But *which* right on and trendy thing should I be doing?

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One of those lovely little conundrums is raising its head over in the right on and trendy food movement at present. The problem being, well, which part of being right on and trendy should people sign up to? This has actually got to the point that there's a New York Times opinion piece imploring people to, umm, well, ditch one principle in favour of another:

And yet, if you look closer, there’s a host of reasons sustainable food has taken root here in central Montana. Many farmers are the third or fourth generation on their land, and they’d like to leave it in good shape for their kids. Having grappled with the industrial agriculture model for decades, they understand its problems better than most of us. Indeed, their communities have been fighting corporate power since their grandparents formed cooperative wheat pools back in the 1920s.

For the food movement to have a serious impact on the issues that matter — climate change, the average American diet, rural development — these heartland communities need to be involved. The good news is, in several pockets of farm country, they already are.

"Sustainable" food here means organic. Oh, and small producer: you know, one who cannot get economies of scale because they're running too few acres. but, you know, if people want to produce this way, live on the pittance they can earn in this manner, good luck to them and all who sail with them. and if people want to buy their produce similarly good luck. However, there's something of a problem:

But just as these rural efforts started gaining steam, an unfortunate thing happened to the urban food movement: It went local. Hyperlocal. Ironically, conscientious consumers who ought to be the staunchest allies of these farmers are taking pledges not to buy from them, and to eat only food produced within 100 miles of home.

Montana has perhaps three people in addition to all those cows. And it's a lot more than 100 miles away from any of the hipsters who are interested in small scale organic farming. And those hipsters are all eating local. Which is, don't you think, just so lovely a problem?

Those urban aesthestes are simply missing the point of farming altogether. Which is that it's a land hungry occupation (organic even more so than conventional) so it makes great sense to do that work where there's no people. Farming right by the big cities of the coasts, where land is hugely expensive (because there's lots of people in those big cities) is simply not a sensible manner of using the resources available.

Just so much fun to see the fashionable being hoist on their own petard really.

Sometimes men and women want different things

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Sometimes men and women want different things. Their actions in labour markets are one example of this. That's OK, even if it results from socially constructed gender roles, so long as it leads to good lives for both genders. One recent example of where this might be the case comes in a new paper studying the mathematically gifted. (Hat tip to Stephen Hsu).

Two cohorts of intellectually talented 13-year-olds were identified in the 1970s (1972–1974 and 1976–1978) as being in the top 1% of mathematical reasoning ability (1,037 males, 613 females). About four decades later, data on their careers, accomplishments, psychological well-being, families, and life preferences and priorities were collected.

Their accomplishments far exceeded base-rate expectations: Across the two cohorts, 4.1% had earned tenure at a major research university, 2.3% were top executives at “name brand” or Fortune 500 companies, and 2.4% were attorneys at major firms or organizations; participants had published 85 books and 7,572 refereed articles, secured 681 patents, and amassed $358 million in grants.

For both males and females, mathematical precocity early in life predicts later creative contributions and leadership in critical occupational roles. On average, males had incomes much greater than their spouses’, whereas females had incomes slightly lower than their spouses’. Salient sex differences that paralleled the differential career outcomes of the male and female participants were found in lifestyle preferences and priorities and in time allocation.

Men and women differed widely on a large number of metrics. Particularly, men, much more than women wanted high pay, risk taking, merit-based compensation and, work involving physical objects. On the other hand the top three things women valued more than men were, in order: working no more than 40 hours a week, working no more than 50 hours a week, and working no more than 60 hours a week.

It's OK for people to have different preferences, and it's OK for those preferences to differ not just within groups but across groups. That's because satisfying people's job preferences is what gives them general satisfaction and happiness with their job (shock! horror!) Some people may want men and women to be more alike, and that's fine, but we should do this keeping in mind the costs that may impose on both groups.

