A harsh childhood, yes, but not exactly caused by relative poverty

We take it as a simple truism that we wish to alleviate poverty. This is why we so support this neoliberal globalisation stuff, these past few decades have seen the greatest reduction in absolute poverty in the history of our species. Yes, we know, we've pointed this out before.

However, what others call poverty is not quite the same thing. Take this for example:

I’m one of those formerly “poor people” vomited up from the gaping class wound at the heart of British society to offer “shocking”, “inspiring” testimony about the adversity they have since transcended. You might find me recounting the day my drunk mum chased me with a knife or see me on television looking very bored as I explain, yet again, that I managed to avoid smoking crack because somebody knocked on the front door as the pipe was being passed to me.

I’m one of structural poverty’s most comforting cultural tropes: the survivor who lived to tell the tale.

Not childhood experiences we'd wish upon anyone to be sure. But it's very difficult indeed to see what they have to do with what is claimed to be the cause:

The overriding emotion anyone should be feeling at news that in excess of a third of British children will soon be growing up in relative poverty is fear. The tidal wave of social problems racing towards all of us because of this unsustainable inequality has the potential to overwhelm society.

Yes, we do know that The Spirit Level blames such things upon inequality. We also know that Chris Snowdon has refuted, entirely, that contention.

But look at this in more detail, this specific example. Relative poverty is less than 60% of median household income (usually after housing costs, which we'll ignore for the moment). That median household income is, close enough, £25,000 a year in Britain.

So, the contention is that households with lower than £15,000 a year encourage knife wielding among drunken mothers. That £16,000 a year stops crack cocaine taking - or perhaps it increases door knocking, the point isn't quite made clear. These aren't contentions which accord with reality.

Apologies to those attempting to build this narrative, that inequality is corrosive of the fundamentals of our society, but it's just one of those things which isn't true.

This is making us angry now and you'll not like us when we get angry

Yet another report, yet another paper, insisting that Brexit will do bloodcurdling things to the cost of living in Britain. Based on the same flawed logic that has been abounding recently. The underlying assumption is that we'll be complete idiots and deliberately structure our trade policy so as to make us as poor as the current international rules will allow. Yes, obviously, there is politics involved here and it's not beyond possible that they really will do something that damn stupid but really, it shouldn't be a base assumption now, should it?   

Households face increases of up to £930 in their annual shopping bills if Britain walks away from Brexit talks without a trade deal, according to new research that reveals a disproportionate impact on poorer families and the unemployed.

Meat, vegetables, dairy products, clothing and footwear would be subject to the largest consumer price rises under a “no-deal” scenario, according to a study published in the authoritative National Institute Economic Review, adding to inflationary pressures that have already forced the first interest rate rise in a decade this week.

That study is here.

We have discussed this both here and elsewhere. There are two things that interact here, WTO tariff levels and most favoured nation status. Those tariff levels are the maximum that may be charged to all and any imports from other members of the WTO - pretty much the rest of the world. MFN status says that if we decide to tax ourselves less on what we decide to buy from foreigners - and do not for a moment forget that import tariffs are paid by us, the consumers of the imports - then we must charge to imports from all those WTO members the same rates on the same products. So, say, a zero tariff on imports applies to all imports from everyone. A 1% rate on cars applies to all cars from anywhere.

Thus a report that Brexit will increase living costs by the thick end of a grand a family is either nonsense, for we won't do it, or a very decent warning of what we shouldn't do. For why would we want to raise living costs by a grand a household? Quite, every time this calculation is performed, and it is being done repeatedly, it is just another proof of the basic contention about trade itself, the only rational stance to have is one of unilateral free trade. 

These multiple reports are being used to insist upon the terrible costs of Brexit. Instead we should regard them as warnings about the terrible costs of stupid trade policy. Don't impose import tariffs precisely because, as is being pointed out, they make us poorer.

The latest climate change prediction - sigh

The UN has told us, once again, that we're all going to end up boiling Flipper in the remains of the last ice floe.

When UN climate negotiators meet for summit talks this month, there will be a new figure on the table: 3C.

Until now, global efforts such as the Paris climate agreement have tried to limit global warming to 2C above pre-industrial levels. However, with latest projections pointing to an increase of 3.2C by 2100, these goals seem to be slipping out of reach.

As you know about us around here, we take no real view of the underlying science here - not because we agree or don't (either with it or among ourselves) but because we don't think that's the useful thing to be arguing about. A sufficient head of steam has been built up that they're going to do something so let's discuss instead what to do. All of which means actually understanding what it is that people are telling us when they talk about last ice floes and Flipper etc.

