Wednesday, 4 April 2018

Zero Hour Foolishness


In recent years, many politicians and social commentators have bemoaned zero hour contracts, believing them to be a scourge on society, and calling for them to be outlawed. Outlawing zero hour contracts because a minority of people would prefer securer employment is about as dim-witted as outlawing night shifts because the majority of people prefer to work in the daytime.

The main question these politicians and social commentators never consider asking is why they think they know the zero hours contract situation better than the agents in question – where by ‘agents in question’ I mean the entirety of society’s revealed preferences.

There are primarily three groups in the zero hours contract situation:

1) Employers for whom zero hour contracts are a benefit

2) Employees for whom zero hour contracts are a benefit

3) Employees for whom zero hour contracts are not a benefit

The reason there is not a fourth group - Employers for whom zero hour contracts are not a benefit – is because such a group would not offer zero hour contracts in the first place if they conferred no benefits on the firm.

Last I heard, out of the 3 groups, groups 1 and 2 make up a huge majority – that is, most people (employers and employees) involved in a zero hour contract agreement find it beneficial. So effectively what our illiberal foes above wish to do is outlaw something that a majority find beneficial for the appeasement of a minority who simply prefer to have more regular and stable contracts.

I won't get into what should be the obvious reasons why even a total ban on zero hour contracts won't make current unstable contracts more stable; nor will I get into why such a completely unnecessary and oppressive law would cause harm to groups 1 and 2 by prohibiting a mutually beneficial relationship to which they are both tacit signatories.

But what I will say is - it should be evident that there are plenty of reasons why people might be on zero hour contracts, yet simultaneously no reason to ban them. It’s one of the biggest mistakes people make, acting to represent a small group without understanding all the conditions under which those outcomes came about.

For the vast majority, the labour market of supply and demand involves a mutual allocation of resources (work and wages) far beyond the scope of any top-down management, and with far more efficiency than arbitrarily introduced state-meddling can achieve. Telling employers they must offer a regular contact based on the whim of political ideologues can only harm the qualities of mutually allocated resources.

Here's what's being missed with alarming short-sightedness. Yes, some people struggle on zero hours - the part of the labour market that contains much of this kind of work is often insecure, unstable and volatile anyway - but the notion that outlawing it will make things better is moonshine.

Here's the key point. The labour market of supply and demand is dictated by the numerous price signals that generate all kinds of information about the value of labour, the supply of services, length of contracts, and so forth. A dentist can work in the same place for 15 years doing a similar number of hours each day. A sub-contracted painter and decorator can work at dozens of places in that time, with varying lengths of contract. Selling labour is not homogenous, it is heterogeneous - and you're just not going to be able enforce better pay or more stability without damaging a whole sub-section of people in that labour market.

It's common to think of zero hour contracts only in terms of employees, and to imagine most employers to be cold, uncaring exploiters. But it distorts the true reality. Economic policies affect employers as well as employees - and employers are the essential providers in this equation. Make a law that helps low earners and you hinder another group (usually low-skilled employers but also other low earners). Make a law that helps tenants and you hurt another group (usually landlords). Make a law that purports to help a minority on zero hour contracts and you hurt pretty much everyone else, while probably robbing many others of casual work.

Employers have lots to consider when they take on people. They have to make forecasts about the future; they have to consider market fluctuations; they have to consider what they should invest; and they have to consider which future state-interference will hamstring them. Zero hour contracts are sometimes opportunities to exploit, but they are mostly opportunities to reduce risk in a frequently unstable market, and create lots of short-term employment that most employees value.

Think who the beneficiaries of zero hour contracts might be - students, single parents, those looking for additional employment to top up their main job, and those with multiple part time jobs. The ability to work flexibly as and when they want is a very beneficial thing for them. Those who look to ruin theirs and their employers' flexibility are narrow and myopic.

Economic growth and competition are the main vehicles that will reduce zero hour contracts for those not happy with them. The reason being, job growth increases the necessity for employee stability, which will only diminish the allure of zero hour contracts for both employers and employees, because employers are going to want stability in their personnel.

Moreover, as unemployment rates fall and job creation continues to take place, greater power is transferred to jobseekers, which places selection pressure on firms offering less-desirable contracts. Ironically, proposals to ban zero hour contracts, or impose arbitrary restrictions that have been plucked out of the air, will uproot some of the stability in the market, which will more than likely go on to have a cobra effect type scenario - the very opposite of what we are told they are trying to do.

Thursday, 29 March 2018

Bless Him - Owen Jones Has Got Himself All Confused Again


Owen Jones' latest gripe about the outrageous injustice of Britain’s wealth inequality is that our MPs, even Labour ones, are lacking the ambition to tackle it to his satisfaction. He thinks that because the rich have a lot more than the poor, this makes this economy 'dysfunctional and rotten', and he is calling for almost all transfers of funds (inheritance, gifts, capital gains) to be treated as money in waiting for the government.

