Friday, 31 October 2014

If Only They'd Get The Message About The 'Living Wage' Fallacy


Oh ah, finally the ill-conceived ‘living wage’ pressures being applied on businesses have brought about the outcome people like me keep banging on about – redundancy and unemployment. After coming under intense pressure to pay their workers a ‘living wage’, Ritzy cinema finally relented – an action which amounted to a reduction of about 20 staff members.

I just hope all the misinformed people who keep going on about a living wage are very pleased with themselves. Might it be too much to hope for that they could just realise that the more they apply this ‘living wage’ pressure, the more we’ll see of this kind of employee reduction?

Sadly, it’s not the first time I’ve had to talk about this minimum/living wage fallacy:

“As well as unfairly loading the burden on firms that employ low earners, it also encroaches on low end business, it reduces job availability, and it often causes inflation of prices as firms try to recoup their losses on increased wages. A minimum wage does two further things. It shifts capital from employers in an unstable competitive market to low paid workers, and it induces some employers to let their staff go because they cannot afford the wages. If you’re getting £7 per hour and only bringing £6 per hour worth of benefits to your company, you’ll likely find yourself on the dole. If you are a lower paid man or woman going from here to there in different jobs, you will find less work available with every rise in the minimum wage – and the higher the rate the more unemployment. This might amount to a road block for young, unskilled workers and the unemployed – which is why tax credits are a more effective method because they target those who have children or high level benefits, and need high wages to make it worth their while signing off benefits, but who don’t have the skills or experience to command that kind of salary. “

Why is such a simple thing so difficult to grasp for those on the economic left? If prices (that’s goods, services and wages) are artificially set higher than their natural profitability or productivity, the costs will have to be offset elsewhere, either by increased prices for customers or, as is the case here, a reduction in staff. I’m sad to say that I think the only explanation for this continued fallacy is that a great many supporters of the living wage are not interested in what’s best for low paid workers, they are only interested in self-congratulation and moral posturing. That is to say, in seeming to support the underdogs they don’t mind hurting them as long as there are enough credulous people out there conferring praise on them.

We see a similar thing going on with trees and paper. Some people claim to care about preservation of trees. Such people stridently champion paper recycling as the best way to preserve our forests. The reality is, if they really cared about trees they should be against paper recycling, not for it. It is not hard to find out that paper is cheap and that recycling is worse for trees and for consumption. Trees are farmed for economic reasons too, and in commercial terms they are planted for future sales. To give you a compelling analogy, does anybody think that if we recycled chicken breasts there'd be more chickens in the world? Of course not. It's the same with trees. People who are for paper recycling share this commonality with people for the ‘living wage’ – they are either outrageously misinformed, or they are not interested in the number of trees in the world and the number of low-skilled people in work, only in moral posturing. 

What makes me so sure of this? Easy, it’s the fact that they have been told time and time again that there is a better way to stand up for the underdogs – a way that boosts their income but doesn’t jeopardise their employment - yet they continue to ignore it. All the government has to do to help low earners is take them out of tax and national insurance – thus making their wage more like a living wage, but not jeopardising employment levels or penalising employers of low-skilled workers.

I hope that, in my lifetime, politicians and social commentators begin to get this simple message (illustrated well in the cartoon below) – if you artificially remove the lower rungs on the ladder, you make it difficult (often impossible) for people to climb it, or in some cases, get on it at all.


Monday, 27 October 2014

Capitalism In Crisis? Let's Put It Into Perspective

Consider these three statements:

1) The emergence of Islamic State has proven that the concept of rule of law is undermined and needs a complete reassessment.

2) The emergence of Ebola has proven that the medical profession is undermined and needs a complete reassessment.

3) The emergence of Young Earth Creationism has proven that the science of biological evolution is undermined and needs a complete reassessment.

Hopefully you agree with me that all three statements are nonsense. Islamic State, Ebola and Young Earth Creationism are solecisms that need dealing with, but they do not undermine the qualities of rule of law, the medical profession or the study of biological evolution. Yet since the recent financial crisis we keep hearing that the 2008 crash proves capitalism is undermined and needs a complete reassessment. Such a statement could easily be statement number 4 in the above list - it is equally false.

Here's what I did to show it quickly - I went to Google Images and searched for some graphs that showed our economic progress over a longer period of human history. Here is one for the world, mapping the growth for the past century:




Here is one that maps US per capita income since 1790:




To give you a proper perspective, the small downward blip in the top right hand corner is the recent financial crisis since 2008. When seen in the context of humans’ overall progression in the past few centuries, it’s only a tiny glitch on a several century-old progressive climb.

Lastly, to give you an even fuller context, here is a chart that maps the UK's upward slope of progression since the year 1250:




While capitalism isn’t without its blips and glitches, it’s remarkably easy to find the data to show that the fuller story of human progression in recent centuries paints capitalism as a major ally (along with science and increased population) in our huge advancements towards enhanced human prosperity, quality of life and overall well-being.

