No, socialism is still a really bad idea, even with a spine

The Guardian treats us to a long read about what socialism should be for the future. There's something of a pity to it as John Quiggin is usually better than this. The definition of neoliberalism wanders around too much, equating at times the US meaning (let's be good progressives but use markets to do so) to our own full on embrace of and cheerleading for markets and economic liberty globally.

The definition of socialism similarly changes, at some point meaning just a bit more redistribution, at others wholesale restructuring of everything. But there is still the one great glorious error:

A socialist program would allocate much less economic activity to big business, and more to other forms of organisation. In deciding what kind of economic activity belongs where, a range of considerations are relevant.

This is to be the Fat Controller with the economy (no, Quiggin has lost weight, this is not that insult). It is to think that we can allocate across the economy in this manner. And the truth is we cannot, which is the great failure of exactly this sort of socialist planning of it.

We can most certainly change the rules. We could make coops more privileged over more capitalist forms of organisation, certainly. We can change how much redistribution we do. Raise or lower tax levels, there are all sorts of things feasible. But allocation isn't one of them.

For people react to changes in those rules - that being a useful description of economics itself, how do people react to changes in incentives? One of the rather important points being that the reactions can be different from those envisaged. Making food nice and cheap by fiat doesn't lead to cheerful farmers delivering the stuff up, it leads to them not growing any. Allocating a sector to small business rather than large isn't going to work well. For there's clearly a good reason why it's being done on a large scale in the first place, isn't there? 

We've tested the idea of socialist planning and allocation to destruction, we generally refer to that experiment as the 20th century. There are still useful discussions to be had about making the world a better place but a return to that failed idea isn't one of them.

Are markets efficient?

Today is a very good excuse to post this video, which I also came upon today, posted on Twitter on the occasion of Richard Thaler winning the Nobel Prize in economics. Thaler and recent Nobelist Eugene Fama have a very pleasant, wide-ranging, and clear discussion about, and debate over, market efficiency.

This is also a good excuse to link to an essay on the history of the divergence between experimental and behavioural economics. The differences between the two might seem to be superficial, but they turn out to be fundamental.

To the late, great, Bob Bee

Robert Bee, 1925-2017

We were sad to hear of the death of Bob Bee, 92, former Chairman of the Adam
Smith Institute. He was a US citizen, but moved to London in 1978 to become
chairman of the London Interstate Bank. As a fervent supporter of liberty and free
markets, he joined the board of the Adam Smith Institute and soon became its
Chairman. He used his extensive City contacts to bring the ASI to the attention of
big names in business and industry, and encouraged them to participate in our
activities.

It was under his chairmanship that the ASI rose to prominence as a leading
exponent of the market oriented policies that ultimately unpicked the Keynesian
postwar consensus and lifted Britain out of the nightmare of rent controls and
nationalized industries.

Like others in the ASI, he had a mischievous sense of humour and was an
unfailing optimist and enthusiast, seeing problems as opportunities. It was only
gradually that we came to know that he had fought as a teenage GI in the Battle
of the Bulge, winning a bronze star.

Bob Bee2.jpg

His previous career had included a stint in the foreign service of the US Treasury,
and in Wells Fargo's International Division. Bob’s work in international finance
included posts in Ankara, Turkey, Bonn, Germany, and Karachi, Pakistan, where
he was Acting Director of the US Agency for International Development's
mission.

He took part enthusiastically in ASI activities, befriending its young staff. One of
their annual highlights was the dinner at his house, at which many different ice-
creams and sauces were served from a giant silver Indian dispenser originally
used for serving different spices. He accompanied ASI personnel to Downing
Street on several occasions as guests of the Prime Minister.

After he retired with wife, Dolores, to San Francisco, he continued his
association, and looked forward on regular visits to London to meeting the ASI's
youngsters over lunch. He told us many times how privileged he felt that he had
been able to play a role in events that shaped history. We in turn were privileged
to have known him and to have benefitted from the massive help and support he
gave.

As we thought there would be, there's a problem with this shared parental leave

We should note that this idea of shared parental leave is something that stemmed from this very blog at least in its British incarnation - the incarnation of the policy, not the blog of course. We pointed out a number of years back, and have repeated ad nauseam, that we don't in fact have a gender pay gap. We've a pay gap caused by the gender bias in primary child carer within a family. This was picked up by varied LibDems and so we got shared parental leave.

If 50% of fathers become the primary child carer and only 50% of women do in their familial arrangements then that gender bias will disappear as will the gap. That is also pretty much he only way that the gap is going to disappear.