What Owen Jones has never been very good at is understanding causality in these kinds of situation. Rather like how feminist proponents of the spurious gender pay gap don't grasp that when left to their free choices, there will be unequal outcomes as regards men and women's average pay because men and women want and prioritise different things, radical redistributionists rarely seem to grasp that when the results of societal free choices are measured - even in the most equal countries - the lowest two quintiles own next to nothing compared to those in the top quintile.

Alas, Owen Jones is not alone though - errors of causality are highly common. This is because when we ascribe causes to effects we do so by focusing on what seems to be the most primary element of causality at the time. So for example, people will assert that ISIS was caused by (among other things) Blair and Bush's Iraq invasion; that the financial crash of 2008 was caused by (among other things) bankers' recklessness; that the Brexit majority vote was caused by (among other things) a huge anti-immigrant feeling; and that the Trump election was caused by (among other things) a large anti-establishment feeling.

But consider a heart attack by way of an analogy. Your obese neighbour Bob is outside washing his car on a hot July afternoon, when suddenly he keels over and dies of a heart attack. The most primary element of that event, the one on which the local newspaper report would probably focus, would be on the fact that Bob was an obese man over-exerting himself on a boiling hot summer day.

But there are other causes too, multiple causes. For example, Bob's obesity was in part caused by genetics, but also by his eating and drinking habits. Bob drank 40 units of alcohol a week and had a fry-up for breakfast three or four times a week. He also suffered from depression, which drove his excessive drinking. His depression was triggered by multiple past legacies, including being treated badly by his father, and having a mother too scared to protect him.

The upshot of all this is that causes are numerous and complex, and they depend very much on which link on the causal chain is being zoomed in on at the time. Moreover, in the case of Bob's heart attack, all of the causes have some relevance and none of them contradict the others.

The things that are causing all this inequality of outcome are very much not instances of unfairness, they are, by and large, instances of freedom in action, where a society with billions of individual decisions, in aggregation, naturally leads to expected power laws and income disparities. It's all very much to be expected, and probably always will be - it's a natural outcome of societies with diversity and a multitude of options.

And lest we forget, a few other pertinent points, namely:



Wednesday, 21 March 2018

Reader Response: Climate Change & Scamming


After reading a recent blog post of mine, a reader asked how I can claim that the climate change industry is a scam:

"How does climate change politics qualify as one of your scams? I hope you're not denying that capitalist industry has greatly affected our planet, and that political steps to combat it are making polluters culpable for their actions."

I've explained the faulty thinking at length before with a whole series of blogs - but the best way to define it as a scam is to elicit a popular term coined by Bruce Yandle called Bootleggers and Baptists, which is about regulations that provide self-interested benefits for both the regulators and for those thought to be victims of the regulations. It is based on the notion that Baptists support Sunday closing hours, but so do Bootleggers, because if local bars and off-licenses are closed, Bootleggers gain too.

Sunday closing hours benefit both Bootleggers and Baptists, while at the same time purporting to serve the public interests - and the green regulations are of a similar nature, as well as being very short-sighted and hugely damaging. Climate change alarmists naturally support heavy green regulations - because it furthers their own agenda, and enables them to cream off crony capitalist subsidies - but so do some of the biggest polluters too because some of the regulations help shut out competition.

As well as the inherent crony capitalist misallocation of resources, the other part of the scam - believed quite ubiquitously, I'm sorry to say - is that this is all very necessary as a regulatory means of reducing emissions down to a state-mandated nominal level. But frankly, this perceived is a rather confused one. As I've said before:

"A carbon tax is not a means of reducing emissions down to a nominal figure; it is supposed to be a tool for maximising utility. That is, carbon taxes help us incorporate negative externalities into the price system of a free market whereby polluters carry the costs of their negative externalities, but also whereby the price reaches equilibrium as the costs of pollution are measured accurately against the benefits.

That way, those negative externalities are compensated for by the fact that they increase utility to a level greater than their costs. For example, a timber factory and a roadside diner on the outskirts of a city add some pollution to the environment, but they make up for those negative externalities by providing goods and services that people want.

Where they are a benefit is when carbon taxes intervene in the price system to ensure that future costs of transactions are thought to be worth paying for present benefits. The rate of carbon tax is roughly commensurate with the future cost of pollution, incorporated into the price system to justify the benefits now – it is a tax that attempts to ascertain the benefits of pollution. Carbon taxes are far from simply being about lowering emissions, although as I argue here, they will likely change future behaviour as businesses innovate to be greener with improved technology."

