Nonsense on poverty

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The Joseph Rowntree Trust released its report on the state of poverty in the UK and brought forth the usual howls of outrage about, well, pretty much everything really. I was actually rather enjoying the howls of how we now have Dickensian, Victorian, levels of poverty for I always do enjoy hysterical hyperbole. But it set me thinking, do we actually have such levels?

Of course, we simply do not have, absent a very few families blighted by mental illness, drugs or drink, anything like the physical poverty of those days. Absent those entirely non-financial problems all are clothed, housed and fed. Perhaps not as much as some would like, but we simply do not have cholera sticken children starving to death in the gutters. So "real" poverty is no where near such levels. But of course this isn't the detailed claim, although the language used attempts to equate the two. The real claim today is that we have similar levels of inequality: and inequality these days is referred to as relative poverty....although that "relative" gets dropped pretty quickly so as to underline the similarity between the two concepts of poverty.

But thinking through it all a little more we don't in fact have Victorian levels of inequality either. The measure used is market income plus or minus taxes and benefits. But we only use money, we don't in fact include benefits offered in kind.

Think through what the modern state offers to its poorer citizens, over and above any money they get. Council or housing association places are markedly cheaper than the market rents. That difference should be added to the incomes of the poor if we are trying to measure inequality or their incomes. Education is provided free at the point of use yet it costs taxpyers what, £6,000 per child? £7,000? That again should be added to the incomes of the poor (and we can of course add all these sums to everyone's incomes if we wish, but they will raise the incomes of the poor much more than those of the rich thus closing any inequality gap to some extent)....The NHS is around £2,000 for every man woman and child in the country: that would add £8,000 to the income of the mythical Mum, Dad and two kids.

None of these things existed in 1860: so to claim that we have the same levels of inequality with them as we had without them is nonsense: it's simply not counting properly.

So no, we don't have Victorian poverty: and we don't have Victorian levels of inequality either.

Higher Ambitions

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The governments new policy report Higher Ambitions reveals Lord Mandelson’s intention to increase social mobility. One way doing this, says Mandelson, is to lower the barriers to those institutions which he believes leads to upward social mobility, i.e. Oxbridge and other “selective" universities.

But stressing the socio-economic background of applicants rather than academic skills increases the risk of lowering the general level of academic training available on those high profile universities.

It also neglects the importance of the reputation of the Oxbridge & Co institutions to the rest of the English universities. Internationally the reputation of English Universities, to a certain degree, relies on the academic level of research committed by those “selective" institutions. English universities are not bad, not at all, but they are not superb either. However, they benefit internationally from two things: (1) the dominance of the English language and (2) by having a reference point in the Oxbridge & Co institutions, which attracts a lot of bright international students and scholars to the British universities.

By lowering the entrance demands at Oxbridge & Co the general level of education will go down thus driving down the international reputation of these top institutions, ultimately leaving the whole English university community worse off than to begin with. This is because talented students will seek other places in order to increase their returns to education. As Grit Laudel states in her article Migration Currents Among the Scientific Elite published in Minerva (2005), you need talent in order to attract talent and if the standards of the students are not good you won’t get the talented ones.

Down the sewers

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Crammed into carriages on a daily basis, forced to share personal space with strangers and made to endure a service that is regularly poor. It's no wonder the public behaves as the latest London Assembly Transport Committee report, "Too Close for Comfort" shows. Each of us reacts differently to our journeys on the Tube, but undoubtedly all of us find it stressful. Coupled with an almost sensory deprivation lack of information, frustrations only rise.

There is nothing more annoying than arriving at a Tube station during rush hour to see that there is a 5 or 6 minute gap between trains. This means that it could be anything up to 15 minutes before you can board a train (as regularly occurs on the District Line) due to overcrowding. In this era we, as customers, should not be forced to accept such a poor service. The system is creaking under the sheer weight of numbers, the lack of proper investment and it is also held over a barrel by the unions. All of which compounds the stresses that we, the users, have to suffer.

Traveling by Tube won't improve any time in the near future (or indeed the long-term) until the customers are treated with some respect by TFL. The lack of respect we show each other is only amplified by the contempt we are shown regularly when we use the Underground. Still at least it's slightly better below ground than it is above. Life on buses is more akin to the state of nature described by Locke, as evidenced here.

