Climate change will cause 22,000 murders apparently

There's an interesting new piece of research that tells us that climate change is going to cause an extra 22,000 murders in the US over the rest of this century.

Between 2010 and 2099, climate change will cause an additional 22,000 murders, 180,000 cases of rape, 1.2 million aggravated assaults, 2.3 million simple assaults, 260,000 robberies, 1.3 million burglaries, 2.2 million cases of larceny, and 580,000 cases of vehicle theft in the United States.

Hey, it's peer reviewed so it must be true, right?

Unfortunately I rather doubt that it is true. Looking at an earlier version of the same paper gives me the reason why.

However, there is no obvious cross-sectional relationship between the temperature zones and crime rates.

So let's just walk through what has been done here. There's a well known connection between temperature and crime rates. Warmer summer evenings lead to more boys out on the stoop with their beers and that mixture of boys and beer does indeed lead to more public crime. Gary Becker has written extensively on this very subject. So, great, we might then assume that if the world gets warmer then there will be more crime: just as we see when temperatures rise today.

However, this is an error: humans don't actually act that way as anyone who has moved from one climactic region to another will know. We adapt very quickly indeed to local conditions. Yes, sure, warm weather for the region leads to more beer stooping. But it is the variation in that local weather that leads to it, not the temperature itself. What might lead to outepils (as the Norwegians put it, outdoor beers,) in Moscow will be a very different temperature from one that will lead to the same in the Algarve as I know from personal experience. A temperature in the latter that will have me in three layers of clothing by the wood fire would in the former have me near naked and worshipping this strange yellow thing in the sky.

It isn't absolute temperature that counts here, it's the variance of temperature in a location. As the paper itself tells us, when it points out that there's no relationship between average temperature in a place and the crime level. It's when things are hotter than normal in a location that crime rises. So, if all temperatures rise over a century then we get the same variance and it is as if everyone has moved south a few tens of miles. And as there's no relationship between moving south a few tens of miles and the crime rate we cannot expect climate change to increase said crime rate.

So, I'm afraid that I think the prediction will fail. Nicely done paper and all that but missing that one crucial point I fear.

And now to be seriously speculative. We here in Central Europe (I've been working all winter just a few hundred miles from the Ukraine) have been having a very warm winter indeed. The jet stream has meant that the weather meant for here has been arriving in the Southern US and vice versa. They get the ice storms and we don't get what we consider to be a proper winter at all. And have a look at the pictures from Maidan Square. There's nary a sign of snow. And there is a good reason why the response of an experienced cop dealing with a riot to the question "What help would you like?" is "A really decent rain or snow storm. Possibly both".

I agree this is indeed very speculative but I do think that Yanukovich would have had a better time of it in a more normal winter.

An ageing libertarian on drugs

Over at ConservativeHome I've written a response to Kathy Gyngell's piece that claimed that "ageing libertarians" (!) are pushing drug legalization on unsuspecting youths:

No, “ageing libertarians” are not pushing legalization on abstemious youngsters – in the US, at least, a recent poll found that 67 per cent of under-30s supported legalisation, compared to 58 per cent of the population in general.

No, it is not legitimate to dismiss inconvenient research because it comes from “pro-drugs lobby groups”. Nobody should dismiss Kathy’s arguments simply because she is anti-drugs either. We should all play the ball, not the man.

And no, it’s not good enough to say that drug laws don’t matter because drug use is ‘marginal’ compared to alcohol and tobacco use. In the 12 months ending March 2013, there were around 87,000 convictions for drug offences. If our laws are unjust, then roughly 87,000 people are being wrongly convicted every year. Around 70 per cent of drug offenses relate to cannabis possession.

Read the whole thing.

I'm not sure I agree with Gregory Clark on social mobility

Gregory Clark (who you should remember from the excellent "A Farewell to Alms") has some new research out looking at the historic rates of social mobility. A good summation of that is here, in the NY Times. Worth reading that but the short version is that social mobility has been very low across societies and history. The current day is not real change from those historical numbers.

It's not quite clogs to clogs in three generations, more like that in three centuries.

