Sunday, 29 September 2013

A Silly Argument About Diversity


Strange argument from Simon Fanshawe on the BBC's Sunday Morning Live today, arguing that "All employers should stop simply always hiring the best person for the job. Instead, they should actively recruit as diverse a workforce as possible"

That's obviously rubbish - employers should always appoint according to who is best for the job. But that's not all.  If a workforce really were 'as diverse as possible' then by definition it would contain quite a few people who were largely unsuitable for the role in which they found themselves. Moreover, if that's your primary interest, a maximally diverse workforce should contain people like an Islamic fundamentalist, a football hooligan, an 18 year old Goth, a transsexual who sniffs glue and self-harms, a gambling addict, a mason, and a member of the flat earth society. Then you'd be some way to creating a workforce that was 'as diverse as possible' - but I don't think it would be a very good workforce.

No, for soliciting opinions, forming think tanks, forecasting, or debating topics, a diverse array of minds is of huge benefit. But places of work aren't like that. Each role requires a specialised set of skills - so hire the best person for each role, with the best personality, and you'll get the best workforce. That's all the diversity you need. Diversity for diversity's sake only means artificially disadvantaging people who are better for the roles than the people you're taking on to obtain your diverse workforce.

* Photo courtesy of Facebook.com

Friday, 27 September 2013

The Niqab: A Thin End Of A Tyrannical Wedge


You may have noticed this week that the recurring debate about the full Islamic face veil (the niqab) has been prominent again, specifically (in this case) related to the wearing of the niqab by hospital workers. Now I am firmly of the view that practices attached to oppressive religious dogmas should always be secondary to the laws of the land.  That is to say, I believe that no concession should be made in deference to religious beliefs; it is the religious person that must defer their practices where they conflict with the law (save for exceptional circumstances), and (ideally) where they cause infringements in the workplace.

If people wish to wear the niqab in their everyday life, then that's up to them, and I fully defend their right to do so (although, naturally, I do find it unfortunate).  But when they are in a situation (like say in the medical profession, in a court of law, or with security considerations) in which an inability to see the face impedes the particular practice, I think they should remove it.

But even with that unequivocal stance firmly in place, there is still the issue of the niqab at a societal level, whether it causes divisiveness, and whether women who wear it are having their liberty circumscribed. I believe that Islam is one of the worst things humanity has ever invented – and when I see a woman wearing the niqab it demonstrates to me how absurd and stultifying a practice can be when it is based on religious adherence, and not openly criticised enough because it falls within the purlieus of ‘religious entitlement’. 

Of course, people will argue that many Muslims are good, decent, kind and intelligent people – but that’s the wrong line of enquiry, because there is no reason why they couldn’t be good, decent, kind and intelligent people without Islam. No, the right line of enquiry would be to ask the following question; would a balanced woman brought up in an environment in which she had open, critical enquiry, free from the oppression of an archaic and patriarchal religion, wilfully choose to cover herself from head to toe (leaving only her eyes) in adherence to the backward, misogynist desire the Qur'an has to control women?  I think the answer is clearly no. 

The niqab stands as an example of the horrible way in which manifestly man-made patriarchal and half-witted religious dogma not only oppresses women, but causes them confusion about their own liberty.  Here's why. Some Muslim women assert that their wearing the niqab is a free choice, and a symbol of their autonomy in choosing to do so.  But in my view that’s to be guilty of failing to consider whether they would ‘freely’ choose to wear such a hideous thing if they were not so heavily culturally and/or familially conditioned by an implacably absolutist Islamic influence that lurks deep in the religion's repressive ideology. I don't think they would. 

By claiming themselves to be free, they are simply demonstrating that the shackles of Islam can give the appearance of being free in the teeth of an apparent volition. It is not a choice that I think many women would make if the well of their mind hadn't been in some way poisoned by the religious dogmas of Islam, and its antipathy to genuine free-thinking autonomy and a critical enquiry that can look beyond the manacles of cultural conditioning. 

