One cheer for democracy


Today (20 January) is hailed in the UK as Democracy Day – the 750th anniversary of the establishment of the first parliament of elected representatives in Westminster. Let's not get too dewy-eyed. We classical liberals are democrats, but we are sceptical democrats. Yes, some (minimal) functions require collective action. We think that the public, not elites, should make those decisions - and that representative government is probably the best way to do it. But we are fully aware hat the democratic process is far from perfect. It is not about reconciling different interests (as markets do), but about choosing between conflicting interests – a battle in which only one side can win. Democracy is tainted by the self-interest of electors, of representatives and of officials; it can produce deeply irrational results; and all too often it leads to minority groups being exploited, and their liberties curbed, all in the name of ‘democracy’.

That is why democratic decision-making must be bound by certain rules, and should focus, with precision, only on those issues that cannot be decided in any other way. Many people (and almost all of those who happen to be in power) argue that more and more things should be decided through the democratic process. But that means deciding them through the political process; and politics is not always a benign force. The more things that are decided politically, the easier it becomes for the rights and liberties of individuals to be eroded, and for minority groups to be exploited or suppressed by those who are wield the coercive power of the state.

But rights and freedoms are for everyone: they are not a matter of numbers and majorities. Election success does not license the winning majority to treat other people exactly as it chooses. The power of majorities needs to be restrained.

That restraint really has to come from within the understanding and culture of the people. A constitution might curb the excesses of politicians for a while, but even countries with seemingly strong liberal constitutions are not immune from rapid increases in the size of government and from the erosion of individual rights and liberties by majorities. Constitutional freedoms are hard to protect if the general public loses its understanding of their importance and its will to protect them. Let's hear it for Limited Democracy Day.

Never mind the quality of the Green New Deal just feel the width


The Green New Deal has another of their little reports out. Essentially saying the same as all of the previous ones. Print more money to spend on all that Caroline Lucas holds dear. But it really does have to be said that the level of economic knowledge that goes into these reports is not all that high. We've for some years now had the egregious Richard Murphy shouting that we should just collect all hte tax avoided and evaded in order to beat austerity. He not realising that collecting more tax is austerity. For it reduces the fiscal stimulus as it reduces the budget deficit. And of course, there's a similar gross error in this latest report:

No Need to Repay QE Since QE involves a central bank putting new money into circulation by creating e-­‐money and using it to buy assets, this will not increase Europe’s debt levels according to the originator of the term ‘quantitative easing’, Professor Werner, Director of the Centre for Banking, Finance and Sustainable Development at the University of Southampton. He states that since the central bank can simply keep the assets on its balance sheet then there is no need for taxpayers to pay or to expand public debt. The assets should simply stay on the central bank balance sheet. Furthermore, this debt, which would be owed by the government to the central bank would not have to be repaid, as Adair Turner, the former Chairman of the UK Financial Services Authority has made clear. In the European context, the EIB is the European Union's bank, owned by and representing the interests of the EU Member States and so the debt that the EIB would incur through Green Infrastructure QE would also not have to be repaid.

Well, according to that first paragraph I've no need to repay my mortgage as I used the loan to buy an asset. But leaving that aside note the deep appreciation of matters economic on display here.

QE is the central bank creating money to purchase assets. Therefore the EIB can and should do this. But the EIB is not a central bank with money creating powers. It's an EU development bank that borrows on the usual capital markets for funding. The EIB simply cannot do QE because it's not a central bank.

We might not expect any more insight than this from a combination of Caroline Lucas, Richard Murphy and Colin Hines. But Larry Elliott has always been rather more sound than this: is he still with this group or has he left in disgust?

Cameron's 'full employment' pledge isn't very convincing


Earlier today in Ipswich, Prime Minister David Cameron pledged to turn Britain into a nation of “full employment”, aiming to overtake Germany for the top percentage of people in work. From the BBC:

The PM is aiming for Britain to have the highest percentage of people in work of any developed nation.

Labour said the Conservatives' promises would sound like "empty words" to the unemployed or those on low pay.

Mr Cameron's goal of "full employment" would involve the UK, currently 72%, overtaking Germany's 74% in terms of the percentage of people in work, said BBC assistant political editor Norman Smith.

There is no timescale, but it is an "aspiration which he wants to achieve", he added.

It’s a nice ‘aspiration’ sure, but Labour’s not the only group to think these are ‘empty words’ coming from the PM.


His pledge to bring full employment to Britons includes measures to increase the number of start-up loans provided by the government, as well as plans to invest in infrastructure, which he hopes will attract business and support new apprenticeships. But no word about changes to the minimum wage. Not a word about the personal allowance or National Insurance tax.