However, while I accept the result that he's found and also think it most interesting, I'm not absolutely sure that it's entirely right. The problem, to my mind, comes from the method he's used to work all of this out.

He looks at surnames, marks out certain surnames at certain points in time as being markers of either upper or lower class, then looks at how those markers change over time. Do formerly lower class names move up into the upper classes? Do upper class names decline in social place? The answer is yes but it takes time, those centuries.

Any number of possible explanations come to mind: family networks, genetics, inheritance of goods and opportunity. But the one thing that I worry about here is that the study of surnames is by definition the study of male lineage. And that strikes me as a problem.

For example, Middleton, under Clark's system, is not going to be recorded as one of those names that made the leap from middle class to royalty. Nor, as has happened in the past, those of the meteoric rise of Amy Lyon or Nell Gwynn. Yes, OK, those are exceptions (and I am not placing the former Ms. Middleton in the same class as the two grande horizontales) but I have a feeling that it's not quite that much of an exception.

I have a feeling, but cannot prove and have no idea how you would prove, that social mobility through marriage is something rather more common in women than it is in men. Thus by looking solely at surnames Clark is underestimating that social mobility. Capturing it accurately for men but perhaps not for women: or rather, capturing it accurately for the descendants of men but not for the descendants of women.

Of course the Fed knew about the manipulation of LIBOR

Some seem surprised that the Fed knew about the manipulation of LIBOR way back. To which I would respond that of course they did. Everyone knew about it.

Or perhaps I should point out that everyone knew about one set of that manipulation, for there were (allegedly) two.

The first was where trading desks would try to get the rate submitters to edge the rate to benefit their positions. This is illegal, people are being and rightly should be punished for having done this. The second was rather different:

The US Federal Reserve knew about Libor rigging three years before the financial scandal exploded but did not take any firm action, documents have revealed. According to newly published transcripts of the central bank’s meetings in the run-up to and immediate aftermath of the collapse of Lehman Brothers, a senior Fed official first flagged the issue at a policy meeting in April 2008. William Dudley expressed fears that banks were being dishonest in the way they were calculating the London interbank offered rate – a global benchmark interest rate used as the basis for trillions of pounds of loans and financial contracts. “There is considerable evidence that the official Libor fixing understates the rates paid by many banks for funding,” he said.

This is where the banks themselves were not reporting the correct rates. To understand this the details of what is going on here. Each bank reports what rate it can borrow at (please note, what would it cost to borrow, not the rate at which it would lend) in a currency for a term. Top and bottom quotes are taken off and the average is then LIBOR for that currency and term. And what was happening in the depth of those dark days in 2008?

Well, if we look at Northern Rock the rate at which they could borrow was infinite: no one would lend to them. Happily, NR wasn't a reporting LIBOR bank, but HBOS might have been, Llloyds definitely was when it ran into trouble and so was RBS. And that first sign of the coming trouble is that people refuse to lend, short term and unsecured, to those troubled banks. So we've two things going on here. If a bank reports the true, troubled, rate at which it can borrow it is then admitting that it is troubled. In itself this causes further trouble of course.

The second thing is that in those dark days the interbank market essentially froze solid. No one could borrow in size at all: that's why all such borrowings were routed through the BoE.

All of which means that if the banks had been reporting LIBOR properly then rates would have been somewhere between 20% or so and infinity. Which really isn't somehting that any central banker would want to have reported. And the fact that they weren't being so reported was also known to every central banker. Yes, even to the Fed.


As I've been saying for some time now, measurement is important

As above, I've been shouting for some time now that measurement is an important problem in our economy. More specifically, many of the things that we are told are problems seem to fade away once we actually measure what is going on properly. For example, the gender pay gap, when we rummage through the numbers, turns out to be actually a motherhood pay gap. Perhaps this is still a problem but it's most certainly a very different one from simple discrimination upon the grounds of gender. We're told that health inequality in this country is down to income inequality: and those presenting the measurements entirely refuse to acknowledge that it is more complex, for health inequality itself can lead to income inequality. Similarly, we're told that income inequality in the UK is absurdly high: without anyone being willing to adjust for the different cost of living in different parts of the country and thus measure the only thing we might even possibly care about, consumption inequality.