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Bad Signals from DCMS

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Yesterday was the final day of a rushed, three week long Government consultation into the elimination of the ‘partial mobile not-spots’ — areas where there’s 2G coverage from some, but not all, of the 4 mobile operators — which cover a fifth of the UK. The Government now considers such gaps unacceptable, and Sajid Javid has warned that he is prepared to legislate a solution should mobile network operators fail to come up with a satisfactory 'voluntary' response.

One of the options the consultation considers is the introduction of national roaming. Via government dictat, mobile operators would be required to enable customers to roam onto a competitor’s network if their home signal were not available.

As the ASI has warned in a submission to the consultation, national roaming would be a terrible idea.

Partial not-spots occur where mobile infrastructure is lacking. To address them we need things like more masts, more powerful equipment and more infrastructure sharing agreements. National roaming does nothing to achieve this, and on the contrary could harm investment and the quality of mobile networks across the board.

A system of national roaming rewards those who’ve invested least in their infrastructure at the expense of those who’ve invested the most. Were it to be introduced, networks could free-ride off the infrastructure of others where their own signal is weak or non-existent, and still 'provide' coverage for their customers. Roaming also creates a strong disincentive for any one operator to invest in infrastructure where there’s complete not spots or signal from all 4 operators is weak, as well as reducing the incentive to spend on general repair and upkeep.

Since mobile networks compete predominantly on coverage and the quality of their service, roaming reduces networks’ ability to differentiate themselves. With consumers less able (or less concerned) to judge the quality of an individual network, the return on investment further lessens.

Roaming could also have potentially disastrous consequences for network’s resilience. Were one network to experience an outage, customers would move en mass to alternate networks. This surge in traffic could overwhelm another operator’s infrastructure, leading to a domino effect of failures. This very real risk to critical infrastructure has long been acknowledged as a key argument against a permanent, ‘any to any’ system of national roaming.

For something that wouldn’t actually improve mobile infrastructure and could actually actively threaten it, national roaming wouldn’t come cheap, either. The government’s back-of-the-fag-packet figures put the cost of mandating roaming as between from £276-400m, compared with projected benefits of only £54-249m.

Creating a robust system of national roaming would be a lengthy, expensive, and complex procedure. There’s a very real risk that forcing mobile operators to divert resources towards roaming would result in the slowdown or scaling back of other projects, such as the rollout of 4G. To add insult to injury, consumers would also have to pay for the cost of establishing and operating roaming, even if it makes their service worse than it otherwise would have been.

For all of these problems, national roaming isn’t even an effective solution to partial not-spots. Roaming would be ‘non-seamless’, meaning that calls would be dropped when a phone switches from one network to another. This means that roaming would do very little to help those travelling by motorway or train and going through patchy areas at speed. Calls made where there’s weak signal also risk being dropped when they would have previously stayed connected, and in some areas connection could ‘bounce’ between operators as the phone tries to lock onto the strongest signal.

Roaming would also impact other, surprising elements of consumer's mobile experience. Roaming on another’s network means that you lose access not only to things like voicemail, but all data services. The practicalities of roaming mean that a phone will probably ‘lock on’ to a network for a few minutes before searching again for a home signal, which means that consumers could be left without internet and other services for a prolonged period of time, despite only experiencing a temporary loss in signal. In addition, a phone which constantly scans for signals and changes networks will deplete its battery far quicker than one locked onto the same operator.

To ask consumers to lose core mobile services and accept diminished handset performance in the name of tackling partial not-spots is frankly absurd. Whilst it may be possible to disable roaming on some devices until needed, the fact that it’s a good idea to do so simply highlights what an enormous waste of time and resources national roaming would be.

Everything so far suggests that introducing national roaming would be a mistake. But when you look at the scale of the problem of partial not-spots, you start to wonder why DCMS even launched this consultation at all.

DCMS point out that 21% of the UK’s land mass is covered by partial not-spots; but they also admit that mobile networks are already working to bring this down. Project Beacon, an infrastructure sharing project between Vodafone and O2 is expected, once completed, to bring this down to 13%, leaving just 2% of premises affected by partial not-spots.