This is a good general rule of consideration for life; we should judge decisions, views and beliefs not primarily on the specific conditioning from whence those decisions, views and beliefs occurred, but on whether we think a man or woman brought up in an environment with open, critical enquiry that remained free from oppression would likely make those decisions, hold those views and have those beliefs.  If the answer is ‘no’ then you are entitled to feel pretty confident that they are under an unhelpful thrall.

To show the extent to which this is the case, let me give you an analogous example of why this proclaimed 'freedom' is really a case of being shackled.   A few months ago I saw a documentary on travellers, focusing on a family of irresponsible rogues who were setting up fights between seven and eight year old boys in a disused pub, in order to 'toughen them up for bear-knuckle fighting in adulthood'.  When questioned about whether this was tantamount to child abuse, the chief of the irresponsible rogues insisted it was “Foyne, because dose kids do'it willingly" - after which, two or three seven and eight year olds were put in front of the camera to confirm "Aye, it's foyne, we do'it willingly".

Once you ask the same kind of question – whether seven and eight year olds bashing each other’s brains out whilst being cheered on by adults in an organised fight scenario would occur in families that had their children’s best interest at heart, and weren’t under the thrall of moronic tribalism that places a premium on bashing rival families’ brains out – you’d, of course, conclude that such behaviour is quite anomalous, and the result of bad cultural conditioning.  Roughly speaking, the niqab is to Islam as child fighting is to traveller mentality - they are thin edges of a much bigger wedge that retards human progression. 

In addition, though, I'll make a correlative point - while the subjugating ultra-modesty of the niqab is (at best) an unhealthy compromise of psychological and emotional liberty, and (at worst) a denial of psychological and emotional liberty, I do think at a general level some degree of modesty and self-respect is required in being free.  I say this because I think many of the so-called liberated folk in the present age are in their own way as constricted as Islamic women wearing the niqab - it's just the case of their being at different ends of the extremity spectrum.

Here's what I mean. At one end we have the aforementioned dogmatic religious constriction that amounts to loss of liberty.  But at the other extreme we have another kind of diminution of liberty - one that taps into this idea of being modern, free, expressive, liberal and liberated.  This is the putative faux-freedom in being able to, and in many cases encouraged to dress scantily and provocatively, to binge drink, to abuse the body, to sleep around, and similar supposed liberties that are believed to be counter-cultural.

If an oppressed Islamic woman wearing the niqab has an unhealthy compromise of psychological and emotional liberty, then I think so does the modern person who has compromised himself or herself by going too far the other way with binge, bodily abuse, promiscuity and an ultra-relaxed attitude towards discipline and self-respect- it's just that the two individuals are at opposite ends of the spectrum.

The underlying rationale here is important; if we are to will the continual progression of human beings, it is imperative that the bad elements of human history that have survived through cultural and familial propagation are not left unchallenged. The default position by many is that if something is believed by a lot of people (like a belief attached to a religion) then we ought to be circumspect in subjecting it to rigorous scrutiny for fear of offending such a large number of people.  I think that's the opposite of the truth; it is when bad practices are ubiquitous that the people undertaking them most need our help in speaking out for them, and challenging the thrall of the tyranny that shackles their intellect, their emotions and their progression.

Wednesday, 25 September 2013

Rent Prices & Social Care; Too Much Restriction?

On BBC's Question Time last Thursday we had a first time panellist (I think it was her first time) - The New Statesman columnist Laurie Penny - whose contribution in most cases demonstrated a half-witted misunderstanding of the topic under consideration, and whose answer in most cases was just about as wrong as you can be. Laurie Penny seems a good candidate to join the likes of Johann Hari, Owen Jones, Medhi Hasan, Salma Yaqoob, Francis Beckett and Polly Toynbee, as part of a group of continually irrational, misinformed and poorly reasoned social commentators who make me want to throw things at the TV when they're on there pontificating.