The details of what we measure and how matter deeply. Which is what makes this little broadside from The Economist so interesting:

BRITISH businesses have always underinvested, haven’t they? Experts from Michael Porter to Michael Heseltine to Will Hutton all agree. The idea is so old and so widespread as to be received wisdom.

Seeing Will Hutton described as an expert is painful but yes, they do all say that.

But is this truism really true? Over the last decade, researchers have gradually reached a surprising conclusion: when you take into account intangible investments, such as software development, product design and training, British businesses aren’t investment laggards after all.

OK, that is interesting.

The UK turns out to be one of the leading investors in non-R&D intangible assets: things like product and service design, organisational investment and branding and marketing. This is perhaps unsurprising given the size of its services sectors: service industries typically invest more in other intangibles than on physical capital or R&D.

And while that is also interesting it is not, as they say, surprising.

So let us strip this back to basics. The country with perhaps the largest services sector of any economy anywhere (absent various microstates) invests more in the sort of intangibles that services require and less in the sorts of tangibles that not-services require. We don't need to even consider cause and effect here to see that this is a pretty trite observation.

Which brings us to a non-trite one. Those very people (Heseltine and Hutton especially) who insist that we must indeed plan our economy, with the aid of both accurate information and the wisdom of their good selves, are entirely ignorant of this important fact. The UK does not invest less in business than other countries do. Rather, it invests in a manner consistent with the industrial base that it has.

Which brings me back to measurement being important. If those who would manage us are ignorant of the facts then we're not going to be well managed, are we?

Or, as we might put it, Will Hutton just ain't an expert, is he?

Are the floods down to global warming?

Are this winter's extreme weather, with rain and floods across Southern England, down to global warming? If so, it's been going on for some time. Remember the devastating floods of 1953, or exceptionally cold winter of 1946, followed by an extremely hot summer. Or if you want a real (pre-industrial) extreme, reflect that in the 1680s, the Thames was frozen solid for two months.

The fact is that exteme weather has never been all that unusual. It's just that today, every episode is used to justify the existence of climate change and its allegedly human cause. Melting ice? We're burning too much carbon fuel. Floods? Our warmer atmosphere carries more moisture. Hurricanes? They're created by warmer seas. Droughts? That's warming too. Snow? The Gulf Stream is shifting. Heatwaves? Do you need to ask?

Of course, much of this is based on questionable evidence: global temperature rises have stalled in the last decade; Pacific hurricane intensity has been low since the mid-1980s; Antarctic ice is increasing; atmospheric moisture levels  are no higher. But the real problem is that a theory that supposedly predicts anything in fact tells us absolutely nothing. As the Scientific Alliance puts it:

Overall, the impression is that some people are taking whatever opportunities they see to find examples of what global warming may be doing, which by inference is then due to our carbon dioxide emissions. The purpose is presumably to stiffen political backbones and keep policies aimed at radical decarbonisation on track.

But there is a deeper agenda among some campaigners. The first element of it is to suggest that industrialisation and economic growth are our problem. In fact, they are the solution. The economist Andrew Lilico points out that, even if we assume that global warming is a reality, it is far cheaper and more practical to adapt to it than to try to reverse it. And economic growth makes us rich enough to make those adaptations. For future generations, it will be even easier.

The second element is that, when any sort of problem occurs – and not just some weather event –  people are inclined to say 'the government should do something about it'. So the more problems that campaigners can create, the more pressure there is for government expansion. And, indeed, for political intervention into markets. One can already see the insurance companies being lined up for a beating. Can it be long before they are told they have to provide cheap flood cover to everyone, no matter how often their riverside homes have been inundated before? The result, of course, will be that more people are encouraged to build and live in flood-prone areas – or that insurers simply leave the market and nobody can get bad-weather coverage at all. 

Amazingly, communism causes malnutrition and stunting

Isn't it amazing how we keep finding out yet even more about the pernicious effects of communism?