Friday, 16 March 2018

Greatness is being both a Hedgehog and a Fox


This week Stephen Hawking passed away at the age of 76. Hawking was certainly one of the world's brightest minds in physics - but it's quite apparent that he was susceptible to much mental mediocrity too. So much so that he very publically fell for each one of the 3 biggest scams humanity has ever created. They are:

1) Atheism - the Promethean fantasy that tries to dispense with God

2) Socialism - the central planning fantasy that reveres state hegemony

3) Climate Change alarmism - the Gaia-driven fantasy driven by crony capitalism

Regular readers will be familiar with my antidotes to these scams, so in this post I want to touch on something a bit more specific: how people with highly intelligent minds can be great in some areas and yet so woefully inadequate in others. Perhaps the biggest human failing when it comes to cognition is failing to observe Pascal's piece of wisdom:

"A man does not prove his greatness by standing at an extremity, but by touching both extremities at once and filling all that lies between them."

For me, this is one of the best summaries of how to approach mental excellence - understand each extreme but at the same time occupy enough of the ground between in order to retain a balanced view where you've fully captured both sides of the argument. It takes a certain skill to harvest the uncertainties in the world while at the same time collating a succession of views and observations that you feel will still be the case for the rest of your living days. For this we shall turn towards Isaiah Berlin.  

Isaiah Berlin once wrote an essay called "The Hedgehog and the Fox", which is based on a fairly well known parable from the Greek poet Archilochus - "The fox knows many things, but the hedgehog knows one big thing". The observation is that the fox has cunningness, fleetness of foot, and the crafty ability to plan its course of attack. The fox does many things really well. The hedgehog, on the other hand, is slower and behaviourally less complex - but he has one big thing to outwit the fox; he can roll into a ball, show his spiky defences and render the fox's crafty planning ineffectual. The hedgehog does one thing really well.

In the essay, Isaiah Berlin wants to define the various thinkers in philosophy and literature into two groups - the hedgehogs and the foxes. The hedgehogs view the world through the lens of a single defining narrative around which all other ideas revolve. Those single defining narratives can be theistic or atheistic convictions, political ideologies, liberalism, and things of that kind.

The foxes view the world as a more complex, scattered, intractable and open-ended narrative; with all ideas feeding into a system that leaves questions unanswered, that has subjective expressions appreciated, and that has multiplicity of subsidiary ideas instead of a single defining narrative. If Pascal's observation about 'filling all that lies between' can help us become excellent, then understanding how the fox and hedgehog mentality can be applied will also be of great use.

Now the Hedgehog and Fox illustration is not perfect (see appendix* below) But it does provide a pretty good signpost to a potentially rewarding treasure chest concerning the pursuit of mental excellence. For I believe that if one is to become master of one’s own reasoning, and find the key to enhanced understanding of reality through the various lenses, then one must seek and find expertise in both kinds of thinking. That is to say, the true genius, if he or she is to reach the highest mental attainment, must be a master fox and a master hedgehog. He must do both things well if he is to 'fill all that lies between'. 

He will need to develop the ability to view the world through the lens of a single defining narrative around which all other ideas revolve. That narrative does not have to be one singular driving force at the exclusion of all the rest – it can be a synthesis of singular ideas in conglomerate form – but the most important thing is that it contains the blueprint to produce a framework of the narrative in simple terms, consistent with how reality is.  

He will also need to develop the ability to view the world through the lens of a more complex, scattered, intractable and open-ended narrative, with the multiplicity of subsidiary ideas complementing his singular framework of simplicity. As a consequence, reality for him will be seen in the right way, as being amenable to lots of statements that convey truths about nature and the concomitant human ideas, and how they can be assembled into some fundamental truths that form a singular narrative.

And also it will be seen as being at the same time complex, incomplete, intractable, highly subjective, and equivocally open to interpretation and speculation as the story unfolds and at times remains beyond our scope. Embracing a reality that is a synthesis of these two things is the first step to the highest mental attainment

Two thinkers I admire greatly – William Blake and Soren Kierkegaard – produced works that wonderfully exemplify the kind of thing I mean when I talk of mastering the hedgehog style of thinking. They each had an individual worldview that tended towards love, grace, mercy, forgiveness, the transcendent, and the metaphysical through the singular excellence of mind and imagination, but in a way that puts the divine at the heart of their narrative. Another thinker I admire greatly is William Shakespeare – but I part company with Isaiah Berlin, in that I think Shakespeare exhibits the fox-type of thinking over a rich body of work.

Like Blake and Kierkegaard, Shakespeare constructed a worldview that explored deeply the subjects of love, grace, mercy, justice, forgiveness, the transcendent, and the metaphysical through the singular excellence of mind and imagination, but he is not easily pinned down to a hedgehog-type discipline, or singular narrative.

His exploration came more from the measure of man and the human ability to use the mind to piece together scattered fragments of ideas and experiences in spite of a fairly open and inclusive narrative. His pain at the uncertainties revealed through the exploration moved him to confront those fragments through the excellence of mind and imagination, which makes him hard to pin down as a hedgehog. 