So, shared parental leave. Unfortunately, not many are taking it:

Launched in April 2015, the government scheme is supposed to help mothers go back to work and allow fathers to take a larger role in caring for their children by permitting parents to split almost a year of leave between them.

Yet the take-up has been pitiful. Just 1% of eligible parents took advantage of the scheme in the year to March, according to HM Revenue & Customs, and one of the biggest reasons so few are doing it is that it doesn’t make financial sense.

The reason it doesn't make financial sense is because there are two different sets of people paying maternity/parental leave.

There is the statutory amount, perhaps £140 a week, which is largely (some 90%) paid out of national insurance receipts - by the reduction in taxes paid by the employer. Then there is enhanced pay which is as with a normal wage cost to said employer. It's them paying some amount to retain the services of the employee and is just a regular cost to them of doing business, paying the workforce.

That enhanced pay is generally only on offer to women, men generally only being offered the statutory amount. Economic logic thus leads to many fewer men taking up the offer. Although, of course, we can be curmudgeonly about this and point out that if men don't value a cut in pay for months of their new child's life then they don't value being there for those months all that much.

The demand is now becoming that men should be offered that same enhanced pay as women. But that then runs into a horrible problem - for the enhanced pay is a cost the employer, not us all through the tax system, has to bear. We can, entirely righteously, all vote on how our tax money is spent, we cannot righteously insist upon how others spend their own money. 

At which point all is best left to the market itself. Just as with that enhanced pay to women of course. Employers pay it because they think it worth it to retain their employees. As and when enough fathers are interested in the same then they will no doubt be offered it - for exactly that same reason that women are. Because it benefits employers to do so.

This is, after all, how we solved the problem before so why not sue that same solution again?  

If payday loans were ripping people off then there'd be a better profit margin than this

For the provision of a good or a service to be ripping people off it is necessary for someone to be making more than a normal profit or income out of that provision. If everyone doing the providing is, instead, just making the normal sort of money then it tells us that this good or service, whatever its price, is just expensive to produce or provide.

At which point some interesting numbers from the payday loan industry. Agreed, these are for the US but still, they're a useful insight:

A federal agency on Thursday imposed tough new restrictions on so-called payday lending, dealing a potentially crushing blow to an industry that churns out billions of dollars a year in high-interest loans to working-class and poor Americans.

The rules announced by the agency, the Consumer Financial Protection Bureau, are likely to sharply curtail the use of payday loans, which critics say prey on the vulnerable through their huge fees.

Currently, a cash-strapped customer might borrow $400 from a payday lender. The loan would be due two weeks later — plus $60 in interest and fees. That is the equivalent of an annual interest rate of more than 300 percent, far higher than what banks and credit cards charge for loans.

OK, agreed, this is expensive. But in order for this to be preying there does have to be some evidence of outsized returns.

The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. 

OK, fees include the costs of running the stores, paying the staff - and no, we don't think that's a highly paid job - covering the defaults and so on.

The restrictions, which have been under development for five years, are fiercely opposed by those in the industry, who say the measures will force many of the nation’s nearly 18,000 payday loan stores out of business.

There are many such stores, we'd expect competition to rather lower the profits of the industry.

A dropoff of that magnitude would push many small lending operations out of business, lenders have said. The $37,000 annual profit generated by the average storefront lender would become a $28,000 loss, according to an economic study paid for by an industry trade association.

We've 18,000 stores each making an average of $37,000, that's total profits of $660 million, a lovely number for something considered so perfidious. There're $46 billion of such loans a year, making the profits 1.43 % of the amount advanced. That's not in relation to capital employed of course but a 1.43 % reduction in interest charged - or fees - would seem to wipe out the industry as a profitable enterprise.

At which point we've our answer, which is that this isn't a rip off as there is no excess profit or income from the provision. It's just a very expensive service to provide.

As to what that means should be done, well. We think that consenting adults should indeed be able to live their lives as they wish. Others apparently don't. But there still isn't any justification about rip offs here to justify that second attitude.

In designing a welfare system - pay cash please

An interesting piece in The Guardian which underlines an important point about welfare systems - they should be paying out cash.

No one doubts that we're going to have some form of welfare system, the arguments are only about how much and how generous. But underlying the basic discussion we really do have to insist that however wide the system is it should be one which pays out real money which the recipients can then determine how to spend themselves:

We all have our own ways of dealing with the insecurity of poverty. For my father, food was a point of pride. No matter how close the wolf got to our door, we ate well. Food stamps helped, but my dad was also thrifty. To make up for splurging on pine nuts, we ate quick sale meat, government cheese, and tuna from dented cans. His resourcefulness paid off. We’d sit down together and eat chicken cacciatore and handmade pasta with garden salad with my mother’s special vinaigrette. He’d survey the table with an expression that seemed to say, “We may be poor, but we eat like kings.”