Chinese soldiers have become so much taller and fatter in recent years that they are in danger of outgrowing their equipment, according to a People’s Liberation Army survey. Troopers were on average 0.8 inches taller and two inches fatter around the waist than 20 years ago, the military’s official PLA Daily reported. As a result, it is harder for soldiers to fit into aircraft cockpits and into a tanks designed for smaller personnel 30 years ago, it said. Even the rifle stocks are too short for some, and may need to be lengthened too, so as to not to affect firing accuracy.

When we start to talk about rifle stocks it's obvious that we're talking about something other than people just being a bit porky. And what it is that we're talking about is that nutrition has changed in recent decades.

In fact, the big change stems from the late 1970s as the completely asinine policies of collective farming were overthrown. And in general it's not just the nutrition of a child in its own early years that matters here, there's an influence of the nutrition of its mother in her early years as well.

Do note that there's been no great genetic change in the Chinese population over these years. This is purely an environmental change. They've all, finally, been getting enough to eat as they develop and are thus growing taller.

It is indeed true that we had worries over this sort of thing ourselves, back when we were taking the urban proletariat into the Army in 1914. However, do note that this is something that we solved without slaughtering hundreds of millions and without adopting that, as above, insane method of farming.

In fact, what solved the same problem both times, the nutrition of that working class (which is always going to be the largest portion of the intake of squaddies) was the mechanisation of agriculture in something approaching a free market and private property system. Which leaves us with a question for those who campaign that, for example, African agriculture should not be mechanised, or that private land ownership should not be allowed (as it isn't in some African countries), or even that we should all go back to farming communally ourselves.

Why do they want us all to be both malnourished and shorter?

The Lego movie is the most libertarian film of the year

There's one important category missing from all the film awards ceremonies this month: The Most Libertarian Film of the Year. And the winner this year is without a shadow of a doubt The Lego Movie. Setting hilarity and great animation aside (and it has boxes of those), The Lego Movie shows us a compelling dystopian world of conformity, regulation and authority where everyone "must follow the instructions" or be "put to sleep". It is a tale of the battle between the chaotic, creative destruction of freedom, and the rigid, forceful regulation of bureaucracy.

The run-of-the-mill protagonist Emmet is blatantly shown to be brainwashed by repetitive and generic tv shows, corporatist celebration days like Taco Tuesdays, and a perpetually playing propaganda anthem called "Everything is Awesome" with clearly collectivist undertones: "everything is cool when you're part of a team". He works with other construction workers to tear down the "weird" and diverse buildings and replace them with generic ones.

But it gets so much better. The dystopian dictator's position as both the CEO of the Octan Corporation and President of the World perfectly encapsulates the problems with corporatism and monopolies on force. Indeed, his evil plan is stultifying regulation taken to the extreme: he wants to use superglue to literally stick everything permanently into the "perfect" position, relying on a robotic army of "micro-managers" to make sure that everything is exactly how he wants it to be before being stuck into place. There could be no clearer metaphor for the perils of intruding technocrats.

The evil Lord President Business wishes to destroy the chaos of innovation, hunting down and killing or imprisoning all the talented and resourceful master builders, and even erecting closely guarded borders between the different worlds in order to prevent the free movement of minifigures and their mixing of cultures into more interesting and diverse configurations.

At the same time, the resistance's enclave, Cloud Cuckoo Land is an anarchist utopia. As the UniKitty tells the heroes, "There is no government, no bedtime, no baby-sitters", though others have suggested this is also a subtle critique of the slightly creepy anti-freedom parts of modern tolerance culture: "Any idea is a good idea ...Except the not-happy ones." The dichotomy is later qualified when it turns out that creativity can work better when constrained within some rules that don't try to curtail it completely. You'd be challenged to find a simpler, more personal and appealing defence of the rule of law as conducive to freedom and human flourishing.

Above all, however, The Lego Movie is a story about the beauty of creative destruction, and how the battle between our fearful controlling impulses and our acceptance of the uncertainty of freedom is a profoundly personal one. It is an enjoyable must-watch for fans of free markets.

Why is Oxfam lying to us about the Financial Transactions Tax?

It's a sad thing to have to say but, sadly, every single word in that video above is a lie. And this is not just to say that of course all acting is a lie: it is to say that the entire basis upon which Oxfam is operating here is incorrect and also that they know that they are incorrect.