How you attain your own mental excellence will vary from individual to individual – but as I've said before, if humans work hard to pursue it with honesty and integrity, we should in theory pretty much agree on most things factual.

One of the key skills in conflating the hedgehog and fox mentality is about mentally arranging a lot of diverse data into succinct concepts, while at the same time understanding the complexity that underlies them. For example, the theory of evolution can be succinctly expressed well in a single essay, but it captures a lengthy and intractable timescale that includes fossil records, natural selection, genetic analysis, comparative morphology and the forming of nested hierarchies through illustrations like a phylogenic tree. 

Whether it is Charles Darwin on evolution, Adam Smith on market economies, John Milton on free expression, Albert Einstein on relativity, Thomas Kuhn on the nature of the paradigm, Gilles Deleuze and Félix Guattari on the natures of rhizomatic theory, or anything that makes up a succinct summary of complex data, the important thing is that one has a method of developing life goals and wisdom on the singular narrative, but at the same time work hard to refine the complexity of data into more tractable and manageable heuristics. Whether you are in business, psychology, science, politics or the teaching industry, and even if your principal interests are philosophical, theological and literary, you are not going to have a competent worldview if you veer too far into one extreme. 

If you are too much of a fox without recourse to hedgehog considerations, your worldview will lack that structured framework that locks your diverse thinking together into a singular narrative. But equally, if you are too much of a hedgehog without recourse to fox considerations, your worldview will be too oversimplified, and too black and white to capture the real diversity of reality, and the kind of pursuits we need to be making.

Of course Pascal's wisdom about "touching both extremes and filling all that lies between” serves to make a good point even better. Here the two extremes are the fox and hedgehog-type thinking, and filling all that lies between involves mastering both, and capturing the vast spectrum that lies between them.

The fox-type genius has broad vision as he perceives the complex interaction of seemingly scattered, unrelated and even inconsistent ideas. He will be a master if he can transcend the limits of the hedgehog and gather a rich nexus of experiential protocols into a worldview built on mental excellence. The hedgehog-type genius can compress the data of that broad vision into a woven fabric of consistently illuminating visions attached to more singular perspectives. 

If they were two people, the hedgehog would need the fox, and the fox would need the hedgehog. The really great thinker is the one who becomes both those people simultaneously; he is someone who masters the fox-mentality with every area the hedgehog could consider his own speciality. He would understand physics, but also the infelicity of human scams like the ones above. 

In Stephen Hawking's case, though, history will forget this, and rightfully remember him for his tremendous contributions to science, in spite of a debilitating illness that would have beaten lesser humans.

 
*Appendix:
The underlying theme behind Isaiah Berlin's essay was to place Tolstoy as the greatest writer because he most aptly incorporated the skills of the Hedgehog and the Fox into his work. Berlin also wanted to show how other distinguished writers largely fell into one camp or the other:

Foxes: Plato, Lucretius, Dante, Pascal, Hegel, Dostoevsky, Nietzsche, Ibsen and Proust

Hedgehogs: Herodotus, Aristotle, Erasmus, Shakespeare, Montaigne, Molière, Goethe, Pushkin and Joyce

Now personally I don't see much merit in demarcating authors in this way - not just because that selection of people omits a whole canon of thinkers worthy of consideration over and above some of those writers (although that is an issue), but primarily because I don't think one can make those kinds of judgements, or that level of simplistic demarcation, without meeting those writers and thinkers in person and getting a lot better sense of how they think by spending time with them.

In other words, an individual’s writing tends to reveal only a limited sample of the full diversity of that individual’s thinking - and such sparse sampling from people like Isaiah Berlin, born after they have died, doesn't capture anything like enough of the essence of the writers in totality. 

I think that’s the big thing that virtually every classifier misses, and something you'll do well to remember - the majority of minds are too diffuse to be easily categorised. They are a morass of hedgehog and fox-type mentality - a bundle of impressions that give the feeling of being some way between complete and incomplete.

Saturday, 10 March 2018

Ministers Confusing Themselves With Parents


Sometimes I can't believe what I read: this time about government ministers wanting to regulate how long children spend on the Internet. It is not politicians' job to run the country in loco parentis - so even if it is the case that children are spending too much time on the Internet, this area is one for the parents to regulate, and parents only, not the state. But illiberal nannifying aside, I'm not even sure that this is much of a concern in the first place - in fact, the intention may be rather misplaced.

As it happens, I saw one or two pictures doing the rounds in recent weeks, lamenting the fact that kids have forgotten how to go out and play because they are over-consumed by attention to digital devices. I've no doubt there are conditions under which that's true, but I think the narrative that kids are missing out on playing in the woods because of their iPads may be mistaken.

