Be careful what you wish for on wages

Lidl is to pay that Living Wage to all its workers. This will undoubtedly lead to the insistence that if one supermarket can do it then all should. And that's the point at which people should be careful of what they wish for:

Lidl will be the first supermarket group to raise its minimum pay to the level set by the Living Wage Foundation in a boost for thousands of workers.

The German discounter said that from March it would pay all Lidl UK employees a minimum of £8.45 an hour in England, Scotland and Wales and £9.75 an hour in London. It claimed this would make them among the best-paid supermarket employees in Britain.

What Lidl wishes to do is of course entirely up to them. It's the coming insistence that if one then all which will be the problem. For there are different methods of retailing, ones that use more or less labour to perform the basic tasks. Lidl is at the low use of labour end of this spectrum - they are therefore able to, if they should so wish, to pay more for each hour of that labour. The same will not be true of other chains which use a more labour intensive retailing method.

The usual example here is in the US. Walmart famously pays quite low wages. Costco equally is famed for paying many dollars per hour more for the labour it uses. Campaigners regularly point to Costco and insist that Walmart must be able to pay those same wages, it's all retail after all, right?

The failure is in not noting that, per value of sales, Costco utilises about half the labour that Walmart does. One chain is following a labour intensive model the other a labour light one. And if the insistence is going to be that wages should equalise across the two models then the labour utilisation is going to equalise too. That is, insisting that Walmart follow the Costco model is going to lead to some half of Walmart's current labour being  offered the opportunity to contribute elsewhere in the economy. That is, to lose their current jobs.

That Lidl, running a labour light model, can pay this Living Wage does not mean that those running more labour intensive models can also do so - not while continuing to run labour intensive models that is.

To read George Monbiot's best essay of the year

George Monbiot tells us that societies get too complex - more and more effort has to be put into supporting the complexity, marginal returns fall and eventually, collapse. This is explained in his nomination for best essay of the year, which is here:

At some point, however, investment in socio-political complexity typically reaches a point of diminishing returns, meaning that the marginal beneficial returns (i.e. problems solved) of additional complexity begin to decline, leading to a lowered capacity to solve the new problems that arise and to deal with their consequences. These returns may even turn negative, at which point societies are not anymore capable of upholding the level of complexity they have reached. Typically, they then tend to break down to a lower complexity level.

Thus, inevitably, civilisation will come tumbling down as a result of our economic system becoming ever more complex.

This is all based upon the ideas of Joseph Tainter. And there's ever such a slight problem with those ideas. For he thought this was already happening just as he was explaining his ideas. In 1988.

Yes, in that 1988, just before the dual economic explosion of digital technology and globalisation. Both of which are not showing any signs whatsoever of diminishing returns, quite the opposite.

That is, we've got another of those lovely ideas - ones that might be possible, sure. We know very well that there can be diseconomies of scale for example. They could apply to political systems too - we certainly think so at times. But it's entirely non-obvious that this applies to economies. And it has most certainly been non-true since the explanation was proffered. That is, another of those lovely ideas which could possibly be true but seem not to be.

At which point to float an idea that might also fall into that class of possible but not true ones. We;re certainly willing to agree that complexity can have its problems. That the management of complexity can cause inefficiency. Perfectly happy to agree with all of that. We're pretty sure that Hayek was making the same point actually, we can't plan because we can't know enough about the complexity to do so. But then Hayek also gives us the solution here. Use the market - the market can handle complexity precisely because no one is trying to manage the complex system.

Which means that the answer to this complexity question was given several decades before it was actually asked.

Cannabis in Colorado: More than you ever wanted to know

Cannabis in Colorado: More than you ever wanted to know

Yesterday The Times published an op-ed response to The Tide Effect report released by VolteFace and the Adam Smith Institute on Monday by columnist Alice Thomson. The report argues that the only way to bring cannabis under control is to legally regulate it. Thomson presents the counterexample of Colorado, the US state where cannabis has been legal longer than any other, and paints a bleak picture of the place since the change.Her article plays on the understandable fears of many regarding the impact of a regulated market by sporadically drawing what seems to very credible and alarming statistics.

How to solve South Wales - don't let government anywhere near it

It's not often that we agree with anything that Aditya Chakrabortty writes over in The Guardian. It's also not often that he writes anything conservative or free market. However:

Finally, learn one of the hardest lessons of Brexit: the reason the political geography of Britain is so divided is because its economic geography is so unequal. Treasury levers and Bank of England billions are barely any use here. Instead, what’s needed is an attentiveness to place.