The truth here being that the UN has just said something of no relevance whatsoever to reality.

Their report is here. What they are not saying is that emissions are going to rise sufficiently to create this temperature rise. They are not measuring technological change - the obvious thing which is going to determine what does happen - nor the turnover of capital assets which emit, whether we're on RCP 8.5 (we're not) or RCP 2.6 (probably not as yet at least) etc. 

What they are saying is that governments haven't promised, through their Nationally Determined Contributions, to cut emissions sufficiently to avoid that 3C.


It isn't going to be governments making pledges in Paris which change the future anyway, is it? It is going to be technological advance and the associated actions of the aggregated 7 billion of us which will. And one lesson to take from that great economic experiment we call the 20th century is that markets and incentives work rather better at determining what does happen than the promises, pledges and predictions of governments when trying to manage an economy. Or even reality. 

As Bjorn Lomborg said near two decades ago - and boy doesn't he still get stick for having been right - in a world where solar power drops in cost by 20% per annum and is still doing so what a politician promises to do to the rest of us is really very small beer indeed.

Is GDP really a good measure of our productive world?

At the Mont Pelerin Society meeting in Stockholm, we heard an enthralling paper on the productivity statistics—and what’s wrong with them—by Diane Coyle of the University of Manchester, with comments by Christian Bjornskov from Aarhus University in Denmark.

Their comments are not published yet, so I can’t go into detail. But the problem is technological improvement. The problem for the macro-measurers, that is. For the rest of us, technological improvement is just great. Nathan Rothschild might have made himself a multi-millionaire, but he died in 1836 from a tooth abcess that today’s antibiotics would suppress in no time flat. You might envy Rothschild his big house, his servants and his coach and six: but he would certainly have envied our modern dentists.

All sorts of stuff is simply getting better. Kitchen appliances do what all those servants slaved on, and have become cheaper and cheaper and cheaper. Our homes and workplaces are cleaner, healthier and more environmentally friendly than those of 1836—or even those of 1936—but none of that gain in value is measured by the GDP figures.

The poor in particular have gained from entrepreneurial breakthroughs, the growth of new inventions and technologies, mass manufacturing, and other parts of the capitalist system. The prices of what poorer groups buy have plummeted more than most, while the quality of what they can afford has skyrocketed. Wages may not be rising fast for the poorest groups, but there are more fringe benefits as standard, and money buys a lot more than it did twenty, thirty, forty or any number of other years ago. So people who talk about ‘rising inequality’ are up a gum tree. The income figures greatly overstate inequality, because the poorest groups are so much better off than they have ever been in history.

For the same reason, we are understating productivity growth. The official figures show productivity rising remorselessly, then becoming essentially flat from 2008 until today. What’s the reason? Underinvestment? Cheap imports of goods and labour from a more globalized world? The financial crash?

Well, maybe a bit of all of those. But a significant effect is the exponential impact of digital technology. It has allowed us to do a lot, lot more without having to produce a great deal more. We can work miracles, even by 1980s standards. I’m beaming this article from Stockholm to London in seconds, whereas in the 1980s I’d have had to type it out, put it in the mail, and have it re-keyboarded back at the office. It’s astonishing, when you think of it.

The GDP figures essentially measure production—so they don’t capture this huge productivity improvement. Which gives us all sorts of skewed ideas about equality and productivity. Can GDP be long for this world?

Vaping after Brexit

Britain’s approach to regulating e-cigarettes was one of the best in the world, until the EU’s nonsensical Tobacco Products Directive (TPD) severely hampered the growth of this life-saving market. Thankfully, “Brexit offers an opportunity to return to a more liberal regulatory regime to the benefit of consumers and British businesses” according to a new report released today by the Institute for Economic Affairs. We will soon have the chance to become a true #VapeNaysh: something that we at the Adam Smith Institute are very enthusiastic about.

In Vaping Solutions: An easy Brexit win, author Christopher Snowdon begins by sketching a brief history of the search for safer smoking products, including the emergence of a new wave of smoking alternatives like e-cigarettes, snus, and heat-not-burn products. In the case of the UK, e-cigarettes have proven to be an especially appealing device that helps smokers quit while maintaining the pleasure of nicotine use (despite low awareness of the comparative benefits of vaping among consumers due to advertising restrictions):

By 2016, England had two million ex-smoking vapers who had given up smoking and a further 470,000 vapers who were using e-cigarettes as an aid to quitting (Department of Health 2017: 15). These figures were remarkably high in a country that had begun the vaping era with nine million smokers, but Britain has taken to e-cigarettes more enthusiastically than anywhere else. Five per cent of British adults are current users of e-cigarettes – significantly higher than the EU average of two per cent – and vaping prevalence among ex-smokers is exceptionally high at 14 per cent (the EU average is four per cent) (Eurobarometer 2017: 107).