When I was a boy I played out with friends; on the swings and slides; on skateboards, on bikes, even at being ninjas. If I'd grown up with an iPad, and the entire world's knowledge readily available at the touch of a button, the outdoor activities probably would have been less alluring to me.

Don't get me wrong, it can be fun playing outside when you're young - and no child ought to be at a computer for too many hours a day. But I think it is a misjudgement to assume kids are missing out on enjoyment because they are indoors on digital devices rather than outside playing netball or climbing trees.

And surely, if children found more enjoyment playing outside than on their digital devices, they would spend more time outside. Maybe when we were kids we played outside because that's the best we had - and maybe now there are more options, the outside playing time doesn't satisfy quite so much when compared with the alternatives.

It's equally likely to be true that as material progression occurs, attitudes change relative to expectations. A Christmas stocking filled with 1970s presents would disappoint a contemporary child to about the same extent that it would elate a 1940s child. Older people still find satisfaction in listening to the radio and watching scheduled TV programmes with adverts. Younger people have been accustomed to instant downloads whenever they want something.

I like television; I like films; I like reading books; and I like going out - but I find my juices run out on those things quicker than they run out on being on my computer, with its heady mix of writing, debating, surfing and entertainment - and that is probably true for many younger people too. They don't do many of the things their parents did, because they don't have to. And in all likelihood, their children and grandchildren will have ways of entertaining themselves that will make today's iPads and gaming consoles seem quite prosaic in comparison.

 

Thursday, 8 March 2018

Labour Hits Turbo On The Stupid-O-Meter


I've not held back on my criticisms of Labour's madness over the years - but this latest bout of intellectual and empirical insanity truly has to the worst idea they've ever had the gall to float in the public domain. In fact, in terms of political policy, I'm going out on a limb in saying that, from memory, it is probably the worst idea I've ever heard from politicians - equivalent of wanting to fine unicorns for stealing flowers from the bottom of the garden.

The latest hair-brained idea from Labour is to punish firms for not closing gender pay gaps. Apparently, under a Labour government, and driven by shadow equalities buffoon Dawn Butler, firms will have to prove they are taking action to close the pay gap or face a fine.

They will need lots of luck finding such a thing, because if reality ever does kick in they will discover that there is no gender pay gap. It is illegal to pay women less than men for doing the same job. The Equal Pay Act of 1970, the Sex Discrimination Act of 1975, and then later the further codified Equality Act of 2010 all protect workers from unfair discrimination if their remits are the same.

What does exist is an earnings gap - which is a statistical weighted average based on the life choices men and women make, and the numerous things that comprise the differences in terms of personalities, aspirations, wants and life choices. An earnings gap is precisely what you'd expect to see when men and women are free to make decisions that suit themselves and their families.  

So this is both a non-existent problem, and worse, a non-existent problem that even if it were a problem would not be the fault of employers, much less something for which they should be penalised. In what is turning into a very long list, this is surely the very worst example of half-witted politicians misdiagnosing a problem, and then positing a truly illiberal, wholly asinine solution to it.
 
 

Wednesday, 7 March 2018

Theresa May Can't See The Wood Huts For The Tree-Houses


Young people without family wealth are "right to be angry" at not being able to buy a home, says Theresa May. She is right, but alas, she neglects to tell the whole story - the part where successive governments, including hers, have played a huge part in this problem is the real reason prospective home owners should be angry.

Suppose you actually want to help the buyers of a specific product like housing - the last thing you should do is help make it a sellers' market. A sellers’ market is an economic situation that hands advantages to sellers over buyers, and this is the society to which young people have been accustomed.

House owners hope the housing market will be a sellers’ market when the time comes to sell their house, and house buyers hope the housing market will be a buyers' market when they are ready to get on the property ladder.

Governments who advocate strict planning regulations in effect support the state-mandated creation of a sellers' market, while at the same time they kick many prospective buyers' feet away from the first rung of the property ladder.

Basic economics should inform our politicians that if demand is high but supply is restricted, then prices will rise, making housing unaffordable for more people. So long as politicians do not interfere with prices, they will tend to adjust so that the quantities demanded and quantities supplied are more or less in equilibrium.

Theresa May is not stupid - she is expressing phoney outrage while keeping quiet about the fact that bargaining inequalities in the housing marketplace are creating a shortage. Currently the amount of housing demanded by buyers is greater than the amount supplied by providers; and prices will fall only when restrictions are relaxed so that the amount demanded by buyers is equal to or less than the amount supplied by sellers - when there is more of a buyers' market and less of a sellers' market.

The only thing that might provide a little medicine to people's frustration is the laughter they can express when they see the recent appearance of Green Party leader Caroline Lucas on Channel4 News, stating what a bad job the government is doing on the affordability of housing problem. The Green Party no less - which is rather like the Chief Executive of McDonald's appearing on television saying what a bad job Subway is doing on tackling teenage obesity.
 
