international tribunals is necessary given the international nature of the disputes and often positive given it is governed by institutions like the London Court of International Arbitration, which more reliable than many national courts. Not to mention that all arbitration is confidential and much of it is conducted internationally anyway. 

Nothing about ISDS is especially radical. 

What did anyone think would happen with a higher minimum wage?

That the Chancellor insisted that the national living wage came into being is true. That this is a rise in the minimum wage for those over 25 is also true. And that there will be some adaptation in the labour market to this is also blindingly obviously true. How could it be otherwise? It is thus with some astonishment that we see people who in general would support a higher minimum wage complaining about the effects of a higher minimum wage. For example, this letter from Liz Kendal MP:

The workers told me that the premium rates for night shifts, weekend and bank holiday working and overtime have been cut and in some cases would ultimately be phased out. Each and every one of the workers present was deeply concerned that they would end up worse off as a result of these changes, despite recent increases in the national minimum wage.

It's not despite such increases, it's because of such increases. The employers gain some amount of value from employing that labour. If they must pay more in direct cash wages for said value then they will attempt to cut back on less direct payments, those which go to make up total compensation even if not direct wages, to compensate. For the value of the labour to the employer has not changed: thus that same total compensation is still the amount they are willing to pay in total for that labour.

Surely there's nothing very difficult about this?

At the meeting Mr Davey and Mr Fletcher did not deny that the the changes to employee contracts were at least in part influenced by the impact of the higher minimum wage. They confirmed that around 15% of the 2000 people who work at you Bradgate Bakery will be worse off - that is 300 people in total.

Yes, who thought it would be different?

I want to emphasise how extremely concerned I am that at least 300 people who work for Samworth Brothers in my constituency will be worse off, when they should be getting a pay rise because of increases in the national minimum wage.

But there's the thing  eh? They are getting a pay rise as a result of the national minimum wage. It's just that the combined effects of the pay rise and the reactions to it leave them worse off. Which is rather what we've been saying all along about minimum wages, is it not?

You'll not make everyone better off by forcing employers to raise wages.

Lenny Henry's plan for BBC privatisation

This isn't quite what Lenny Henry has said about the BBC. But it is what he means about the BBC. The organisation needs to be punted off into the private sector as soon as possible. For what he says here is entirely true:

 On Sunday night at the Bafta TV awards we all heard impassioned pleas to protect the BBC from government intervention – let the TV people make great, award-winning programmes, while the politicians can do politics. We don’t want politicians interfering with Saturday TV scheduling. We don’t want the government deciding the running order of the Today programme.

Quite so, we don't want politicians involved in any of those things. And yet the BBC is funded by a tax upon us: yes, Gordon Brown finally admitted that the licence fee is indeed a tax. And politicians will always insist that they should be allowed to determine, indeed that they must determine, how tax money is spent. Thus, as long as the BBC is funded by taxation politicians will keep sticking their oar in.

The inevitable conclusion of Henry's demand is therefore that the BBC must be privatised in some manner. And how glorious it is to see that all the assembled luvvies agree with him. This might be the first time that both the ASI and the arts establishment have ever been in agreement.

It's really very simple: if you don't want politicians telling you what to do then you cannot have politicians telling you how much money you've got to do things with.

Immigration is no reason to leave the EU

I’ve become extremely pessimistic about the Leave campaign lately as it has latched on to Faragist arguments about immigration as a major reason to get out of the EU. This is not just naïve liberalism – on virtually every count, the critics of EU immigration are wrong.

A new paper from the LSE’s John Van Reenen and others summarises the existing research.

Jobs

In normal times we wouldn’t expect immigrants to take natives’ jobs. But what about during and after the Great Recession?

Nope. Well, it doesn’t look like it anyway. None of the other more sophisticated studies from before the crash show a relationship between immigration and native unemployment, and certainly an eyeballing of the post-crash data doesn’t suggest that that’s changed. 

Local authorities also don't show any statistically significant association between immigration and native unemployment.

Wages

The national figures don’t seem to suggest a wage depression effect, but it’s less clear – since the Recession immigration has been rising and wages have not. So let’s look at local authorities and see whether areas with high levels of immigration have had lower wage growth.

Again, no. There’s a very mild downward slope that is statistically insignificant (indistinguishable from zero). The same trend exists at the local level for jobs too, and for “NEETs” (young people Not in Employment, Education or Training).