Snowdon then addresses some common objections to liberalising e-cigarette regulation, starting with unfounded concerns about health risks and moving onto mythbusting the idea that they are a gateway to regular cigarette smoking. He concludes by highlighting the impetus for reform and general discontent with the TPD that exists across the British political landscape.

I’d also recommended reading the Appendix, which highlights the ridiculous provisions of the Tobacco Products Directive in more detail. For example, the tank that holds my e-cigarette’s liquid is currently illegal to sell in this country (I bought it in America). Why? Because it can hold 1ml more liquid than the EU has deemed to be necessary, presumably on the basis of reducing the risk posed by somehow accidentally drinking all of it. This is bad regulation and undoubtedly has a negative impact on public health:

Banning devices that can hold more than 2ml has led to the prohibition of a large part of the market for vaping devices, preventing consumers from using their preferred products and damaging the small and medium sized businesses that manufacture and sell them.

You can read the full report here.

What should we do after the Common Agricultural Policy?

What should we do after the Common Agricultural Policy?

I’m often amazed by how woolly the language used by groups like the National Farmers’ Union really is. Wacky ideas like “food security” (as if there is any conceivable scenario where Britain will be laid siege to by U-Boats) and farmers having some special “stewards of the countryside” connection to the land obscure the important facts. Taxpayers and consumers are rarely mentioned at all. Plain speaking about the costs and benefits of our current system is needed so we can think about what we’re paying for, what we’re getting, and how we can make sure taxpayers aren’t being stuck with a bill for something they don’t want or need.

This matters because after we leave the EU we’ll have to come up with our own agriculture policy, replacing the EU’s Common Agricultural Policy. (I will not discuss the Common External Tariff here for the sake of space.) Although agriculture is a small part of the economy, making up just 0.6% of gross value added, its environmental impact is quite important and the sector receives a large amount of money from the state – about £5bn every year.

The terrors of rising child poverty in the UK

The IFS is telling us that child poverty will rise in the coming years. We have no doubt that, given the measurements being used, they are correct. However, we do have a problem with the assumption that all seem to be making - that this is some terror which is a stain upon our society.

The number of children living in poverty will soar to a record 5.2 million over the next five years as government welfare cuts bite deepest on households with young families, a leading UK thinktank has said.

New research from the Institute for Fiscal Studies predicts an increase of more than a million in the number of children living in poverty, more than reversing all the progress made over the past 20 years.

The IFS said freezing benefits, the introduction of universal credit and less generous tax credits would mean a surge in child poverty and that the steepest increases would be in the most deprived parts of the country.

The first thing all need to know is that this is not in fact poverty being talked about but inequality - relative poverty that is. The definition is a child living in a household which, after housing costs, taxes and benefits, has less than 60% of median household income for the country (and adjusted for household size). This is not a measure of poverty, it's a measure of inequality.

It might be that an increase in inequality is one of those crimes which cries out to the very heavens. But the assumption being made by near all is that it is which we do regard as problematic. For the reduction in said inequality was a major part of the promises of the Blair and Brown administrations. That's fine, they got elected, they do get to put into practice their manifesto, that's how democracy works.

Yet here we are near a decade later still assuming that their political goals are those that we all should be following now. That's not something that is obviously true though, is it? Given that other people have been elected on a different manifesto or three.

One government declares a target,. a later one has others, and? 

But there's also the detail of what is being measured. The UK has great regional inequality. Wages are very much higher in London and the SE than they are in other regions. Prices are also rather different - yes, prices other than housing. But we are using that national median, including those higher incomes in certain areas, to create our 60% of and thus poverty line. The point about this being that we will count people in, say, the NE as being in relative poverty simply because both incomes and prices are lower there relative to London. They might even have higher real disposable incomes but they could still be classed as in poverty.

Given this regional nature of much of the UK's inequality using such national measurements doesn't really work in the first place.

We clearly differ from a large portion of the population in not worrying very much about relative poverty in the first place. But we would still insist that unless we start producing these measures of it on a regional, or possibly lower level than that, basis we're not even going to be measuring it properly.  And mismeasurement isn't a good way to start to deal with something, is it? 