 
 
 

Sunday, 4 March 2018

When Tax Is Like Theft & When It Is Not


A friend asked the following question:

"If you don't pay tax you end up in prison. Therefore is tax theft, or is it the price we pay for a civilised society? If it's the price we pay for a civilised society, then it's not one we ever had a say in. Therefore it's a kind of theft, but one we appear to allow to happen to us?"

The best way to answer questions like this, I find, is to reverse the method of questioning somewhat. In asking whether tax is theft, or synonymous with theft, we are actually looking at the properties of something definitely bad and asking whether the other thing shares some or all those properties.  

On top of that, when we consider what is wrong with something, and enquire as to whether the other thing is comparable in terms of wrongness, it is often useful to compare its fundamental principles to other things in society. I will do both those things in this blog post.

The second one first. If at school you deliberately break little Johnny's mum's window, your parents should compensate them. If you break someone's window as an adult, you should compensate them. This has an analogue with some of the negative externality taxes like pollution.

On the other hand, if the local gangster goes round small businesses and obtains money through a protection racket, or if poor Tom takes some of rich Jack's lunch money in the school playground, this doesn't seem so good, even though it is tenuously analogous to how the state treats its citizens.

Apart from in spirit, the local gangster forcing restaurant owners to fund his own lifestyle is not hugely different to how the state forces me through taxation to invest in services I seldom or never use and policies to which I am wholly opposed.

To that end, I'm afraid the properties of taxation do all too often share some of the fundamental properties of theft. If Jack steals Jill's laptop, then Jill is the victim to about the same extent that Jack is a beneficiary. But the wrongness of theft is the moral wrongness that harms society, plus all the other negative spillover effects that I'll come to in a moment.

The wrongness of taxation is that it forces consumers to spend our money on things like establishment pay, layers of bureaucracy, small business subsidies, bailouts and transportation projects that we otherwise would not. To that end, a lot of taxation is a little like theft in terms of the consequences to the consumer, but it more closely resembles a protection racket (but not wholly, as we'll see in a minute).

The other thing that tax and theft have in common is that they both impose value-robbing opportunity costs on society. When Jack designs a mousetrap, or provides a taxi service, or cooks pizzas, he adds value to society. When he steals Jill's laptop, he inflicts all the costs on society that crime imposes, but he also forgoes the opportunity to do something productive.

Taxation has similar opportunity costs. While taxation transfers funds from one place to another, and in a costly way, it doesn't produce very much. There is a small sense in which taxation sustains parts of society (defence, rule of law, and other public goods) that enables others to produce, but there are enormous opportunity costs to taxation that misallocate resources by being out of kilter with supply and demand, and as a consequence rob society of a lot of value.

Taxation and theft also rob society of value by diminishing the number of mutually beneficial transactions that occur, because they both increase the cost of trade, and therefore increase the prices that businesses have to charge. The opportunity costs of taxation and theft are the aggregation of all the forgone opportunities for trade - the mousetraps that don't get made, the taxi rides that never happen, and the pizzas that never get cooked.

Some people struggle with this notion, but it's easy to see its truth by imagining a more extreme example: a country ruled by a greedy dictator who taxes the life out his citizens and allows lawlessness to occur. The costs to the citizens are not just the taxes and the crime - the more acute costs are all the lost productivity and prospective innovations that never materialise because of the taxes and lawlessness.

In summary, then, taxation and theft share many of the same properties - but theft is a bit worse because theft always engenders net costs on society, whereas tax mostly does, but not in every instance.

Every instance where tax goes towards providing something that could, and should, be provided privately, taxation has similar properties to theft. Every instance where tax goes towards providing something, like a public good (defence, rule of law) that is more valuable to society than the cost of the tax gathered, taxation is a lot less like theft - it is more like a compulsory insurance policy that provides societal benefits that would otherwise be more difficult to obtain because of the free rider problem.

Tuesday, 27 February 2018

You Know Reform Is Badly Needed When Things Like This Happen


Sometimes an argument you've been making for years deserves a rerun when something so ludicrous happens that could make even the most ardent sceptics stop and think "Hmmm… he may have been onto something all along".

The argument in question has been that the BBC licence fee is an outmoded, inefficient misallocation of resources that needs to be kicked to the curb right now. The aforementioned ludicrous occurrence that gives traction to that idea is the headline I read last night about how executives at the BBC are looking to spend £15 million of taxpayers' money on the set design of a mosque for the soap’s Muslim characters.

This, and many other things the BBC does, is not something on which the vast majority of people would voluntarily spend their money - but they are forced to do so because if they do not they face prosecution. This is no longer the way to run a service that ought to stand or fall on commercial demand, not on enforced confiscation. When taxpayers are faced with a £15 million bill to spruce up a television set with a mosque for its Muslim characters, you know there is something seriously wrong.