Her opening statement - that rent control is the answer to the housing shortage - is the focus of my attention here, as it's close to another issue of mine (social care), as well as being the opposite of the truth. Rent control actually does the reverse of the remedy required; it creates scarcity of supply and it exacerbates housing market shortages.

So, what does that have to do with social care? It's another one of those issues where things are going wrong, thanks to the successive governments' inability to address the situation properly. Suppose someone has a family member who is paying thousands of pounds a month for social care, which is happening throughout the country. For many people this amounts to extortionate rates where the person’s life savings are being swallowed up to go into the hands of private care firms. The right question, then, is; are the profits the care homes are making excessive? The other right question is, if they are excessive to the point that other alternatives are preferable, why are elderly people not freer to employ whom they want to care for them (say, 2 family members or friends that need the work)?

One of the golden rules of economics is that if a company is earning excess profits this should create an opportunity for potential competitors to enter the market and charge less while still making a profit. When this occurs in a free market, competition drives prices down to the level of the costs of the most efficient supplier (where costs include the cost of capital). So if a business can sustain these "excess profits" then something must be preventing other suppliers from competing within the care market.

Just like rent controls, imposing a price control will do no good, because if the government does impose a price cap, the cap will almost certainly be too low (a cap too high would have no effect, because to be too high it must exceed current prices, otherwise no one would notice as current prices would be under the cap). By imposing a price cap that will inevitably be too low, the government will only succeed in reducing supply, and thereby harm consumers of care services.

There is a shortage of cheap housing for the same reason that there is a shortage of cheap social care - government restrictions. In the case of housing, the shortage occurs because the government specifies rigid building standards, restricts the use of land, and subsidises mortgage borrowing (all these policies push up the cost of housing and create a scarcity of suppliers). Some people do argue that these restrictive policies are a good idea, and some (like me) argue that they're too bureaucratic and too much of an infringement on the free market. Opinions vary, and that's fine - but those who adopt the view that these restrictive policies are a good idea should not then complain that there is a shortage of cheap housing and a scarcity of suppliers, because the shortage and the scarcity are consequences of the restrictions.

Clearly as there’s a shortage of cheap care homes it would seem that something is preventing competition, as there appears to be a block in care industry with excessive regulations. This is what the government needs to address in order to allow competition to flow. That said, for a balanced analysis, it's worth pointing out that care home running costs aren't all that cheap for the providers; as well as the standard carer costs covering 24 hours shifts, there'll be costs for management and supervisory staff, staff to administer medicine, laundry and cleaning staff, cooking staff, and building maintenance (to name but a few).

So while I'm sure profits are being made, and government restrictions don't help the social care market - a few thousand pounds per month is deemed by some as a pretty reasonable and necessary price, given that the home needs all those staff and services, and has such expenditure.  But that's to miss the main point; it's fine if you're willing, but if you're not then your alternative options are seemingly being restricted too much by the heavy legislative measures imposed upon the system by the government.

Here's how the free market works ordinarily for consumers of goods and services. If any particular supplier seems too expensive, we look to switch to other suppliers. If all suppliers seem expensive, then either entry into the industry is blocked by regulatory constraints, or if it isn't blocked then the activity probably just has an expense to justify such prices. Clearly this isn't the case with providers of social care, because the barriers that deter (being handed a lawsuit for malpractice, incurring capital costs that necessitate such steep charges) would not apply in a situation in which an elderly relative needs a couple of carers, and there being 2 willing family members ready to care for her, and badly needing the money (with her badly wanting the money to go to them rather than into the hands of excessive care firms).

That this can’t happen, and that elderly people are held captive in this way, gives indication that important alternatives (competition to drive down prices, or relatives or friends willing and able to take on the role) are being suffocated – and suffocation in the free market is seldom a healthy thing.