In his Deep Place studies of local Welsh economies, the academic Mark Lang starts from what places like Pontypool already have, and what can be built on. He pulls together members of the community and asks them what they need. His new report on Pontypool shares a lot with the work on the foundational economy done by the Centre for Research on Economic and Social Change, which i’ve written about here before. It starts from a recognition that chasing multinationals and chain retailers pays only limited dividends in a place that’s had its purpose stripped out. It argues for focusing on what locals need: social care, good schools, broadband. This isn’t Westminster politics with its big announcements, or even Cardiff politics and its ribbon-cutters’ charter. It’s more modest, perhaps even pessimistic. To me, it rings more true.

This is conservative because it is just Burke's little platoons all over again. Central government, even regional government, doesn't have the answers. And it's free market because it's voluntary cooperation down among those little platoons that the solutions, whatever they are, will be found.

Which means that this is also the third, something we agree with Aditya about.

Who knows, we might be surprised, it could be that laddie Chakrabortty has the beginnings of a reasonable economic commentator in him.

What the ban on letting agency fees means for the marginalised

Much in need of some good publicity, Philip Hammond, the Chancellor, is set to announce a ban on letting agency fees.

These charges - often for administrative duties, such as inventory and background checks - are clearly unpopular. But in their efforts to find a political free lunch, the Conservatives should consider the threat the changes pose to the country’s most marginalised renters.

A landlord has little way of knowing whether a prospective tenant will be a delight, or a nuisance. It is this risk of the latter that means that landlords will keep rents low for long-term residents, knowing that they would prefer to keep the business of well-behaved occupants.

Letting fees, most of which are paid at the beginning of an occupancy, have served as one way to mitigate against the risk of a rotten tenant. If a new occupant is destructive, and must be evicted, the landlord is then more able to cover a loss of earnings while a new tenant is found.

Eliminating these charges could be to the detriment of tenants who landlords perceive to be more risky. Without letting fees, there is a concern that landlords could rely on crude race or class-based stereotyping in order to judge the riskiness of prospective tenants.

There is already evidence of discrimination in the British rental market, as well as in the US - a problem that a ban on letting fees could exacerbate. Yet despite this concern for at risk renters, the policy is likely to be a vote winner. 

Surveys confirm that the charges are not liked. Last year, Citizens Advice estimated that new private sector tenants were facing an average of £337 in letting fees. However, we cannot be sure that banning the fees will reduce the cost of renting. As the housing minister acknowledged just two months ago, landlords are likely to raise rents in order to recoup the lost revenues from a ban on fees.

Rather, the economic rationale for a ban on fees is likely to be that by eliminating upfront moving costs, would be tenants can more easily relocate, and rents can adjust more quickly.

This effect could plausibly be a boon to the UK’s labour market as well. Rising homeownership rates are associated with a subsequent increase in unemployment, perhaps because workers become less willing to move for work when the costs of moving home increase.

This could also ameliorate some of the concerns over tenant riskiness previously discussed.

If abolishing letting fees does increase rental sector liquidity, then kicking out an occupant is less likely to result in a property being left unoccupied - producing no rents - for a prolonged period. It is difficult to determine which effect - the lack of upfront revenues or an increase in tenant turnover - would be more significant.

However, reducing the transaction costs of moving could also play into the hands of landlords keen to evict tenants. As, again, the prospect of a property being left vacant becomes less of a concern.

US evidence suggests that such evictions tend to fall disproportionately on women and non-whites. Abandoning the letting fee model could make the position of these vulnerable tenants yet more precarious.

Liberalism must not surrender to the populist tide

It is now something of cliché, and not exactly wrong, to say liberalism and globalism are in retreat as populist nationalism is in the ascendancy. Fortunately, it is probably hyperbolic to think we’re seeing the end of liberalism or the death of Western civilisation. Still, protectionism, industrial strategy, and nativism have tragically blundered back into respectable discourse and seem set to shape policy and political culture in the immediate future.

This raises the question of how liberals should respond. Simply defending the status quo is unsatisfactory for a few reasons. Although globalisation, open markets, trade, and migration have made the world an infinitely better place over the last thirty years (and, indeed, the last three centuries), widespread dissatisfaction cannot be ignored. That is, unless you take Hillary Clinton’s Presidential campaign or the end of David Cameron’s career as models of success.

Secondly, liberals should not view the status quo as wholly acceptable on our own terms either. The idea of ‘neoliberal hegemony’ has always been something of a myth (or an outright lie). Regional trade agreements are, at best, a poor substitute for non-preferential multi-lateral free trade. Pernicious and nonsensical regulations have continued to restrict and distort markets, with occupational licensure and planning restrictions being obvious examples. And almost all developed countries continue to have convoluted, inefficient, arbitrary, and perverse tax regimes.

Equally liberals should not simply compromise with and capitulate to populism. If ‘protecting liberalism from itself’ means closed borders, ‘strategic’ protectionism and interventionism, disdain for the judiciary and the rule of law, the annihilation of privacy, and normalising ethno-nationalism, it’s not clear that there’s anything left that’s worth protecting.