I have no interest in soaps, but I know many people do. Fine, then let them vote with their wallets and purses, not with a television tax. In this day and age, where digital television and voluntary subscriptions increase the width and breadth of television entertainment available, and improve quality by added creative competition, the BBC's licence fee system is anachronistic and inefficient.

There is a lot I like about the BBC - and the chances are, if it were to be offered on a voluntary subscription basis, like Netflix, Amazon Prime or a Sky package, I probably would pay the subscription costs. But for those for whom that arrangement would not constitute net value, they'd be free to spend their money elsewhere.

If viewers really do value what the BBC provides, then the BBC would continue to attract customers under a more competitive subscription system. But trying to justify a licence fee tax on the basis that there may not be healthy commercial demand for the programs and services if people were free to opt out, is no basis for retention of this arrangement.

Because one thing is fairly certain - if there was no such thing as the BBC, there is absolutely no chance that the vast majority of the public would want it invented in its current format. It is only because the BBC has been with us for so long that so few people seek to question its edifice. It needs reforming; the mandatory licence fee needs to be discontinued - and in its place a pricing model that stands or falls on the basis of commercial demand.

Sunday, 25 February 2018

A Little Perspective On The Wealth Gap - Seen Through The Eyes Of Henry VIII


As you know, there is a lot of complaining about the so-called injustices of the wealth gap, with everyone from Oxfam to Jeremy Corbyn to Bernie Sanders complaining that the wealth of the richest people keeps increasing while the poor do not benefit much from capitalism.

This is obviously a foolish assertion - but more than that: even those who acknowledge the benefits of capitalism are often guilty of understating the extent to which the poorer people in the UK and the USA have enjoyed pretty much all the beneficial things the rich have. So much so that the further back in time you travelled, the narrower the difference between today's rich and poor would seem.

To see why, let me run this thought experiment by you. At the time of his death, Henry VIII's wealth was thought to be around 300,000 British pounds. Adjusted for inflation, that would make him worth about £250 million today.

Suppose we resurrected Henry VIII and brought him and his adjusted wealth into the present day to spend a week following round Richard Branson - a man worth about 16 times more (£4 billion) than Henry would be worth. We'd find something quite astonishing. The things about Richard Branson's life that would be most coveted by Henry VIII would not be the luxury goods that make Branson stand out from the average earner of today - they would be the multitude of things that even most low income earners have at their disposal. 
 
What would impress Henry VIII most about today are things like: having access to such a rich variety of food and drink; clean, uncontaminated water; an extremely low chance of mothers and babies dying in childbirth; modern medicine and healthcare; refrigerated food; microwave ovens; cars; high speed trains; computers; televisions; washing machines; global travel in under 24 hours; much shorter working weeks; welfare; access to the entire world's knowledge through the Internet; and all this (and much more) in a world that has seen the virtual eradication of smallpox, polio, diphtheria and tuberculosis.

That is to say, Henry VIII would find the difference between Richard Branson and a low income worker infinitesimal compared with the monumental difference in quality of living between himself and a low income worker in the present day. The most astounding part of present day living for Henry VIII would be the multitude of present day advantages that many people take for granted, and yet still consider themselves poorly off despite having.

Given the foregoing, I find it remarkable that there are so many narrow-minded, short-sighted, entitled people in society who are obsessed with banging on about the inequalities that capitalism creates.

You may say that, for those suffering economic hardship, life is a daily grind - and I will not disagree with you. But as soon as you take your eyes off disposable income, and focus on the way society has been equalised materially in just about every other way, you'll see that instead of bemoaning the gross wealth stratifications in society, a more pertinent reaction would be to feel amazed that after 200,000 years of human history when just about everyone who ever lived was equally poor, we find ourselves living in a time when the majority of us are equally very rich.

Sunday, 18 February 2018

Put The Scandinavian Myths To Bed Now


You can't very easily claim to be a serious thinking person if you have been taken in by the widely promulgated myth that Scandinavia is both:

a) Some kind of empirically demonstrable example of the success of socialism in action.

And:

b) What Jeremy Corbyn wants to create for the UK.

These contentions are so fatuous, that if they were a human being, they would be the illegitimate love child of Owen Jones and Angela Rayner. The reality is, every time the Scandinavian countries have weighed in too heavily in favour of socialistic models things have gone poorly - and every time they have weighed in heavily in favour of markets things have gone significantly better.

By and large, private individuals in Scandanavian countries have a relatively free rein in the means of production. Scandinavian countries do push the boat out a bit on welfare, but that is not the same as a Corbyn-esque command economy built on envy, price fixing and punitive confiscatory measures.