It’s not even clear why the government is so concerned with land mass coverage statistics, anyway. When you look at the percentage of the population with 2G coverage, you see that every operator hits 99%. In addition, spectrum licence obligations mean that 99% of the population will have 4G coverage by 2017 (and developments like voice over WiFI may prove an effective way of  extending coverage and call quality). It’s somewhat misleading, then, to portray a lack of signal as a problem for a significant chunk of the population. Whilst losing signal in rural areas and when travelling can be annoying, it's millions of miles from clear that it justifies such extensive intervention from the government.

At best, national roaming would bring marginal benefits at great cost. At worst, it would be an expensive, time consuming and potentially destructive disaster. It runs the risk of reducing competition and investment, and sucks for both mobile operators and consumers. Hopefully the consultation will convince DCMS that national roaming is a terrible solution to a problem blown way out of proportion. Certainly, the department would be best to focus on projects that would actually improve mobile infrastructure, such as reform of the inaccessible and outdated Electronic Communications Code. National Roaming is one call that it would be good to drop.

 

 

Our visa system is failing international graduate entrepreneurs

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The Entrepreneurs Network has just released a new report. Based on a survey of 1,599 international students, Made in the UK: Unlocking the Door to International Entrepreneurs reveals how the UK’s visa system is failing international graduate entrepreneurs who want to start a business in the UK. Undertaken with support from the Adam Smith Institute and in partnership with the National Union of Students (NUS), we find that a significant proportion of international students – that is students coming from outside the EU – have entrepreneurial ambitions. In fact, 42% of international students intend to start their own business following graduation. However, only 33% of these students, or 14% of the total, want to do so in the UK. Clearly we are doing something wrong.

The Tier 1 (Graduate Entrepreneur) visa was set up in 2012 to encourage international graduates to start their businesses when post-study routes were taken away. However, uptake has been woeful and the results of the survey suggest this isn’t likely to change any time soon:

  • Just 2% of respondents intending to start a business following graduation applied for the UK Tier 1 (Graduate Entrepreneur) visa, with almost two thirds, 62%, saying they didn’t even consider it.
  • Nearly half, 43%, of respondents think their institution is certified to endorse them for a Tier 1 (Graduate Entrepreneur) visa.
  • Only 18% think that the UK has better post-study processes in place for international students than other countries; 32% think it is worse than other countries.

Based on these and further findings, the report puts forward nine recommendations for government, including:

  • Removing the Tier 4 ban on self-employment for those working within an institutional programme (curricular or co-curricular) or other accelerator.
  • Allowing UKTI-approved accelerators to endorse international students in their programmes under the Tier 1 (Graduate Entrepreneur) scheme.
  • De-coupling the risk for educational institutions in endorsing international graduates for Tier 1 (Graduate Entrepreneur) visas from institutions’ Tier 4 license. This should be made explicit in the official Home Office guidance and in the way the Home Office applies its audit procedures for institutions.
  • Reinstating a post-study work visa, de-coupled from the sponsor system, to allow international students to explore markets and industry before finalising their business idea for the Tier 1 (Graduate Entrepreneur) application. In fact, 81% of the respondents considering starting their own business are interested in the possibility of permanent residency under the Tier 1 (Graduate Entrepreneur) visa.

Our visa system isn’t supporting the entrepreneurial ambitions of international graduates. As things stand, we are training some of the world’s best and brightest young people at our world-class universities only to push them to set up their businesses overseas.

Philip Salter is director of The Entrepreneurs Network.

Another reason why Keynesian economics doesn't work

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Let us imagine that this Keynesian idea that government should spend more money in a recession stands. Not that we'd want to give in to the case in general, but let us assume it for the moment. Why might it still not be a good idea to depend upon this tactic? As Larry Elliot explains:

The second drawback is that the investment – even assuming it happens – will take time to arrive. Every EU country has sent in a list of pet projects and these will have to be assessed by a panel of experts before a final list can be drawn up. This is a recipe for bureaucratic delay and the customary horse-trading as each country demands its share of the action. It is unlikely work will begin on a single project until 2016, when what Europe needs is an immediate boost to demand.