At last some sense on climate change

A few years back perennial BS vendor Naomi Klein wrote a book called This Changes Everything. She argued, in typically economically illiterate fashion, that the threat of climate change requires us to reject mainstream economics and instead embrace the sort of socialist, planned economy that she has always supported. Klein and her ilk’s political opportunism may explain why so many on the right are sceptical of climate change. But, as we have argued before, climate change offers no rationale to abandon faith in free market economics.

On that note, Prof Dieter Helm’s government report into the cost of energy ought to be commended. He argues that repeated government intervention in the energy market has made tackling climate change much more expensive than it needs to be. The ‘free market’ solution to carbon emissions is straightforward: work out the cost of the external damage caused by pollution and force the polluter to pay it, usually in the form of a Pigouvian tax. Let the market do the rest. No need for lobbyists and politicians to bang on about their favoured technology.

Unfortunately, this system isn’t the status quo. When Helm asked BEIS to list the main interventions in the energy market, they listed seventeen (!) different interventions. They ranged from obligations on energy suppliers to source a proportion of their energy from renewables to Contracts for Difference which guarantee low-carbon electricity generators a fixed price above the market rate paid by consumers via a levy on energy suppliers.

Helm argues that there are two main problems with the existing approach. First, they often require the government to make forecasts about energy prices. As Helm points out ‘If the government is going to get deeply involved in being the central contractor, to contract on a technology-by-technology basis, and run multiple policy interventions, it needs to try to second-guess the results the market would otherwise have produced’.

But it just so happens that government is woefully bad at forecasting prices.

If the government instead accurately forecast falling fossil-fuel prices then it would have revealed that subsidising renewables was more expensive than first thought, and that switching from coal to gas should have been a much more important part of the decarbonisation process.

As Helm points out, there is a difference between government and market forecasts. “While the private sector has to forecast, and its investment decisions reflect companies’ assessment of the net present value of projects, it is important to recognise that this is not necessary for government, except in some specific and difficult cases. In a competitive electricity industry, prices are the outcomes of a competitive process, and they are revealed in the wholesale and capacity markets. They are not assumptions.”

But, government forecasts are not merely inaccurate. As the assumptions that government makes determine subsidy levels, they invite lobbying and policy-driven evidence.

That leads to a second problem: regulatory capture. The sheer complexity of interventions and how they interact with one another means that a straight-forward cost-benefit analysis of a particular programme is beyond even the brightest civil servants. This leads to a classic case of regulatory capture – “the particular interested party would have superior information. Asymmetric information between the government and regulators on the one hand, and the vested interest on the other, is a bigger problem, the more complex the interventions.”

Rather than the market determining the cheapest way to cut carbon emissions, rent seekers lobby to have their preferred energy sources subsidised. Helm notes that “Every main energy company and every main energy-consuming company has its own regulatory team, and a number of significant and in some cases highly effective trade bodies have emerged.”

Rather than attempting to centrally plan the energy sector, the Government should adopt Helm’s recommendation to replace the myriad interventions and shift to a single, unified carbon price that includes emissions from agriculture and transport as well as electricity. This would blunt the tools in the rent-seeker’s arsenal and incentivise the market to discover the cheapest way to cut emissions. Better yet, any revenue from a carbon charge could be used to eliminate the most pernicious effects of the tax system. We could boost investment by letting businesses deduct the full cost of their investments from their tax bills and protect the poorest by raising the NI threshold to £12,500.

It would surely be better than the status quo where instead of the market we rely on the government to pick winners. Government isn’t very good at picking winners, but as Helm says, “losers are good at picking governments”.

We really must say very well done to everyone here

It was, of course, entirely outrageous that users of credit cards could be charged for using their credit cards. Quite unconscionable that people might voluntarily pay a fee for the convenience of a form of electronic payment, or the immediate ability to borrow money. No, absolutely we could not allow this to continue to happen, something must be done!

From January "rip off" fees charged to consumers by companies and government bodies when they pay by credit card will be completely banned in the UK. 

The move was designed to help consumers by letting them pay by credit card free of charge.

Hmm, well, OK, so something was done then. Huzzah!

Except, well, except, it still costs someone, somewhere, something to maintain that network of cards, readers, machines, transfers, credit analysts and all the rest. That we've banned one method of paying for them hasn't made the costs disappear. The result is therefore:

But HMRC has said the move will force it to stop accepting credit cards altogether.

This because it is unable to absorb the cost of credit card fees as this would mean charging costs back to customers via the "public purse", therefore creating a burden for taxpayers.