Friday, 13 September 2013

My Issues With Green Politics



In the circles in which I roll, issues of green politics, sustainability and the environment have cropped up quite frequently.  I'm not a big fan of green-centred politics (by 'green' I mean green-keens in general, not just the Green Party) - I find most of it to be an unhealthy mix of the presumptuous, the unsubstantiated and the just plain spurious. Thus, my general view is that there are plenty of reasons not to support green-centred politics.  Here's why. Let's not go into the fact that green people's keenness to excessively interfere in market economics is mostly inimical to a good economy (I explain the general principle in this Blog post here)*; let's not go into the fact that to have a realistic chance of bringing the people in the developing world out of their plight we are not going to have the luxury of being as environmentally careful as the green-keens want (we should always acknowledge the fact that as technology increases this problem will diminish, as our aim should be to change the way we depend on the natural resources we do – as I explain here). I'll even pretend not to have noticed that their claims about an over-population crisis are the complete opposite of the truth (as I explain here). So I won't comment on those three things in this Blog, as in some of those issues there are aspects of the green policies that do have some merit.

No, my main reason for being at odds with green-centred politics is that the fundamentals behind their ethos - "The climate is being negatively affected; humans are negatively affecting it, therefore the continuing trend is bad and needs drastically addressing", is in my view the ethos that’s presumptuous, unsubstantiated and spurious. Now, I don't have any affiliation with any political party, which means I have no party-political reasons to be against any one party - hence, I'm keen to be as fair to the green-keens as I possibly can. But I can make little sense of the bases on which their policies stand, as they seem to me to be under misapprehensions about the merit of those policies, as well as seemingly expending too much effort on counting costs and not enough on counting benefits.

Let's take the above claim: "The climate is being negatively affected; humans are negatively affecting it, therefore the continuing trend is bad and needs drastically addressing".  The problem here is that there is an assumption made without qualification. Whenever you have a situation in which X is happening (where X is negative), and Y is causing X, one can't just proclaim that the continuing trend is bad and needs drastically addressing, because there may well be other ways in which X's negativity is being offset by other factors not in the equation. That is to say, while I'm willing to acknowledge that it's the case that at least in some part the climate is being negatively affected by humans, the statement doesn't mean much unless one can show that the climate being negatively affected by humans is more of an overall cost than the benefits such effects bring.

You see, I don’t think this has been done; hence, I think the green-keens have still got their work ahead of them, as all the indications seem to me to be that the benefits outweigh the costs. I think the reason this is often not seen is that just about all the arguments for and against are focused on X and Y, but they ignore whether this necessarily supports the conclusion that it amounts to a net cost. Their fault is on focusing on a few global bullet points (sea levels rising, overall temperature increase, deforestation) and treating them only as bad, or as bad but understating the good outcomes.  Yes, overall temperature increase contains bad effects (although one can't be certain that temperature increases are going to continue on this trend), but it also contains good effects too, as I'm sure the people of Greenland, Siberia or Alaska would testify.

If these considerations cast huge aspersions over the green ethos, why then are the environmental portents so widely felt? I think it's good to remember why much of this came about. Green parties of the 1970s and 1980s were largely set up to be alternatives to the traditional left and right parties (having the advantage, perhaps, of being one of the first **) - and as those left and right parties gravitated towards the centre (becoming largely indistinguishable since Blair's Government), the alternative vote that imbues itself with environmental sound-bytes seemed to some to be a genuinely compelling alternative. Moreover, it seems that the alternative remains so compelling that Green politicians continue to be a tenable option – which may not be a bad thing, as it keeps pressure on the main parties to include environmental policies in their manifesto.

The Economic way of thinking
As is usually the case, an economic way of thinking would guard against falling for the kind of errors the green-keens are making - because economic thinking wouldn't just involve asking whether there are good and bad effects - it entails wanting to know if there are net costs sufficient that the bad effects outweigh the good effects. This seemingly is never addressed by the Greens in an open way, because to do so would rock the foundations of their party ethos, which is just based on the assumption that there are net worsening effects. How are we to tell, say, if rising sea levels in the Indian Ocean balances out with the emergence of more habitable areas of Siberia or Alaska? Don't forget this won't happen overnight - it happens over decades and centuries, so any considerations that factor in sudden and unexpected inconveniences are a solecism against good enquiry.