That could come in three ways. It could come from a more meaningful push from the centre, perhaps through the European Investment Bank. It could come from nation states if they were given more budgetary leeway by Brussels to run bigger deficits until growth has returned. And it could come from the European Central Bank through a quantitative easing process. The latter is by far the most likely and will dwarf in size what the commission has just announced.

Government, most especially at the EU level, is simply such a lumbering and inefficient giant that it's not possible for it to get such fiscal stimulus moving in the required timescale. Very much like the American experience of insisting that there were all sorts of "shovel ready" projects out there, then finding that government rules mean that nothing is ever shovel ready. There's always a year or more of paperwork to fill out before anything can be done.

With us still accepting the basic premise, that the deficit should widen, that there should be a greater gap between tax revenues and government expenditure in a recession, perhaps we should be looking for something that acts near immediately instead of increased spending? Like, say, an automatic reduction in national insurance payments in a recession? Like, umm, Keynes himself said would be a good idea?

Markets make us better people

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One of the most common objections to market-based societies is that they erode non-market motivations to doing good. Critics, with this objection, say that although markets can in some areas latch onto greed and turn it to society's benefit in some areas ("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") they can also pervert and corrupt existing motivations in domains where markets are inappropriate. Consider blood donations: many argue that if you start paying for blood donations then people will stop seeing them as a good deed but as a market activity, and lose their 'intrinsic motivation' to give blood. Overall you might get less blood, or less good blood than before, even though you're now spending money to get it. Back in 2012, Harvard communitarian political philosopher Michael Sandel (famous for his online lectures), wrote a hugely popular book What Money Can't Buy: The Moral Limits of Markets making roughly these arguments (read a wonderful review here).

These questions are discussed widely, but what's weird is they tend to be tackled mainly with a priori thought experiment arguments like mine about blood, above, and anecdotes, even though they are empirical questions. We can actually test whether you get less or worse blood when you pay for it! (You don't) We can test whether people are less pro-social when you add extra market institutions!

A new paper by Björn Bartling, Roberto Weber and Lan Yao, "Do Markets Erode Social Responsibility?", in the Quarterly Journal of Economics tries to do as much:

This paper studies whether concerns for social responsibility persist in repeated market interaction. We develop a laboratory product market, in which socially responsible behavior by firms and consumers involves incurring additional production costs to mitigate potential negative externalities imposed on individuals otherwise uninvolved with the market.

The data from Study 1, conducted in Switzerland, show, first, that there is a non-trivial share of socially responsible products supplied and demanded in all our market conditions, and that—importantly—the market share of the fair product is stable over time in all conditions.

Second, the socially responsible product, which costs more to produce, sells at a price premium that persists with market experience. In most cases, this price premium increases over time, suggesting that consumers’ willingness to pay for socially responsible products is not eliminated with repeated market interaction. Third, we show that individual-level market behavior is consistent with a preference for positive social impact, though such concerns are heterogeneous.

In other words: markets do not erode existing pro-social motivation; they complement it.

Pay is determined by your best alternative job

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Economic theory tells us that we really ought to be paid our marginal productivity. And no one at all believes that that actually happens in detail. However, we can take a step back to a point which even Karl Marx got, which is that your pay will reflect the demand for labour. More specifically, the better the alternatives you have the more your pay is going to go up. And here's a nice little story from the Frozen North to illustrate that:

There’s been a lot of attention paid to how Canada’s oil boom has helped make gasoline cheaper. What many people may not realize is that the boom is also driving up the prices they pay for burgers and steaks.

Surging energy investment in Prairie Provinces, home to most of the nation’s farms and cattle ranches, has boosted domestic crude output to a record and sent pump prices to a three-year low. That’s led to jobs on drilling rigs or pipe crews paying two-thirds more than those in livestock, luring cowboys and beef-plant workers to the oil patch.