UK Banks – Mind-boggling Numbers

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Yesterday’s National Audit Office's figures lay bare the horrifying costs of propping up the UK’s banking sector – a staggering total of £117 billion.

At the macro-economic level, the over-riding priority for the next Government is to cut back the UK’s rapidly rising net debt. Next Wednesday’s Pre Budget Report is likely to confirm that this year’s massive £175 billion net borrowing estimate will be breached.

Earlier this year, in Ten Economic Priorities, the ASI set out how the next Government should tackle the UK’s woeful public finances.

Aside from the energy sector, where there is a desperate need for new base-load generation plant, it is only the banking sector – and certainly not the groceries sector as one Think Tank recently suggested – that warrants urgent government intervention.

It beggars belief that the NatWest’s parent company, the Royal Bank of Scotland – yes, the Royal Bank of Scotland – is receiving up to £55 billion of capital injections; this is c£1,000 for every man, woman and child in the UK. Despite this unprecedented largesse, its share price languishes below 40p.

Whilst the Government’s recent economic mismanagement has been desperately damaging, the fact remains that the prime responsibility for the Royal Bank of Scotland’s plight lies with its management.

After all, HSBC – Midland Bank’s owner – has not received a penny of capital injection. It is doing swimmingly, with a market capitalization currently exceeding £120 billion.

The next Government’s banking priorities are clear:

Short-term: Prevent any further major bank failures through periodic stress-testing;

Medium-term: Compel the owners of the four clearing banks to compile separate accounts for their retail and investment banking operations;

Long-term: Separate the two businesses into regulated ‘Captain Mainwaring’ retail banks and ‘Casino’ investment banks: if the latter go bust, so be it.

Incidentally, does the wider public have any concept of the financial impact of the banking crisis?

Leave 'Digital Britain' alone

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Our latest briefing paper (available online here) attacks the government’s Digital Britain white paper – the inspiration for the Digital Economy Bill currently working its way through Parliament – describing plans to intervene in the digital communications industry as “both mad and bad economics". The report’s author, digital communications expert and ASI fellow Eben Wilson, puts his case bluntly:

“Over the past twenty years, this thriving commercial sector has very rapidly created a vast engineering infrastructure at no cost to the taxpayer, and has generated large amounts of tax revenue in the process. It is hard to think of a better example of something the state should simply stay out of."

The report – Digital Dirigisme – covers the full range of issues addressed by the Digital Britain white paper, arguing throughout that the digital communications industry is characterized by rapid and unpredictable change, which governments and regulators simply can’t keep up with. As a result, their interventions will invariably do more harm than good. Instead, the report urges that:

"Government should restrict its activities to establishing a clear legal framework of ownership in which private entities trade privately, within a similarly clear legal framework on the use of individual identity data."

The report goes on to criticize the government for not taking public concerns about the security of personal data seriously enough, describing their approach to this issue as “bland" and “disappointing". The report suggests that personal identity and all data associated with it should be defined in law as private property owned by the individual. Any use of that personal data without the owner’s consent would thereby become unlawful.

The report also accuses the government of ignoring a “dinosaur in the room" by failing to address the taxpayer-funded BBC’s market dominance, which it says crowds out other commercial players. It proposes a radical programme of phased privatization of the BBC, coupled with progressive cuts in the licence fee.

Higher education in Britain

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On November 3 Lord Mandelson launched the policy report Higher Ambitions, in which the government lays out a vision of a society with better education and more social mobility. Those are laudable ambitions. However, problems arise when the government says it wants to “encourage" the more selective universities to give greater weight to the socioeconomic background of their applicants – i.e. Oxbridge & Co should take in more students with disadvantaged working class backgrounds.

Is it productive to force Oxbridge & Co to take in more students with working class backgrounds? The answer to this is that it depends on those students academic qualifications! To discriminate between applicants based on their socio-economic circumstances rather than their academic qualifications, will end up discarding clever students rather than rewarding them. In other words, discriminating in favour of someone on the basis of their socio-economic background means discriminating against someone else on the basis of theirs. The person you are discriminating against has done nothing to deserve it.