Don't forget also that if you asked a man in 1913 about how the world would look on a global level in 2013, he'd have no way of foreseeing it in its current set-up.  If environmental changes occur over such slow passages of time, then in a few decades countries surrounding the Indian Ocean may well be well prepared for rising sea level, and Siberia or Alaska probably will hugely benefit from increased global temperature. From what I can see from looking at their literature, The Greens haven't offered any proper cost benefit analysis on the dynamical change of global states - they've merely prodigiously estimated the costs and exiguously estimated the benefits. Of course, that doesn't mean the Greens are wrong - it only means the methods by which they think they are right are faulty.

In offering an economic view of the situation - one that has no ideological biases - I'll tell you how I think it really is.  Climate change is presumptively unwelcome, whether it is hotter or cooler, because present human endeavours are optimised specifically for present day conditions.  Whether you're farming, building factories or houses, or designing railways or cars, you are optimising the production for modern day use consistent with modern day conditions. But environmental changes are gentle century-long slopes not steep month-long drops - so once you consider the extent to which activities associated with farming, factories, houses, railways and cars will have changed in a century to be coterminous with the gradual changes in the environment, you see there are probably no crises at all. Given that the earth's climate and environment has been changing for millions of years, it is obvious that no climate of any time is the optimal one in absolute terms.  If there is no reason to believe that the present climate is the optimal one, then assertions that we need to be preoccupied with green issues are hard to justify, as adapting to the gentle century-long slopes of change is not only something we have to do, it's something we've been doing since mankind began.  Economic thinking enables us to not fall for these extreme knee-jerk reactions - as the climate throughout our human evolution has varied by considerably more than the comparably meagre changes being predicted for global warming in the next few hundred years.

It's because humans have lived, survived, increased in numbers and prospered over a range of climates much greater than the predicted range by climate-obsessors that economist-type thinking must, for me, involve some raised eyebrows.  It's fairly obvious that if there's no reason to believe humans will be negatively impacted by future climate change, with every evidence that our present and future innovations will more than offset any environmental shifts, it's equally absurd to bear sizeable resources (time, energy and money) trying to prevent this change. I'm not saying we shouldn't be mindful of being more environmentally and ecologically prudent, nor that we should avoid doing what we can to diminish the extent to which environmental change occurs with rapidity, but that's a far cry from constructing political parties based on that ethos and becoming climate-obsessors.

You are quite welcome to hold the view that there are more negative effects to global warming than positive effects, but to make it fly you must provide reasons to justify it - you can't just exaggerate the negatives and understate the positives, and decree yourself to have taken the right stance on this. I'm interested in compelling arguments, and evidence-based conclusions - but I haven't heard any yet, so for now I remain sceptical, particularly as being green-focused seems to aid popularity amongst the electorate, which does, of course, provide political parties with the motive for propagating unbalanced green-keenness.
* A short prĂ©cis is that in market economics we find that competition brings about self-interest for the good of everyone, where prices near-perfectly match supply and demand.  In other words, the competitive market is what brings about the allocation of resources with maximum efficiency.  The different ways to allocate resources is only maximised to the best effect when competitive markets function freely (this has been proven mathematically by Debreu and McKenzie).  When you have 'supply'; and 'demand' for that supply, and 'prices' that invoke near-maximum efficiency between the supplies and the demand – there is almost no necessity for human interference.


** Consider a thought experiment; suppose there'd never been a Green Party, but instead an Amber Party whose whole ethos had been the opposite of what the Greens espouse.  The Amber ethos is centred on prodigiously estimating the benefits and exiguously estimating the costs of our global activity, always citing how much better the planet would be if colder regions were warmer, explaining the benefits of creating more habitable areas and better river routes, etc – you’d likely find that the national feeling would be near the opposite of what it is now.