By cowboy there they really mean more what we English might call a cowman, rather than some Bill Cody type. But it's obvious what is happening. There's no more to do out on the prairie than just oversee the creation of cowpats and that's driving up the wages of those who are there. It's the very same process that leads to a hairdresser making very much more money in the UK than one in China does: the pay of hairdressers is not determined directly by the productivity with comb and scissors, rather by the pay on offer in the next alternative job.

This doesn't mean that the economic theory is wrong though: only that it operates in a rather clunky manner and so is something that gets tended towards rather than an equilibrium state at which we all always exist. As higher productivity jobs appear then they will tempt away some of the labour force. And so all wages tend towards the productivity of the work being done.

At which point we might have a little snark about the UK. There's a lot of complaining going on that the jobs being created these days aren't very well paid, something which is true. But it's also true that the highest productivity jobs in the UK have for some decades been those in wholesale finance in The City. Which is exactly the sector that those same complainants are determined should shrink.

Just like oil wells push up wages for cowboys, so does shutting down highly paid jobs in banking reduce other wages in the same economy.

The plain truth about plain packaging

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I suppose you have to try policies out before you conclude whether they've worked or not. But now we've tried out plain packaging and it didn't work according to its own aims, can we maybe give up on it? A new paper from scholars at the RMIT in Melbourne, aptly entitled "The Plain Truth about Plain Packaging: An Econometric Analysis of the Australian 2011 Tobacco Plain Packaging Act", and the first proper study of the scheme, brings the news.

Ronald Coase famously argued that if you tortured the data long enough they would confess. In this paper we have tortured the data, but there has been no confession. At best, we can determine the plain packaging policy introduced in December 2012 has not reduced household expenditure of tobacco once we control for price effects, or the long-term decline of tobacco expenditure, or even the latent attributes of the data.

To the contrary, we are able to find a suggestion that household expenditure of tobacco has, ceteris paribus, increased. In our forecasting exercise the actual data come close to breaking through the 80 per cent confidence interval. While we do not want to over-emphasise these results, we do conclude that any evidence to suggest that the plain packaging policy has reduced household expenditure on tobacco is simply lacking.

Of course, the ASI had already been suggesting this is the result we would find based on simpler analyses; and don't forget that it is not a costless policy. If smokers derive extra pleasure when they smoke from getting their cigarettes from attractive branded packets then this is a benefit of branded packets, not a cost. And note that underage or young smokers, typically short of cash, tend to smoke cheaper cigarettes—Richmonds and Mayfair were my friends' choices when they were 14.

Funnily enough, this paper's release coincides with new evidence from the Office for National Statistics that e-cigs do not bring non-smokers into the tobacco fold.

E-cigarettes are almost exclusively used by smokers and ex-smokers. Almost none of those who had never smoked cigarettes were e-cigarette users.

Not really a surprise. But then even if e-cig users did include some who had never smoked before, this doesn't imply that they moved from (safe) e-cigs to (dangerous) cigarettes. What's more e-cigs have a number of benefits, that I tried to sum up when the EU tobacco directive came up in April, as part of a case that the anti-smoking crackdown has gone too far.

1.  Nicotine has many substantial positive effects

2. Smokers overestimate the dangers of smoking

3. Passive smoking may not be dangerous (at least to women)

4. Smoking is social, enjoyable, creates identity and meaning, and relieves boredom

5. Lifetime health expenditure is lowest for smokers

(If I was writing today I might add 6. Smoking substantially reduces Parkinson's Disease risk, especially if you do it lots and don't stop and this is true for other diseases as well).

The point is not that we should all start smoking, although there is actually a good case that nicotine is a nootropic—see the first link above—it is more that smoking has substantial benefits to the individual (as well as the noted health costs), and relatively low net costs to society, especially when you factor in the huge amount smokers pay through tobacco taxes. When we turn 'smoking' into 'smoking e-cigs' the costs evaporate, probably entirely, and the benefits remain.