...

But the facade was deceptive. We weren’t the only family feeling the pinch. In the early 1990s, the Oregon logging industry was in freefall due to increased mechanization and changes in federal environmental policy. Logging jobs evaporated and the mills shut down one by one. When I looked at my classmates, I saw the facade: all-American kids in name-brand jeans and basketball shoes. It didn’t occur to me that other parents were scrimping and prioritizing, buying the kids Nikes and putting off paying the phone bill.

That choice was a matter of pride. Just as my dad attempted to protect us from food insecurity, my friends’ parents were protecting their kids from social scrutiny.

One part of this is that the poor value agency, just as the rest of us do. We are richer by being able to decide how our limited resources - and they are limited for all of us - are deployed to maximise our individual utility. And do not forget that utility is indeed individual.

This is not a universal - there are those we really do think are incompetent to make their own decisions and we also know that we're going to have to take many to most for them. But that's a very small part of any welfare state that is going to exist in any likely political reality. Outside that little arena whatever it is we do as either redistribution or simple social support should be provided in those interchangeable ration coupons called cash - even if these days that will be digital or in a bank account.

There's a flip side to this. US Census, which measures such things, readily agrees that the value to the recipients of Medicaid, food stamps, Section 8 vouchers and the rest is less than the cost of providing them. We could make all such recipients as well off as they are at lower cost, or make them better off at the same cost, by simply providing money rather than coupons, goods or services.

This should then inform our own design of whatever it is we're going to do therefore. Like, for example, housing benefit rather than council houses - in the absence of our actually solving the problem by liberating planning control of course. 

For the truth is it is always more efficient to subsidise people rather than things, agency is indeed valuable and money allows the poor, like the rest of us, to maximise utility within our budget constraints.

Treth Twristiaeth? Dim diolch!

There has a been a lot of news recently so it might have passed you by but something genuinely staggering happened in this country last week. It wasn’t the Prime Minister bungling the most important speech of her life. Nor was it Theresa May getting confused between support for the free market and intervening in it. No, it was the Welsh Government’s budget – with the first taxes to be levied and collected by a separate authority in Wales in nearly 800 years.

Nationalists in Wales will be glad of this fact in and of itself. But should we be? Well powers for their own sake aren’t that interesting, it’s more about what’s done with them.

One of the things that came out of the budget wasn’t actually a plan to use them to create a power but a shortlist of potential new taxes. Mark Drayford, the economy minister of the Welsh Labour government in Wales, set out some possibilities. Among these were a new tourism tax and a new disposable plastics tax.

There is good reason to support disposable plastics taxes and Wales has a good track record on them. Wales was the first place in the UK to introduce a tax on carrier bags and the subsequent drop in use was a cornerstone of the argument in getting it adopted by other parts of the UK. Devolution as it should be – experimenting with good governance, working out what we want less of and using price incentives to change a negative outcome (after all there are some pretty nasty externalities that come out of plastic bags).

The problem is, that makes the second one on the list quite bizarre. Presumably the Welsh government thinks that tourists are a good thing for Wales, it certainly likes to appeal to them to come (and spend their money in local communities). But as we alluded to above we mostly use taxes, like plastic bag taxes, to get less of something.

Tourist taxes make sense where demand is inelastic – there’s only one Sagrada Familia and one Parthenon for tourists to visit after all. And taxing people that free-ride on public costs of keeping places like Venice afloat (literally), makes sense. But where demand is elastic, where it is responsive to price changes, then taxing tourists just makes the numbers coming fall and it reduces the economic benefits of tourism.

While the Tourism Alliance measures elasticity of the UK as a whole, it doesn’t give exact numbers for Wales. Yet there are some proxies that we can use that suggest the Welsh tourism sector is elastic and that this tourism tax would be a pretty poor idea.

The first is simply that the Welsh government advertises heavily both internally and externally - if you get high numbers of visitors turning up regardless of the money you spend telling people to then you wouldn’t bother (you’d hope).

The second is that the Welsh government themselves collect figures of visitors and their and Visit Britain’s own analysis shows swings with big increases in tourist numbers during the recession and dropping after as well as when the weather in the UK is poor (2012 was a particularly rainy summer in Wales and was just as the UK was recovering from the financial crisis).