Nevertheless, if only for pragmatic reasons, neoliberalism cannot be, and more importantly cannot be seen to be, inflexible market fundamentalism. It is arguable (though far from clear, let alone certain) that free trade does not benefit everyone, even if it clearly provides net benefits for each economy as a whole. But, rather than meekly accepting that this means that ‘reasonable’ protectionism can be acceptable, we must argue for distinctly liberal responses. For instance, providing a basic income could ease any transitional periods of structural unemployment for workers formerly employed in uncompetitive industries.

Similarly, we can recognise issues like in-work poverty without capitulating to socialist illiteracy or nationalist xenophobia. There are reasonable neoliberal responses, such as introducing a Negative Income Tax and abolishing, cutting or raising the threshold of National Insurance. Populist concerns can be recognised, without populist values or solutions being validated or respected.

At the same time, a radical and unapologetic defence of globalism, free markets, consumerism, and liberty is needed now more than ever. Just because alternatives are being advanced, it does not mean they have even a sliver of merit. And just because economic self-harm and cultural degeneration are fashionable it does not mean it is wise to accept this and follow suit. 

Social housing hurts the badly off

Imagine we paid benefits entirely in food stamps. If we gave recipients cash—we worry—they'd spend it on stuff we don't like, such as booze and fags. To head this off, we give them £15,000 a year each in non-transferable food vouchers. Really, they only need about £5,000 in supermarket shops a year, but since they can't do anything else with them, they eat excellent food and shop only in Waitrose, while they scrimp and save when it comes to clothes, heating, transport, and housing. You'd much rather they gave you less, but they allowed you to spend it yourself.

This is crazy policy, right? But this is exactly what we do with social housing (and, indeed, housing benefit). When you secure a council flat, you are effectively being given the difference between its market rent and what you pay as an in-kind handout. Apart from the poorer council architecture, upkeep, and administration, it's almost identical to if they were paying your rent for you. The "economic cost" of the activity includes the difference between its most valuable use and its current use. If a tenant has an income of £10,000 but gets an additional £10,000 worth of housing each year from the council, it is a bit like forcing them to spend half of their total income on housing.*

Imagine council tenants were given the money in cash, instead of this implicit in-kind benefit, and councils sold their properties off to fund the payment, to be rented at market rates. One possible outcome is that they would re-rent the properties they are currently in, at the market rate. Indeed, I suspect that if this policy were really implemented, many would do just this to begin with. But over time, it's extremely unlikely that tenants would want to spend so much of their money on renting premium land in the centre of town—they would decide to move.

It might be countered: these people probably have jobs, families, friends or other connections in the area. This is true, and the appropriate way to weigh up these claims is letting them decide for themselves. 99.9% of Londoners make the same decision themselves, with cash instead of vouchers, if you include the benefit: we trade off cost of commute, range of amenities, and distance from friends. If we were forced to spend more, in order to live in a more desirable area than we'd pick on our own, we'd be worse off than if we could just choose how to spend that money ourselves. Council tenants are no different.

In fact, my initial analogy was far from the most general I could have made. The situation is much simpler: it's the basic parable of exchange under restrictions. The council tenant has something others want—a right to live somewhere—and that others would be willing to pay the tenant for. Indeed, most tenants would almost certainly accept this payment in exchange for moving out; they'd prefer the money. Both the prospective buyer and the prospective seller could be made better off if this capitalist act between consenting adults weren't banned. But it is.

*Actually, it may be interpreted a lower fraction: applying this method to housing implies we should apply it to healthcare, education, and pretty much everything else the state pays in kind. Housing is somewhat different because it's mostly a market, with few getting most of their housing from state bodies—replacing healthcare with a cash payment would require massive change in the market, replacing council housing would not.

How to spot when a policy is not working

Imagine your city had a housing problem. Lots and lots of people wanted to buy houses there, live there. And there weren't all that many houses for them to do so in. You had some policy ideas about this and brought them into action. At which point this happens:

Housing starts in Vancouver have fallen to their lowest level in more than five years while home sales plunged 38.8% compared with October of last year.

Your problem is a shortage of supply of housing. Your actions have curtailed the supply of housing. Yep, that's a failure alright.

So, what did they actually do?

Mounting public anger and a chorus of concern emanating from the country’s banks forced a turnaround in recent months. In August, the province of British Columbia instituted a 15% tax on all home buyers in metro Vancouver who are not Canadian citizens or permanent residents. Soon after, the federal government said it would close a tax loophole believed to be used by some speculators.

The city of Vancouver has proposed its own measures in recent months, from a 1% tax on vacant homes starting next year – after an attempt to do so last year was stymied by the provincial government – and a crackdown on short-term rentals, such as those done through Airbnb.

Those aren't the same as what has been proposed over here but there's a definite echo there, isn't there? Which gives us an inkling about how well the policies proposed here would work.