Photo courtesy of greenpolitics.eventbrite.com


Wednesday, 11 September 2013

Doctor, It Hurts When I Do *This*.............


It is claimed by the medical experts that patients who visit the doctor unnecessarily amount to about 20% of overall patients, and that this costs around £2 billion of taxpayers' money.  So here's a poser for the day; how do we drastically deter people from visiting the doctor when they needn't have done so (people with colds, coughs, sore throats, etc), but without imposing a mandatory financial charge that would penalise other patients?  Imposing a mandatory charge of, say, £15, but then reimbursing those who weren't deemed to be making appointments unnecessarily is problematical, not least because the administration charges may end up costing more money than the policy saves.
 
This interview with the Self Care Forum Board member Dr John Chisholm gives insight into the misapprehension some GPs seem to be under, where they want to educate people to manage their own ailments by being mindful of using the NHS at the point of need, not demand.  Of course, GPs are right that this needs to be done, but they seem less focused on the cause of the problem, which is that it is against people's interests to put need before demand, because the system encourages people to take full advantage of what is on offer.  That is to say, the square peg shape of the NHS "free at the point of delivery" does not fit in the round cultural hole of demand-led preoccupations that govern people's incentives to be responsible.

This ought to be fairly basic stuff for the Government's Department of Health. One of the golden rules of economics is that with decreased prices you'll see an increase in demand. For example, if next year all music festival tickets went on sale at 20% of their retail price, a heck of a lot more people would want them. Hence, if doctors see their patients for free, then patients have very little incentive to be responsible. In wanting people to focus on 'need' not 'demand', doctors are asking people to be far more rational than they actually are, by acting against their own interests.

Here's a slightly more extreme illustration to highlight what GPs want the public to do. Suppose the Government nationalises every supermarket in the country, sets the price of all food and drink to zero, and tries to encourage people that they should only take the food and drink that they 'really need', not all the food they want.  No such encouragement would see those aims achieved. Not only would people struggle to distinguish between food and drink 'needed' and food and drink 'wanted', they'd have no incentive to be responsible eaters and drinkers, as all food and drink would be free.  In fact, if sustenance had been paid for by taxpayers' National Insurance, many would over-consume to ensure they're getting their 'fair share' commensurate with what they'd paid in.

At a less extreme level this is what is happening with the appointment profligacy we are seeing in GPs' surgeries. I'll be frank though; it could be that there is no easy solution to this problem, particularly if the administration costs outweigh the success of the policy.  Maybe the £2 billion lost in 'irresponsible appointments' time is the price that needs to be paid to ensure that the remaining 80% of doctors' patients do not pay a fee for what are genuine illnesses that require NHS time. Or maybe there is a solution that has low administration expenditure but at the same time avoids the imposition of blanket costs (either financial, or some other kind) and retains the 'free at the point of delivery' ethos for which the NHS is so ubiquitously renowned.  If you have any suggestions for a possible solution, I’d be interested to hear them.

EDIT TO ADD: I sent this off to my local MP, and here is the response I received:

Dear Mr Knight,

Thank you for your email regarding NHS costs. You make some thoughtful points.

I understand the pressures faced by GPs, who are facing increased demand for their services, and agree that it would be preferable for people to use their GP only when necessary. I have written on your behalf to Ministers at the Department of Health for their comments on the points you raise and will return to you with any response I receive.

With best wishes,

Chloe

Let’s see if I get anything thought-provoking from the Department of Health by way of a response.

* Photo courtesy of tripwow.tripadvisor.com

Sunday, 1 September 2013

Follow Up: Rents, Housing, The Minimum Wage, & Too Much Employment


After a friend from America commented on the last Blog regarding how she agreed that rises for low earners are dwarfed by other prohibitive factors, I thought I'd do a quick follow up about the specific case she mentioned - rent prices rising with rises in the minimum wage, producing a nullifying effect. Here's how things are in the capital of England  In London there is a great need for low-skilled work, but rent prices make it hard for low-skilled workers to live in London, so the Government subsidises them with housing benefit.