Even unskilled Brits, who some previous studies have shown suffering a small negative wage effect from immigration, don’t seem to have clearly suffered since 2008 because of immigration.

This isn’t terribly surprising, even if we take a fairly simplistic supply and demand view of things. Immigrants supply labour, yes, but they also demand labour – they spend their incomes on groceries and other things, creating about as many jobs as they’ve taken. That’s a very crude way of putting it, but it might help us to understand why the empirics look so benign.

In both jobs and wages you can correctly say that these don't tell us what the counterfactual is – maybe unemployment would have been even lower without those immigrants. Maybe, though the local authority data undermines that. But there's certainly nothing here that suggests that this is the case.

Taxes and the welfare state

I think most readers of this blog will be unsurprised to hear that EU immigrants make a fairly significant positive contribution to the public purse – most enlightened free marketeers realise that the big costs to the state are of looking after old people, not benefit scroungers.

But the actual contribution of £15bn in the decade up to 2011 (ie £1.5bn/year) is quite something, especially when you consider that we had a hefty deficit for much of that period, so the average person in Britain was a net drain on the public finances.

In other words, as the paper points out, EU immigrants are subsidizing the welfare state, allowing the deficit to be a little bit lower now than it would be otherwise. They don’t increase NHS waiting times, don’t slow down the education of native British kids (poor language skills are offset overall by good old fashioned hard work and determination), haven’t driven up crime disproportionately, and are less likely to be in social housing than native Brits, though that last finding might control for too much.

One area where EU immigrants may make things worse is house prices. (And a plague on yours if you think higher house prices are a good thing.) In fact, even though they add to pressure on aggregate they don't drive prices up locally, but only because natives move away, which certainly isn't a good thing. But readers of this blog, again, know the real cause of, and answer, to the overall problem: build more bloody houses. 

Of course, none of this matters

The paper is worth reading in full, and as a comprehensive guide to what we know about EU immigration it’s incredibly useful. In particular its discussion of the impact of immigration on productivity is useful and clear.

I doubt this will change anybody’s mind, though, because anti-immigration types have a very annoying tendency to employ motte and bailey arguments about immigration: they make strong, testable claims that immigrants hurt the poor, are a drain on the state, etc, but when you show them that they’re wrong they retreat to woolly arguments about the social impact of immigration.

Those social impacts are very important too, but if those are what anti-immigration people care about, then they should stop making false claims about the economics! As it is I can only assume that they don’t care about the truth and see themselves as fighting a war where dirty tricks are acceptable.

Many also seem to conflate the social problems we have with, say, Eritrean refugees with the social costs of EU immigration. As Ed West reminds us, that’s silly. And although most people imagine that Eastern European immigrants dominate EU immigration, they actually account for less than half of EU immigrants in the UK; and around half of current inflows from the EU. Your social case against EU immigrants had better be as much about the harm caused by Spanish university graduates as by Polish builders.

As for the people saying that we simply need ‘control over our borders’ in principle, that would preclude us from ever signing any free movement treaty with any country, and tearing up the ones we have with Ireland, the Channel Islands and the Isle of Man in order to protect this principle.

On this front at least the Leavers are barking up the wrong tree. There are many good reasons to want to leave the EU. Curbing immigration isn't one of them. 

This isn't quite how this democracy thing works Mr. Romney

We are not, to put it mildly, supporters of Donald Trump nor of many to most of his policies. We are enjoying the shellacking he's giving to the political establishment and that enjoyment extends to that on offer from Bernie Sanders too. But to enjoy the show is not to endorse the specifics on offer. However, we do think we need to correct Mitt Romney on a point here. There is very little that disqualifies The Donald (or Bernie) from the Presidency. And tax returns definitely aren't it:

Donald Trump is under growing pressure to release his tax returns after Mitt Romney, the Republicans 2012 presidential candidate, said failure to do so disqualified him as president.

The issue threatened to become overshadow Mr Trump’s scheduled meeting with senior Republicans on Capitol Hill on Thursday after the candidate backtracked on a previous pledge to make his returns public, as is traditional for presidential nominees.

Mr Romney, who has already said Mr Trump should not be the Republicans’ candidate, hit out on Facebook after the property tycoon - who claims to be worth US$10 billion - said he was unlikely to release his returns before November’s election because they are currently being audited by the authorities.

“It is disqualifying for a modern-day presidential nominee to refuse to release tax returns to the voters, especially one who has not been subject to public scrutiny in either military or public service,” Mr Romney wrote.