Here is their briefing paper which accompanies that video.

A tiny tax could raise as much as €37bn and would be a heroic victory for people and planet above the special interests of the financial sector.

The lie is in there, in that one single sentence.

The Financial Transactions Tax, as proposed, will raise no revenue at all. Indeed, it will lead to a reduction in revenue collected.

Leave aside all the wittering about the evils of HFT (that did not, in any manner, cause the financial crisis). Leave aside their seeming hatred of derivatives trading (none of which had anything at all to do with the financial crisis). Leave aside their ignorance of the fact that it was mortgages which did cause the crisis: and mortgages tend, even when packaged into bonds, not to get traded very much so a transactions tax is going to have no effect on this market. We can even leave aside the views of this year's Nobel Laureate, Robert Shiller, who insists that it was the absence of trade in derivatives on mortgages that aided the bubble in expanding to the point of collapse. And we can even leave aside the views of Diamond and Mirrlees, Laureates both for their studies of taxation, who point out that transactions taxes are a very bad form of taxation indeed.

We can, instead, simply turn to the European Union itself and its own study of the effects of such a financial transactions tax. As I've pointed out before:

No net revenue will be raised by the specific proposals that have been put forward. This will sound strange to those who can see that there will indeed be revenue coming from the tax, but that is because while there will indeed be revenue from the tax itself there will also be falls in revenue from other taxes. The net effect of this is that there will be less revenue in total as a result of an FTT. But of course, do not just take our word for it. That of the European Commission should be sufficient1:

‘With a tax rate of 0.1% the model shows drops in GDP (-1.76%) in the long-run. It should be noted that these strong results are related to the fact that the tax is cumulative and cascading which leads to rather strong economic reactions in the model.’ (Vol. 1 (Summary), p. 50)

Revenue estimates are as follows: ‘[A] stylised transaction tax on securities (STT), where it is assumed that all investment in the economy are financed with the help of securities (shares and bonds) at 0.1% is simulated to cause output losses (i.e. deviation of GDP from its long-run baseline level) of up to 1.76% in the long run, while yielding annual revenues of less than 0.1% of GDP.’ (Vol. 1 (Summary), p. 33)

A reasonable estimate of the marginal rate of taxation for EU countries is 40-50% of any increase in GDP. That is, that from all of the various taxes levied, 40-50% of any increase in GDP ends up as tax revenues to the respective governments. Thus if we have a fall of 1.76% in GDP we have a fall in tax revenues of 0.7-0.9% of GDP. The proposed FTT is a tax which collects 0.1% of GDP while other tax collections fall by 0.7-0.9% of GDP. It is very difficult indeed to describe this as an increase in tax revenue.

There are, however, bureaucratic reasons why the European Commission might still suggest such a tax move. The revenues from the FTT would be designated as the EU’s ‘own resources’, that is, money which comes to the centre to be spent as of right; not, as with the current system, money begrudgingly handed over by national governments. The EU bureaucracy therefore has a strong interest in promoting such a change. What’s in it for the rest of society is harder to spot.

This result is not unexpected. When the Institute for Fiscal Studies looked at the impacts of the UK’s own FTT, Stamp Duty upon shares2, they found much the same result – from the same cause too. Such a transactions tax upon securities lowers securities prices. This then makes the issuance of new securities more expensive for those wishing to raise capital. More expensive capital leads, inexorably, to less of it being used and thus less growth in the economy.

Please note that this is not some strange application of the Laffer Curve argument. It is not to say that lowering all taxes, or any tax, leads to such extra growth that revenues increase. Rather, it is derived from Diamond and Mirrlees (1971)3 that transactions taxes multiply then cascade through the economy. They are therefore best avoided if another method of achieving the same end is available. Indeed, they point out that taxation of intermediate inputs is to be avoided if possible – better by far to tax final consumption or some other final result of the economy. This very point is acknowledged in the way VAT is structured. Rather than a series of sales taxes which accumulate as one company sells to another along the production chain, there is a value added tax which amounts to one single rate at the point of final consumption. That this point is recognised in a major part of our taxation system suggests that it might be wise to recognise it with regard to the FTT.