Cracking down on traditional tobacco may have gone too far—but cracking down on ecigs is crazy.

The problem with Pigou Taxes

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As regular readers will know (often to their great annoyance) I am a great supporter of Pigou Taxes to deal with externalities: most especially a carbon tax to deal with climate change. More generally around here at the ASI we're all agreed that they're a very useful tool if not quite the perfect one stop solution economists sometimes portray them as. the problem being, well, it's the problem with so many things actually: politics. As an example, here's the latest little populist campaign being floated:

More than 30 MPs of all parties are backing a motion to stop charging Air Passenger Duty on flights for children who are between the ages of two and 11.

They say that families with school-age children already pay a premium for having to travel in the school holidays, and should not have to pay extra punitive taxes.

It's true that APD is set at too high a level which is one problem. The existence of an externality (in this case, emissions from flying) does not mean that that activity should be taxed at some punitive rate. It means that there is a correct level of taxation to apply to it. And it was several rises in APD ago that it was at that correct (Stern Review derived, $80 per tonne CO2-e) level.

So that's the first problem with a Pigou Tax. Give a politician an excuse to tax and he'll over-tax.

But the second problem is illustrated neatly by this current campaign. Assuming that emissions are a problem are those made by children flying any less damaging than those made by adults doing so? Not for any reason that we can see, no. Therefore there shouldn't be an exemption. But it's all too easy for a politician in the run up to an election to miss the point and purpose of such taxation and promise sweeties to the electors.

Politics really is a problem with Pigou Taxes.

However, this doesn't mean that they're contra-indicated, only that we've got to be both careful and precise with them. After all, all other taxes are subject to exactly the same political interference. But providing that we've identified an externality accurately we're at least doing some good with a Pigou Tax: which is more than can be said about taxes upon capital, corporations, incomes or general consumption. And yes, we do need to get the revenue from somewhere.

Do we really want Theresa May to decide who speaks at universities?

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We already have a burgeoning anti-free speech movement coming organically from politically active students so perhaps it shouldn't be surprising that Theresa May wants to chip in as well, seeking the power to pick and choose who gets to speak at UK universities.

New powers for the home secretary to order universities to ban extremist speakers from their campuses are to be included in the counter-terrorism bill to be published on Wednesday, Theresa May has announced.

The bill will also place a statutory duty on schools, colleges, prisons and local councils to help prevent people from being drawn into terrorism, the home secretary said.

She said universities would have to show that they have put in place policies to deal with extremist speakers.

“The organisations subject to the duty will have to take into account guidance issued by the home secretary. Where organisations consistently fail, ministers will be able to issue directions to them “which will be enforceable by court orders”, May announced.

Since we already have laws against inciting violence, presumably these laws will not really help crack down on terrorism advocacy which says 'go and blow people up'; to be useful at all to courts and the government it must have a wider remit. Thus, it seems like more marginal 'extremist' figures will be targeted; not just Muslim clerics the government doesn't like, but perhaps pick up artists deemed to advocate violence against women, or perhaps anti-abortion campaigners (note what the UCSB professor called the poster-holding campaigner).

Practically every political viewpoint of today would have been judged inconceivably radical and/or extremist to almost anyone from 17th Century England. The benefits of free speech come from the free exchange of ideas, a process which often weeds out bad ideas and leaves good ones alive. To guarantee we enjoy their continued benefits we have to stand against even the smallest, least objectionable infringements made—wherever they come from. Even ugly speech must be protected if we are to enjoy these prudential benefits.

Even if free speech ought sometimes to be curtailed in general, to make some areas 'safe spaces' for unprivileged groups who would otherwise be made very uncomfortable, it seems like universities are one place where we are best placed to let it run wild—you would think that they are bastions of smart, open-minded free inquiry.

Theresa May surely realises from her struggles with the European Court of Human Rights that laws can have unintended consequences. It is surprising that she seems so unworried about handing future Home Secretaries the right to decide what speech goes on in our universities.