Suppose we have John the cleaner; John works in Canary Wharf cleaning for a big city firm, and is subsidised by the Government (which means the taxpayer).  John's housing benefit is stopped, meaning he can no longer afford to live in London, which means his firm has to hire another cleaner.  But when John represents all low-skilled earners, things change, as city business that need cleaners will have to increase wages of cleaners to enable them to live in London, lest they have cleaner-less offices.

So assuming we stop the minimum wage, as my last Blog post suggests, we are left with a choice, with neither option perfect. We ether:

A) Stop topping up the incomes of low earners with tax credits as that is only really a further subsidy to the employers of low-skilled workers, letting the market care for itself, which would reduce the probability of inflated housing cost and under payment for low-skilled workers, but would create a vortex.

B) Continue to top up the incomes of low earners with tax credits, whilst having the corollary effect of increasing the inflated housing cost problem (among other things).

Most people in the UK prefer B, which is fair enough, as it's the pearl of great price of the welfare state.

Incidentally, here's where the situation started to intensify. Until the eighties Conservative government sold off their council houses, local councils used to build council properties and rent them out for modest sums (modest sums subsided by the taxpayer, of course).  Naturally, the selling off of council houses was ideological in the sense that the Tories expected to secure votes from these house-owners, but also it was seen as efficient, because it transferred the cost of maintaining properties from the council to the individual property owners.

But this had a knock-on effect; low-earners were then expected to rent property from private landlords, which causes problems when they are numerous.  One of the ineluctable laws of economics is that if demand increases and supply decreases or remains unchanged there will be a higher equilibrium price to account for the scarcity of supply. That is to say, to apply it here, when claimants of housing benefits constitute a greater part of the market, rents are hiked up. As a corollary, higher rents engender a surge in buy-to-let investments, which forces up house prices, which comes full circle in justifying high rent.  This 'locking in; effect means that taxpayers are expected to subsidise low earnings to guard against a low-earner exodus from London, or a compelled increase in the minimum wage.

Too much employment?
Another rule of economics is that taxing something produces less of it, and subsidising something produces more of it. The minimum wage (which is basically a stealth tax on employers of low-skilled work) reduces employment by a little, and income tax credits (which are basically subsidies) increase employment.  But by how much?  That's the key question few people ever ask, which is irresponsible, because although subsidising something produces more of it, it is a great mistake to assume that the more the better, because that assumes it is automatically preferable to have too much of something rather than too little of something else.  If someone is going to pour some sugar and some salt on your roast dinner, you'll certainly hope they pour very little sugar and the right amount of salt.  But only a fool would argue that because they under-did the sugar then any amount of salt won't ruin the dinner. Clearly, while the right amount of salt is good for bringing out the flavour, too much will ruin the dinner altogether. 

In the above situation, the minimum wage is like sugar and income tax subsidy is like salt - too much salt and you'll have too much employment, which engenders inefficiency.  In other words, one mustn't assume that just because employment is good that there can't be too much of it - too much unemployment is bad, but so is over-employment.  If increases in income tax credit push employment past the optimum level of efficiency, then we'd either look for a reduction, or an alternative policy.  To put it another way, it is injudicious to focus only on who enjoys the benefits of a policy without examining who picks up the costs. As we've seen in the last Blog, the cost of the minimum wage falls on the employers of low-skilled labour, which, in the long run, is borne by the customers of the businesses in price hikes. The cost of income tax credit subsidies falls on the government, which means it falls on taxpayers as a whole. While I think income tax credit is preferable to the minimum wage - even the minimum wage becomes preferable to a situation whereby too much employment is created by tax credits that are too high.

 * Photo courtesy of bbc.co.uk
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