Research that my colleague Ben recently highlighted shows what a negative effect the minimum wage can have on unemployment – it's estimated that “minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point(s)” in the United States during the late 2000’s.

What’s more, a job is significantly less valuable to the newly employed if she is still unable to provide for herself and her family. At the same time the PM scraps the minimum wage, he should raise the tax-free personal allowance to the Living Wage, taking the poor out of tax completely. National Insurance tax should also be scrapped for low-earners, as it works as just another form of income tax.

A backtrack on minimum wage increases combined with pegging the personal allowance and NI to a Living Wage would be a serious indication of Cameron’s commitment to ‘full employment.’ But while he continues to spout plans for increased government spending and building, I remain unconvinced.

The amusement of Oxfam's wealth report


Oxfam is one of those groups jetting off to Davos this week to talk about how to set the world to rights. And they're doing so by going to sit among the plutocrats and telling everyone that it's the very plutocrats that are the problem. The top 80 people have more wealth than the bottom 50%, this is appalling and so on. You can see the report here.

Wealth: Having it all and wanting more, a research paper published today by Oxfam, shows that the richest 1 per cent have seen their share of global wealth increase from 44 per cent in 2009 to 48 per cent in 2014 and at this rate will be more than 50 per cent in 2016. Members of this global elite had an average wealth of $2.7m per adult in 2014.

Of the remaining 52 per cent of global wealth, almost all (46 per cent) is owned by the rest of the richest fifth of the world's population. The other 80 per cent share just 5.5 per cent and had an average wealth of $3,851 per adult - that's 1/700th of the average wealth of the 1 per cent.

Winnie Byanyima, Executive Director of Oxfam International, said: "Do we really want to live in a world where the one per cent own more than the rest of us combined? The scale of global inequality is quite simply staggering and despite the issues shooting up the global agenda, the gap between the richest and the rest is widening fast.

Winnie needs to get out more. As Saez, Zucman and Piketty have been explaining to us all this is just how wealth distributions work. The bottom 50% always have less than 10%.

Fraser Nelson is very good here. This global capitalism stuff has been reducing poverty like billyo these past few decades. And for a charity like Oxfam, nominally focused upon poverty, we might think that's a good thing. But they seem to have changed their minds a bit.

But for one elegant point about this brouhaha have a look at Figure 1 on page 2 of that very Oxfam report. Their actual complaint is that global wealth inequality is climbing back to, but is still under, the level reached in 2000 and 2001. This isn't unprecedented, it's not staggering and it's not even unusual. Wealth inequality is actually lower than it was 15 years ago.

Rules and recipes are different things Mr. Burnham


We tend to think that there must be some special dictionary out there, one hidden from us mere mortals, that allows politicians to say whatever they damn well please and yet not use the words that we all do. Almost as if there's some other foreign language they use to speak to us mere voters. Take this from Andy Burnham for example:

As Burnham correctly said last week: “For change to work in a market context, all players need to be following the same rules.”

This is in the course of The Observer managing to get absolutely everything about obesity, sugar and fatty lardbuckets entirely wrong. We all consume fewer calories than our grandparents did, sugar is not addictive (we consume less of it than in the past) said fatty lardbuckets do not cost the NHS money (dying young saves the NHS money) and so on and so on throughout the entire litany. And, of course, they're entirely wrong in the basic theory of what they are talking about for the role of government is not to tell us how to live our lives but to enable us to live our lives as we would wish.

But specifically what Burnham is talking about there is that manufacturers should be forced, whether by taxation or by regulation, to put less sugar, less salt, in our food. And no doubt to throw some organic lentils in there at some point as well.

Which is where that special dictionary comes in of course. Because that's not "rules" that's "recipes".

Is it too much to hope that one who would rule the country actually speaks the language of it? Sure, Willie the Conq and George I didn't do so well on this basis but aren't we supposed to have moved on?

We might have an answer to where (some) of that missing growth is


It's a commonplace these days to shout about how growth rates are lower than when we had strong unions, nationalised companies and stinging tax rates. Therefore we should bring back unions, stinging tax rates and nationalised companies in order to have higher growth rates. The perceptive will note that there's a fallacy of composition in that argument: I once met a very pretty girl on a day that I had a cold. My getting a cold today will not make me meet a very pretty girl (nor would it please the pretty girl I am still with if I did). However, leave that aside and we do still have this point that growth rates these days are lower than that post-WWII heyday. One explanation is that there was pretty much no economic growth 1933-1945 but technology still marched on and thus there was some catch up after the unpleasantness was over. In conversation over the past couple of days another idea has popped up.