And of course the actual solution to a shortage of supply is to increase supply. Make it easier for people to build more houses - here in the UK that means blowing up the Town and Country Planning Act of course.

Prohibition created Skunk. It's basic economics

Probably the most common objection to ending the prohibition on cannabis and creating a legal, regulated market is that kids are no longer smoking your dad's pot, they're smoking super-strength skunk.  But it's that very system of prohibition that's lead to the creation of stronger, dangerous strains. 

It's all down to something called the Alchian-Allen effect. Say you've got two similar but not identical goods e.g. pricey top quality Pink Lady apples and  cheap bog-standard Cox apples. If there was an identical increase in price on every apple sold, say a pesky politician levied a 10p apple surchage, you'd see a rise in demand for Pink Lady apples and a fall in demand for Cox apples. 

Why is this? Well, while both products have seen identical absolute price increases, the high-grade Pink Lady apples have increased by much less in relative terms. Before the apple surcharge, a Pink Lady apple might have cost more than twice as much as a Cox apple. After the surchage that differential will have shrunk substantially. So in relative terms, Pink Lady apples are now much more attractive to consumers.

How does this apply to weed I hear you asking?  Think of different strains of weed just like Apples. You've got the pricier high-strength skunk and other weaker-strains on offer. If the relative price of one went up, all things being equal demand for the other would rise. 

We should think of cannabis prohibition as the equivalent of an across the board fixed increase in price. The law doesn't distinguish between different strains of weed, you're given the same sentence whether you're dealing skunk or weaker, safer varieties.  Dealers price in the cost of getting caught and going to prison, if that costs the same regardless of how strong the product is, then you'll see the price differential between skunk and weaker strains falls, making skunk the more attractive product. 

Far from being a reason to support continued prohibition, skunk is actually a reason to push for a legal, regulated market.

We reject the idea that Facebook must be told to tell the truth

There's a pernicious little idea floating about, that the Facebook news feed must be purged of all "fake" news stories. Endless groupuscules are calling for something to be done and insisting that if it isn't they'll thcweam and thcweam until they make themselves sick. Or something. 

The problem with this is that we cannot determine "the truth", we can only determine whose truth:

His statement pointed up how much Facebook struggles to find the balance between its mission to be a free-expression utopia for its 1.8 billion users and its responsibility to protect them from all that is defamatory, dangerous (like terrorist propaganda) and untrue.

But more to the point, it appeared to buy into the notion that truth is relative at a time when that notion has to finally go away. Do you really need an outside arbiter to determine whether a video suggesting — without basis — that Hillary Clinton was involved in John F. Kennedy Jr.’s fatal plane crash in 1999 should be allowed to stand? Really?

Yes, of course such idiocy must be allowed to stand. Because that's what the freedom in freedom of speech means. Just as it means that idiots are allowed, must be allowed, to spout other gross untruths, such as that socialism is a really great economic system, Denis MacShane is wrongly maligned and grossly undervalued and that Mom's apple pie is great, no really, it is!

Further, what we really don't want to go back to is what is being lusted after:

It’s easier said than done. The combination of attacks seeking to delegitimize serious news organizations and a drop in overall trust in the news media has made many people wary of legitimate fact-checking. And, as my colleague John Herrman noted last weekend, politicized voices can easily drown honest journalism all too easily on social media.

There is growing talk of an ambitious journalistic collaboration to beat back the tide. Industry thinkers and leaders are coming together online to brainstorm solutions, as Jeff Jarvis, the City University of New York journalism professor, and Eli Pariser, the Upworthy co-founder, have done. (Check them out online.) And I’d say it’s high time that television news — with its still-huge audiences — gets into the act with more than just token gestures at fact-checking.

Because what America used to have was exactly that, a system in which the major media very carefully rinsed their pages of everything that wasn't Good Think. It wasn't a particularly vicious thing but it was very much there. The news media leans hugely Democratic (with, according to one story, the WSJ staff doing so even more than the norm) and what was just the received opinion of what was mainstream was what was actually mainstream to the highly educated left of centre liberals running said media.

We rather saw the remains of this in the recent election, it only being the newer alternative media that had even a hope of understanding Trump and his winning coalition. 

One final point. What is a fact checked truth depends upon the beliefs of those doing the fact checking. Clearly Hillary didn't aid in killing JFK Jr, it was his own machismo which achieved that. But who thinks that pieces which argue that minimum wage rises kill jobs are going to pass through some media filter of fact checking? Because believe us when we say that if we had control of those filters then pieces which say that minimum wage rises do not kill jobs never would pass through it.

And that we would indeed do that means that no one should have this power. Simply on the entirely liberal grounds that you should never try to claim a power that you don't want your enemies to have. Pre-publication censorship -  for that is what an insistence upon only the truth being published would be - will be a power abused by whoever has it. So, don't let anyone have it.