In a world where academic skills are the ones focused on, other factors and especially socio-economic backgrounds should not be relevant. To put it another way, the skills you can obtain from going to Oxbridge are utterly irrelevant to people who are not trained to obtain them, regardless of whether they are of a working- or upper class background.

By implementing this policy, the government will risk of forcing the level of education at top universities downwards. This is because the student’s academic abilities, naturally sets the upper bar of the level of the teaching. Assuming that you can teach students a certain amount of knowledge in a certain period of time, the academic level of new students will thus dictate the level of education when those same students graduate. By lowering the standards of admission you will consequently lower the level of graduates.

The law of unintended consequences

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"Be sustainable – do not buy sex", the Lord Mayor of Copenhagen has told guests at the COP 15 climate change summit. The sex workers interest organisation (SIO) has reacted angrily, accusing the Lord Mayor of abusing her office in attempting to prevent prositutes from carrying out their work, which is entirely legal in Denmark. By way of retaliaition, conference delegates have been offered a 'free ride' during summit, so long as they can present a valid COP 15 ID card...

New businesses thrive in recession

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While Britain ("best placed of all major economies to face the financial crisis") remains the only member of G20 still in recession, there is some good news. It is that the services sector continues to expand, as opposed to the more fragile manufacturing and building sectors. The services sector is reckoned to account for nearly three quarters of the country's GDP, so its recovery is important.

The fact that much of this is new business is important, too. That is the one bright spot about recessions. As demand slumps, marginal and over-extended businesses go to the wall, leaving both capital and market space to new business activity. What governments should do in a recession is make life easier for new and growing businesses. What they should not do is prop up the ailing ones, for that simply prolongs the recession and denies the economy the few positive things that it brings.

This recession, already the longest for post-war Britain, has seen record amounts of taxpayers' cash used to bail out ailing businesses in an attempt to stop them going under. We might have been far wiser to let the recessionary axe take more of a toll, and concentrate our efforts on helping the new businesses to build themselves up in their place.

Madsen Pirie's new book "101 Great Philosophers" makes an excellent and affordable Christmas gift. Buy it here.

Climate change: the new Nazism?

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For those against further government meddling in the economy, an eminent scientist voicing his desire for the Copenhagen negotiations to break down may sound encouraging. However, this isn’t the case when that scientist is James Hansen, the original harbinger of global-warming doom.

Despite pledges to cut carbon emission having potentially large impacts on national economies, Hansen believes that any Kyoto style global agreement would be fundamentally flawed – for its lack of radicalism. He likens the tackling of global warming to the struggle against Nazism and Slavery, claiming "on those kind of issues you cannot compromise. You can't say let's reduce slavery, let's find a compromise and reduce it 50% or reduce it 40%."

Many countries plan to reduce CO2 emissions through carbon market schemes and the trading of carbon permits. Assuming the best thing for human development and the planet is to cut carbon emissions now (even though that is not nearly as clear-cut as the climate change fanatics insist), then using a market mechanism is one of the better ways to go about it. Allowing people to trade limited carbon rations should lead to the best allocation of these amongst the competing needs, and ensure that even with reduced carbon emissions the most useful goods are still being produced. The incentives for firms to develop and install green technology could also encourage investment and technological advancements in other areas too.

However, Hansen believes in much more drastic action – the swift abandonment of coal as a source of fuel coupled with an escalating carbon tax across all other fossil fuels in order to force producers to magic up alternate forms of energy.

With no room in Hansen’s arsenal for compromise, there is no room for disagreement or dissent either. For him ‘business as usual’ while we learn to adapt to a lower-pollution economy is not an option. The opportunity costs associated with an extreme attempt to tackle global warming are unimportant. Never mind falls in GDP and average income, reduced development prospects for the poorer nations and stagnation in innovation and healthcare; these are examples of inconsequential collateral damage when defeating the danger of climate change.

It seems that changing international agreements to suit Hansen’s taste would require the bypass of traditional democratic politics; which after all seeks to mediate between many competing interests. Hansen may be right when he likens climate change to Nazism – but only in the sense that once the ideology gains popularity in politics it can lead to totalitarianism, and significant constraints on our personal liberties and behavior.