Take the contributions of Google and Facebook to the economy, to GDP. As we measure them those contributions are simply the value of the advertising they sell (or, the wages they pay and profits they make). That's just how we calculate GDP. That portion of whatever it is that is monetised. But this is near insane, to value having the world's knowledge at our fingertips (or, in Facebook's case, all the people you never want to meet again at hand) at only the value of the ads presented with it. we're simply not measuring the true contribution of the new technologies to our actual standard of living. At which point, Brad Delong:

 The key difference is between “Smithian” commodities–where it is a safe rule of thumb that the consumer surplus generated is about equal to the producer cost, so that GDP accounts that value goods and services at real producer cost will capture a more-or-less stable fraction equal to half of true standards of living–and… I might as well call them “Andreessenian” commodities, where consumer surplus is a much larger proportion of monetized value because what is monetized is merely an ancillary good or service to what actually promotes societal welfare. What is the proportion? 5-1? 10-1? Somewhere in that range, I think–at least.

It would be safe to argue that there's definitely some of this going on. The difficulty is quite how much. But it wouldn't surprise at all to find that our traditional measure of GDP is increasingly failing to measure economic progress.

Spotting C Northcote Parkinson in the wild


That Parkinson's Law is generally applicable is obvious. But in the great man's work there are other observations which we can spot occasionally out there in the wild as it were. That the Royal Navy will have more Admirals than ships has been true for some time now, that committees and bureaucracy will, in the end, strangle the life out of any and every organisation is also obviously true. He also pointed out what is happening here:

Civil servants went on a £1billion spending spree in just eight weeks to hit the Government’s target of spending 0.7 per cent of the nation’s income on overseas aid.

The extra cash was spent at the end of 2013 on humanitarian programmes in Syria and the Philippines and a fund which was started by billionaire Bill Gates to help victims of Aids, Tuberculosis and Malaria.

MPs said the fact that the taxpayer funds were spent so quickly raised serious questions about whether value for money was achieved. Civil servants are now set to be called in front of an influential committee of MPs to justify the spending.

The point of spending by a bureaucracy is not to provide value for money. Nor is the point of political spending to actually achieve anything. In this story we combine those two to lethal effect.

The point of political spending is to allow a politicians to announce that something is being done so vote for me. Doesn't matter what is being done, how effectively it is being done or even whether it needs to be done at all, let alone with other peoples' money. The point is the purchase of those votes.

Similarly, the point of a bureaucracy is not to provide value for money. It is to spend the budget allocated to that bureaucracy and to thus make the case that the budget, and thus the bureaucracy, should be larger in the next budget period.

These two have combined here to produce the sight of a bureaucracy shoveling money out the window, into and on anything at all, in order to enable the politicians to purchase votes.

Well done everyone.

The solution Parkinson offered to such problems was simple. It isn't possible to reform such practices. One must simply stop doing the thing itself. No, we don't mean stopping charitable aid to poor people if that's what we all decide we want to do. But stop running it through these inefficiencies of government.

Non-discrimination laws matter least in helping women advance


On January 12th, the International Labour Organization – a specialized agency of the United Nations – published its global report “Gaining Momentum: Women in Business and Management.” The report -

looks at the most recent statistics and information at a global level, and provides a unique insight into the experiences, realities and views of companies in developing countries.

It aims to create greater understanding of the barriers to women’s advancement in business and management. It points to possible ways of tackling the issue, highlighting good practices among private sector businesses and organizations that represent them.

Unlike a lot of reports that focus on the underrepresentation of women in the workforce, the ILO’s puts a refreshing emphasis on facts and figures, rather than resting on the assumption that all inequality comes down to inherent sexism on the part of male employers.

The data it compiles provides a huge range of insight into the state of female involvement in different areas of public life - exploring why less than 5 percent of CEOs are women while also explaining how a third of the world's enterprises have come to be run by women.

But the most telling table in the report looks at "company respondents to the ILO company survey conducted across developing regions" who "ranked what they considered the most significant barriers in order of priority" to women's leadership and promotion:

Screen shot 2015-01-16 at 12.55.39

It will be surprising (dare I say frustrating) for many people to learn that the top two ranked barriers to women's leadership had everything to do with traditional views of women in society and the their role in the family unit, and nothing to do with employer discrimination (inherent gender bias ranks 12th on the list!).

It often seems in western society that radical gender equality advocates want the reason for gender inequalities - especially in the workforce - to be sexism. To be honest, I'm somewhat sympathetic to what, I assume, is their reasoning. If inequality in the workforce is mainly driven by something as awful as sexism, then we can shout about it, legislate against it, demand board quotas, demand companies publicise payroll figures according to gender. Combined, we can legislate and ban the discrimination away.