The much vaunted political aspects of social democracy that turn up in places like Norway, Sweden, Finland and Denmark are funded by everyone else's trade. To claim that Scandinavian social democracy is a good advert for socialism is a bit like claiming that opening bars and restaurants is a good advert for protection rackets.

Scandinavians embrace the fruits of the market as a means of providing welfare - it works in conjunction with markets, not in opposition to them. Scandinavian success comes in spite of a fattened up taxation system, not because of it. The fiscal redistribution policies happen because of flexible, lightly regulated markets and fairly substantial levels of economic freedom  

For further reading, I recommend this. Here's a summary.

Scandinavia’s success story predated the welfare state. Furthermore, Sweden began to fall behind as the state grew rapidly from the 1960s. Between 1870 and 1936, Sweden enjoyed the highest growth rate in the industrialised world. However, between 1936 and 2008, the growth rate was only 13th out of 28 industrialised nations. Between 1975 and the mid-1990s, Sweden dropped from being the 4th richest nation in the world to the 13th richest nation in the world.

• As late as 1960, tax revenues in the Nordic nations ranged between 25 per cent of GDP in Denmark to 32 per cent in Norway – similar to other developed countries. At the current time, Scandinavian countries are again no longer outliers when it comes to levels of government spending and taxation.

• The third-way radical social democratic era in Scandinavia, much admired by the left, only lasted from the early 1970s to the early 1990s. The rate of business formation during the third-way era was dreadful. In 2004, 38 of the 100 businesses with the highest revenues in Sweden had started as privately owned businesses within the country. Of these firms, just two had been formed after 1970. None of the 100 largest firms ranked by employment were founded within Sweden after 1970. Furthermore, between 1950 and 2000, although the Swedish population grew from 7 million to almost 9 million, net job creation in the private sector was close to zero.

Scandinavia is often cited as having high life expectancy and good health outcomes in areas such as infant mortality. Again, this predates the expansion of the welfare state. In 1960, Norway had the highest life expectancy in the OECD, followed by Sweden, Iceland and Denmark in third, fourth and fifth positions. By 2005, the gap in life expectancy between Scandinavian countries and both the UK and the US had shrunk considerably. Iceland, with a moderately sized welfare sector, has over time outpaced the four major Scandinavian countries in terms of life expectancy and infant mortality.

Scandinavia’s more equal societies also developed well before the welfare states expanded. Income inequality reduced dramatically during the last three decades of the 19th century and during the first half of the 20th century. Indeed, most of the shift towards greater equality happened before the introduction of a large public sector and high taxes.

• The development of Scandinavian welfare states has led to a deterioration in social capital. Despite the fact that Nordic nations are characterised by good health, only the Netherlands spends more on incapacity related unemployment than Scandinavian countries. A survey from 2001 showed that 44 per cent believed that it was acceptable to claim sickness benefits if they were dissatisfied with their working environment.

• Other studies have pointed to increases in sickness absence due to sporting events. For instance, absence among men due to sickness increased by 41 per cent during the 2002 football World Cup. These shifts in working norms have also been tracked in the World Value Survey. In the 1981–84 survey, 82 per cent of Swedes agreed with the statement ‘claiming government benefits to which you are not entitled is never justifiable’; in the 2010–14 survey, only 55 per cent of Swedes believed that it was never right to claim benefits to which they were not entitled.

• Another regrettable feature of Scandinavian countries is their difficulty in assimilating immigrants. Unemployment rates of immigrants with low education levels in Anglo-Saxon countries are generally equal to or lower than unemployment rates among natives with a similar educational background, whereas in Scandinavian countries they are much higher. In Scandinavian labour markets, even immigrants with high qualifications can struggle to find suitable employment. Highly educated immigrants in Finland and Sweden have an unemployment rate over 8 percentage points higher than native-born Finns and Swedes of a similar educational background. This compares with very similar employment rates between the two groups in Anglo-Saxon countries.

• The descendants of Scandinavian migrants in the US combine the high living standards of the US with the high levels of equality of Scandinavian countries. Median incomes of Scandinavian descendants are 20 per cent higher than average US incomes. It is true that poverty rates in Scandinavian countries are lower than in the US. However, the poverty rate among descendants of Nordic immigrants in the US today is half the average poverty rate of Americans – this has been a consistent finding for decades. In fact, Scandinavian Americans have lower poverty rates than Scandinavian citizens who have not emigrated. This suggests that pre-existing cultural norms are responsible for the low levels of poverty among Scandinavians rather than Nordic welfare states.

• Many analyses of Scandinavian countries conflate correlation with causality. It is very clear that many of the desirable features of Scandinavian societies, such as low income inequality, low levels of poverty and high levels of economic growth, predated the development of the welfare state. It is equally clear that high levels of trust also predated the era of high government spending and taxation. All these indicators began to deteriorate after the expansion of the Scandinavian welfare states and the increase in taxes necessary to fund it.
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