Thirdly the falling value of the pound has had an enormous impact on numbers coming to Wales. In the past year tourism numbers are up 11%, following a drop in the pound after the Brexit vote.

The tourism sector supports 40,000 jobs in Wales, boosts GDP by £4.8bn per annum and the evidence suggests this (and the numbers of tourists coming in the first place) is price sensitive. If the Welsh Government wants to use a sector as a cash cow then tourism really isn’t the one to go for. Maybe it would be good for Wales to wait another 800 years before adding any additional taxes?

Strengthen neoliberalism & change the world

What sort of traits make someone amenable to neoliberalism? An inherent scepticism about the role of authority? A general optimism with a strong belief in one’s own self-worth?

It feels obvious that such traits are held by just a minority of people in society. Yet, one only needs to look at the scale of government reform that occurred across the developed world during the 1980s and ’90s to see something big was going on. Surely, the extent of policy changes far exceeded what was due to the minority amenable to neoliberalism. What caused this out-sized influence? And what does it suggest about how we can better spread neoliberal ideas?

A brief discussion of banking deregulation in the developed world suggests the sharing of credible policy experiences spreads neoliberal ideas. I support this by describing why I believe having societies share policy experiences acts like a filter, making neoliberal policies the ones more likely to be adopted. Organisations like the Adam Smith Institute devoted to spreading neoliberal ideas should encourage societies to share their experiences of different policies.

By the 1970s, the economic controls of banking put in place during and following the Great Depression were creating a raft of problems across the developed world. As a credible acknowledgement of these problems, some governments started instituting policy changes – it became more pressing for other governments to follow suit. For a 2011 MA thesis, I completed research studying banking regulation in seven developed countries: Australia, Canada, Germany, Norway, New Zealand, the UK and the US. Of these, all 7 significantly deregulated their banking industries between the mid-1970s and the 1990s.

It seems likely that the sharing of policy experiences, made more credible by accompanying policy changes, played a big part in why all 7 of my countries deregulated banking at roughly the same time. What’s to say though, that neoclassical policies will always be an outcome from such sharing? For example, the OECD Secretariat shares policy experiences between governments; neoliberal is not often used to describe the policies it recommends. 


To be effective at promoting neoliberal policies, sharing needs to focus on the people in societies, and not on their governments. Defined broadly, it is societies that experience the full costs and benefits of different policies. Putting societies first acts like a filter generally removing more statist policies. Since intrusive government actions often have unintended consequences, it follows that reductions in the intrusiveness of actions will have fewer unintended consequences. This implies that societies will generally be more positive about and better at sharing policy changes that result in less intrusive government actions.


At the beginning of this post, I asked what factors might strengthen neoliberalism. A description of banking deregulation across the developed world suggests the sharing of credible policy experiences may achieve this. Having societies share policy experiences will act like a filter to ensure it is generally neoliberal policies that are spread. To strengthen neoliberalism, its proponents should encourage societies to share their credible experiences of different policies.

A bizarre argument about womens' empowerment

An interesting claim here, that we should indeed be concerned about womens' empowerment - something we agree upon at least - but that we must concentrate on their political empowerment, not the economic:

The assumption behind all of these donations is the same: Women’s empowerment is an economic issue, one that can be separated from politics. It follows, then, that it can be resolved by a benevolent Western donor who provides sewing machines or chickens, and thus delivers the women of India (or Kenya or Mozambique or wherever in what’s known as the “global south”) from their lives of disempowered want.

Well, yes, we tend to think that those who are dirt poor are not empowered in any meaningful manner. Further, that the very fact that one starts to create economic value empowers. Either through being able to command that economic value itself - we do all tend to agree that richer people have more life freedom - and also by being able to trade it. Other people would like to share in that value created, this gives you power over them.

In fact, a useful definition of either wealth or empowerment is the ability to command the labour and resources of others. Richer people, even if it's only be a couple of laying hens, have more of this. 

But apparently we're wrong:

It’s time for a change to the “empowerment” conversation. Development organizations’ programs must be evaluated on the basis of whether they enable women to increase their potential for political mobilization, such that they can create sustainable gender equality.

Somehow we just can't agree with the idea that another march on the district office in favour of gender parity is going to be as successful as women owning economic assets, such in itself being most empowering. One of the joys of our argument is that Karl and Friedrich would agree with us. The relations of production really do mean that a change in the economic structure leads to a change in who has the power. That is, if, as they do now in the rich world, women have more economic power then they will also have both greater political power and greater gender parity.

Economic development thus bringing about the desired goal rather than being an alternative to it.