Not charging the people who wish to use credit cards means that no one can use credit cards.

James Daley, director at Fairer Finance, said: "This is a very un-consumer friendly move by HMRC which restricts consumer choice. This is not what the Government intended to happen as a result of its fees crackdown.

It probably isn't what the government intended, no. It does seem to be what the government has done though, isn't it? 

At which point we're reminded of Tony Blair on his sofa one day gaily pondering the office of Lord Chancellor. An anachronism, we should abolish it. Which was done, moments later people pointed out that what passes for the British constitution doesn't in fact work unless there is someone, somewhere, called the Lord Chancellor to hold it all together. Thus the post had to be recreated.

The underlying point being that payment systems, economies, socio-political systems, are complicated matters, things which cannot just be managed upon a whim. There are always, but always, second, third and fourth order effects. Thus it isn't possible to just tweak one bit in isolation - detailed planning and legislation of this kind just does not work.

Most certainly there are things what must be done, even that group - a small one but it exists - of things which both must be done and which only government can do. A very useful rule for a functioning society being to restrict government to that - small but extant - group and leave the rest of us to figure things out by ourselves.

You know, if I'm happy to have to pay the credit card company 2% of my tax bill for the convenience of being able to pay it why should the law forbid me from doing that? 

Answers on a postcard to Stephen Barclay who as Economic Secretary to the Treasury pushed this through, building upon an EU directive concerning Mastercard and Visa to extend it to Amex and other cards.


Managed street prostitution zones tackle sexual abuse and rape

Since October 2014, Holbeck (an inner city area of Leeds) has hosted Britain’s first official managed area for legal street sex work. The zone was recently thrust into the spotlight by the BBC3 documentary Sex, Drugs and Murder: Life in the Red Light Zone, which was heavily criticized for bias by sex worker organizations. It encompasses various streets where street sex work already took place, which are situated away from residential housing. From 7pm to 7am, there are no cautions or arrests for loitering, soliciting, or kerb-crawling.

The overriding impetus behind creating this managed area was to make sex workers safer and encourage community harmony. Following a 12-month pilot, Leeds city officials made the scheme permanent, with an evaluation report highlighting improved relations between sex workers and police, increased willingness to report crimes, better access to social and healthcare interventions from the third sector, and a more positive attitude from the local community.

Although the Leeds evaluation report was an important first step in analyzing this approach, there is now stronger international evidence in favour of managed street sex work zones. In the Netherlands, similar areas are called ‘tippelzones’. A new study, published this month in the peer-reviewed American Economic Journal: Economic Policy, examines how tippelzones affect crime in Dutch cities.

Although similar in many ways, tippelzones are better-equipped than the managed area in Leeds. The study’s authors—Paul Bisschop, Stephen Kastoryano, and Bas van der Klaauw—explain:

Tippelzones are equipped with a variety of features. They provide resting quarters with washing amenities, clean needles, and local medical assistance and include separate servicing areas where prostitutes remain with clients in a safe environment. Permanent supervisors or semipermanent task forces are assigned to monitor the tippelzone and neighboring areas. The task forces are either rotating groups of agents from the local police district or new hirings for cities with larger tippelzones (11 additional officers in Amsterdam).

Between 1983 and 2004, nine Dutch cities introduced tippelzones. The paper compares rates of registered sexual abuse and rape over time in Dutch cities with tippelzones to those without. It finds that in the first two years after a tippelzone opened, citywide rates of sexual abuse and rape plummeted by a third. The researchers argue that this drop is due to the opening of tippelzones rather than other unobserved factors: pre-tippelzone crime trends in various categories were similar across all cities. Moreover, they do not find evidence that crime trends were influenced by crime shifting to different cities as tippelzones opened and licensing regimes were changed:

Our results do not indicate any shifts in sexual abuse or rape due to spillovers. This is not surprising. The movements of prostitutes were limited since the closing of tippelzones in Rotterdam, Amsterdam, and The Hague occurred simultaneously with the introduction of licensing systems in other cities which refused new entrants into tippelzones.

As the authors highlight, the effect of opening a tippelzone on rates of sexual abuse and rape is similar to the findings of a forthcoming paper by Scott Cunningham and Manisha Shah, which explores the effects of Rhode Island’s accidental decriminalization of indoor sex work on rape. Managed areas are no substitute for the full decriminalization approach—which has been the case in New Zealand since 2003—but local authorities looking to curb violence against sex workers ought to emulate what has been done in Leeds and the Dutch tippelzones.