But this just isn't the case: all regions in the ILO's survey, "identified inadequate labour and non-discrimination laws as the least significant barrier" to women leadership and promotion. (Bolded is my emphasis.)

In places like the UK, gender inequality has very little to do with male bias - after all, women in full-time work aged between 22 - 39 are now, on average, are earning 1.1 percent more than their male counterparts. The reality is that women's life choices are determining how far they succeed in their career, including the kind of degree they pursue, when and how they go about having kids, and how long they spend out of the work force.

We shouldn't harp or judge women for the choices they decide to make - different people have different priorities, and that's okay - but if we want to attack the institutionalised sexism that still exists in our culture today, it would be far more productive to target the teaching, training, and conditioning of women to become 'mothers and wives' than to go after the employers who, based on all recent evidence, seem to be giving women an equal and fair shot at having a career.

That's a big ask, I know. Solving sexism by reforming ourselves and our traditions will be a big change from legislating things.

Logical Fallacies: 1. Argumentum ad Temperantiam  

Three years after his YouTube videos showing that "Economics is Fun," Madsen is doing a series on "Logical Fallacies." They mark the forthcoming release of Bloomsbury's second edition of How to Win Every Argument. Madsen's basic point is that errors of logic litter public and private discourse, and a working knowledge of logical fallacies will steer you towards what the evidence supports and away from what it does not.

More mischievously, it will enable you to have a great deal of fun poking holes in the arguments opponents put forward. Nowhere is this more true than in public life. The halls of Westminster and the media studios ring with fallacies, and you will enjoy identifying them. The book explains 90 of them, and Madsen intends to post brief videos on 20 of these over the next few weeks. The first is the Argumentum ad Temperantiam. We hope you enjoy them.

You can pre-order the new edition of Dr Madsen Pirie's How to Win Every Argument here

This On Rock Or Sand book will be a bit of a disappointment


I'll not argue theology with the Archbishop of York, coming originally as I do from the tran- not con-substantiation side of the argument. But when said Archbish strays over into Adam Smith and economics I'm afraid that it really is incumbent upon both I and us to point out to him the errors of his ways. There's to be a new book out, On Rock Or Sand, telling us all what's wrong with our country. And as far as theology goes well, theologians sound like the right sort of people to be telling us all about it. However, it would be helpful if, when those same theologians decide to tell us about economics, they have some clue as to the basics of the subject. This illustrates the problem nicely:

The book characterises the welfare state as the embodiment of the Christian command to “love thy neighbour” and warns that people should not rely on what the founding father of free-market capitalism Adam Smith called the “invisible hand” of the market to create a fair society.

Smith never said anything so drivellingly stupid. The one reference in Wealth of Nations to "invisible hand" is during a discussion of the general propensity to invest capital at home rather than abroad. The modern day usefulness of this being that, even in a world of perfect theoretical capital mobility, some incidence of a corporate profits tax will always fall on shareholders. This is something that is useful to know but it's going to be a very minor footnote in the recipe for a just society.

Which is why, of course, Wealth of Nations and Theory of Moral Sentiments are such agonisingly long books. For they're largely an exploration of when markets cannot be left safely to handle the creation of a just and or efficient society. Which is something we would hope someone desiring to comment upon them would know.

For example:

Dr Sentamu adds that a post-war vision through which the welfare state and NHS developed has “given way to an individualist and consumerist vision, with public goods such as health … and education … increasingly becoming privatised, where society has become a market society, with everything going to the highest bidder and the poor being left behind in the unceasing drive to increase the nation’s Gross Domestic Product.”

Smith discusses the very point of non-market access to education. And backs it, at least at the basic level. On the grounds (not that the phrase existed then) that being part of a generally literate and numerate society was indeed a public good. And we can go on, using the same logical structure, and argue that much of traditional public health is similarly a public good. Sewage, drains, the control of infectious diseases, the effects of vaccination, yes, these are indeed public goods. But the treatment of your or my cancer might well be good for the public, good public policy, publicly good even, but it's not a public good. As your or my university degrees are not a public good.

What really annoys is that Christian churchmen will be the first to agree that thousands of very bright people have chewed over the intricacies of theological debate for millennia. Even, that as a result some truths have been uncovered. And yet when it comes to economics they're unwilling to similarly agree that some thousands of very bright people have chewed over the subject for some centuries now and have uncovered some truths. Or if they are willing to accept that in theory they've apparently not bothered to find out what those truths are.

I've no idea as to whether tran- or con-substantiation is actually correct. And I'm also not all that interested to be frank about it. But I would make the effort to understand it all before pronouncing upon the matter. We'd all rather wish the Archbishop would make the same effort when he steps outside his own specialist knowledge base, eh?