It's perfectly fine to state "I do not think he should be President because...." but not to throw up some idea that this or that "disqualifies". Because you've got a set of rules about who may or may not be President already:

No Person except a natural born Citizen, or a Citizen of the United States, at the time of the Adoption of this Constitution, shall be eligible to the Office of President; neither shall any Person be eligible to that Office who shall not have attained to the Age of thirty five Years, and been fourteen Years a Resident within the United States.

Someone who meets that and gets a majority in the Electoral College gets to be President. That's actually what this democracy stuff means. That, subject to those simple rules, whoever the people choose gets the gig. Whether you or other members of the establishment agree or not. It's not just what democracy means it's the entire point and purpose of it. That the people get to choose the ruler free of the constraints of order of birth, membership of a particular class, considerations of race, wealth, and yes, even relationship with the tax or any other form of law. Or, of course the filtration system of the establishment.

We can think of all sorts of reasons why President Trump may or may not be a good idea. But it is absolutely wrong to say that he is disqualified in any manner: until we hear the results back from that Electoral College of course.

We're parking up the wrong tree

With air pollution linked to nearly 40,000 deaths every year, tackling London’s air quality crisis will be one of new Mayor Sadiq Khan’s biggest priorities. It’s a shame then to see that he’s neglected one free market solution on offer. Using market demand to set parking charges could bring emissions down by reducing congestion and encouraging more people to use public transport. It’d also raise more revenue for Borough councils, allowing them to bring council tax rates down.

People often talk about parking spaces as if they were public goods, yet as MarketUrbanism’s Emily Washington points out, parking spaces are not a public good like clean air. By breathing in clean air I don’t diminish the amount of clean air available for you, yet this isn’t the case with parking: every person who parks deprives everyone else of that parking space. Giving away a scarce resource for free should be anathema to conservatives, yet bizarrely it’s often Conservative politicians who make the case for either free or heavily underpriced parking. As UCLA Urban Planning Professor Donald Shoup keenly observed “Staunch conservatives often become ardent communists when it comes to parking”. 

For example, last year former Community Secretary (and former ardent communist) Eric Pickles imposed a series of regulations on local councils, making it harder for them to raise revenue from parking charges, with restrictions on parking enforcement and ring-fencing for what the money raised by parking charges can be spent on. Pickles argues that keeping the cost of parking low will benefit both motorists and the high street.

But, the evidence doesn’t stand up. What underpricing parking actually causes is excessive congestion as the scarcity of parking spaces encourages drivers to cruise around looking for an empty space. Prof. Shoup looked at sixteen different studies, which measured cruising behaviour in the central business districts of major cities. He found that they average time spent cruising for a parking space was around 8 minutes, and that at any one time 30% of cars in the traffic flow were cruising for a parking space.

This is no less true when the parking is provided by a council, and not a private landowner or business—we should want government organisations to ape private firms by using prices to clear markets as much as possible.

Cruising isn’t the only way underpriced parking causes congestion. Cheap pricing acts as a subsidy to motorists at the expense of the tax payer. 95% of parking away from home is free to the motorist, and households spend on average £47 a year on parking, a very small fraction of the £1,600 per vehicle spent on fuel each year.  Yet Shoup’s research suggests that the value of a parking space in a major city, is something in the range of tens of thousands of pounds. If motorists bore the true costs of car travel, they’d be much less likely to use their car and more likely to switch to public transport, further reducing congestion.

This reduces air pollution in two ways. By reducing both the total number of cars emitting fumes and the amount of fumes each car emits. As cars stuck in slow-moving traffic emit more than those in free-flow.

What about the risk to the high street? Advocates of free parking argue that charging more for parking will hit high street retailers and further contributing to the long term decline in high street retail. But the evidence is weak. Free parking advocates typically rely on surveys of what drivers say they would do if parking prices change, however as economists frequently find out, revealed preferences can differ widely from stated preferences. 

One study in the German city of Herford found that when free parking was introduced it had no effect on overall sales, but did increase traffic. Shoup’s own research suggests free parking can actually reduce the number of visitors to an area, as free parking encourages long parking stays restricting the number of visitors who can actually park. In fact, in many cases it’s the local workers who take advantage of the free parking spaces., reducing the number of spaces available for consumers.

Pricing parking based on market demand would encourage a more efficient allocation of a scarce resource. It would mean less congestion, cut air pollution, and reduced taxes for Londoners. It wouldn’t hurt high streets and with new technology, it’s easier than ever before.