3 Diamond, P. A. and J. A. Mirrlees (1971) ‘Optimal Taxation and Public Production II: Tax Rules’, American Economic Review, 61, 3, 261-78.

And yes, I do know that Oxfam are aware of this paper and of the basic truth contained within it. For I have discussed it with them. And their response is, well, umm........*crickets*.

An FTT would raise no net revenue: therefore all tales about how lovely things have been done with the revenue it will not raise are, well, what do you want to call it? Untruths? Misleading? Something stronger?

I would point out that that paper of mine above has been peer reviewed: something I doubt has happened to Oxfam's press release or video. Perhaps that's why the House of Lords Sub-Committee that looked at this proposal believed me not them.

Just as an interesting little update to this story I posted from this same paper in the comments section of The Guardian. On a Bill Nighy piece commending the FTT. Indeed, I used exactly the same quote. And of course the moderators deleted it near immediately.

Comment is free indeed.

Unemployment pay increases unemployment

One of the sadder things I've seen over the past few years has come from a coterie of left leaning US economists. They have been insisting that the extension of unemployment benefits (usually in the US they are only payable for 26 weeks, it was extended to 99) has had no effect on the unemployment rate. This is of course untrue:

Extending the maximum length of benefits beyond 26 weeks made highly educated unemployed people “more ‘relaxed’ and more patient in selecting jobs,” wrote Lei Fang and Jun Nie in a new working paper, “Human Capital Dynamics and the U.S. Labor Market.” Had unemployment benefits not been extended, they estimated, “the unemployment rate during the 2010-2012 period would have been 0.5 percentage point lower than the actual level.”

The full paper is here.

The high U.S. unemployment rate after the Great Recession is usually considered to be a result of changes in factors influencing either the demand side or the supply side of the labor market. However, no matter what factors have caused the changes in the unemployment rate, these factors should have influenced workers’ and firms’ decisions. Therefore, it is important to take into account workers’ endogenous responses to changes in various factors when seeking to understand how these factors affect the unemployment rate. To address this issue, we estimate a Mortensen-Pissarides style of labor-market matching model with endogenous separation decisions and stochastic changes in workers’ human capital. We study how agents’ endogenous choices vary with changes in the exogenous shocks and changes in labor-market policy in the context of human capital dynamics. We reach four main findings. First, once workers have accounted for and are able to optimally respond to possible human capital loss, the unemployment rate in an economy with human capital loss during unemployment will not be higher than in an economy with no human capital loss. The reason is that the increase in the unemployment rate led by human capital loss is more than offset by workers’ endogenous responses to prevent them from being unemployed. Second, human capital accumulation on the job is more important than human capital loss during unemployment for both the unemployment rate and output. Third, workers’ endogenous separation rates will decline when job-finding rates fall. Fourth, taking into account the endogenous responses, unemployment insurance extensions contributed 0.5 percentage point to the increase in the aggregate unemployment rate in the 2008–12 period.

There really shouldn't be any surprise at all about this as Richard Layard has been pointing out for decades now:

There is ample evidence that unemployment (and employment) is affected by how the unemployed are treated. Other things equal, countries that offer unemployment benefits of long duration have more unemployment (and less employment). This is because employment depends on the effective supply of labour.

Extending the period of time for which unemployment benefits are paid is quite obviously going to increase the amount of unemployment that there is.

This does not, in any manner, mean that those benefits should not have been extended. It's entirely possible, for example, to claim that the pain and grief prevented by the extension is greater than that caused by that uptick in the unemployment rate caused by it. It's possible to make the opposite argument as well and your conclusion should at least depend upon a combination of your priors and the evidence put in front of you.

But my complaint is that that certain set of economists has been ludly proclaiming to the world that the extension cannot increase unemployment. Therefore no one has been working with the correct facts about the problem under discussion. And I'm afraid that I regard that as more than a little sad. Yes, I know, I'm just showing how naive I am even at my advanced age: but I really would prefer it that professional knowledge was deployed as professional knowledge, not twisted to feed the rabble in politics.