Tuesday, 21 October 2014

On Being Offended



Consider these 4 statements, and which ones are good positions to hold:

1) Everyone has a right to be offended

2) Everyone has a right not to be offended

3) No one has a right to be offended

4) No one has a right not to be offended

I think statement 4 is a strong 'yes' - 'no one has a right not to be offended', because there is no right that protects you from hearing something that offends you. Things are bound to crop up that will offend, because the honest pursuit of facts and truths makes that inevitable.

Given the foregoing, the statement 'everyone has a right to be offended' (statement 1) has concomitance with statement 4 'no one has a right not to be offended' - as both involve the environment of free expression, frankness, and probability of being challenged or affronted.

This leaves statements 2 and 3. Some people advocate the principles of statement 2 - 'everyone has a right not to be offended' - but as a viewpoint I think it is manifestly unhelpful, as such a right would be to insist on being quarantined from any contra-views that might affront you. Similarly I can't even envisage a condition under which 'some people have a right not to be offended' is ever going to be useful to anyone. As for statement 3 'no one has a right to be offended' - that is also one to reject if we agree that free expression, frankness, and being challenged are qualities bound up in our having a right to be offended and no right not to be offended.



* Photo courtesy of toomanyposts.wordpress.com

Friday, 17 October 2014

Brand Buffoonery


From what I can see from a brief perusal, Russell Brand really is an incompetent buffoon whenever he pontificates about economics and politics. His misunderstandings of the market are beyond ludicrous. I don't know (and have no interest) in what his comedy is like (or however it is he makes his living), but his political and economic ramblings would be genuinely hilarious were they not so apparently influential among half-witted enthusiasts who seem to be craving the Brand brand. It's also unsurprising to find that Brand’s so-called ‘revolution’ has the support of fellow half-witted commentators like Johann Hari and Owen Jones. These are people who, like Brand, get it wrong just about every time they open their confused little mouths. They are like 14 year old Trotskyites awaiting the mental epiphany that most teens experience before they hit adulthood.

Whatever this 'revolution' is that Brand is trying to propagate, it's a revolution based on a peculiar misunderstanding of what's actually happening in the world. Brand’s revolution (hardly an original one) is what he refers to as:

“A socialist egalitarian system based on the massive redistribution of wealth, heavy taxation of corporations and massive responsibilities for energy companies exploiting the environment.”

He also thinks profit stinks, telling us that:

“David Cameron says profit isn't a dirty word, well I say profit is a filthy word.  I think the very concept of profit should be very much reduced because wherever there is profit there is also deficit. This system currently doesn't address these ideas.”

Oh dear oh dear – what a mess. I’ll leave the environment part because I’m going to do a series on green issues when I get time, and in previous blogs I’ve addressed the fallacy of heavy taxation of corporations and the misleading notions surrounding massive redistributions of wealth. What I want to do here is correct this self-proclaimed revolutionary’s misapprehension about the ‘evil’ nature of profits.

Here’s the reality. Try to picture all the voluntary transactions going on in the world today. The entirety of all market transactions is producing mass amounts of societal value. We know all those transactions produce societal value for one simple reason. The people who parted with their money to transfer some of their cash towards a profit for the sellers or providers did so because they thought that the goods or services being sold were worth more than the money they parted with. Similarly the vast majority of workers in the world do so because the alternatives are less desirable. Profit, far from being a filthy thing, is exhibition of huge societal benefits across the world. Profits give exhibition to value in the same way that losses give exhibition to lack of value.

It’s true that some profits are excessive – but that doesn’t make profit filthy, it means something else. If a business is making a huge profit it means there is room for competition to come in and enter the market. Where there is a lack of competition it is usually because of poor governmental systems – either a corrupt government (like in many African countries) or a government that regulates too heavily. You’ll have to ignore the irony that Russell Brand, Owen Jones, and their kind want a world with more government regulation, not less. You could also be kind to Brand and overlook the irony that it is thanks to profit that Brand was able to make his money in the first place. But make no mistake about it; free trade and competition are the principal things that engender economic prosperity – and where they are being unhelpfully stifled or retarded by exogenous forces, human prosperity is being stifled and retarded too.

Another notion of Brand’s revolution is the assertion that “Capitalist, consumer culture inures us to unfairness,”. Even leaving aside the fact that evidence of human psychology shows the contrary (and that in places where capitalism is not so prominent the results of the same experiment showed people to be ‘more’ selfish not less), Brand speaks the very opposite of the truth here. In most cases, a free market of voluntary transactions proves to be terrifically efficient at diminishing or eliminating unfairness. Consumers are alert to the practices of businesses to which they part with their money – they will penalise poor quality (be it goods, services, cleanliness, prices, treatment of workers, and so forth) and this puts selection pressure on businesses to up their game. In a free market of mutually voluntary transactions, fairness, customer concern, employee rights, and good general business practice make up the foundations on which a capitalist society function.


 
* Photo courtesy of The Guardian

Wednesday, 15 October 2014

The '85 Richest People' Fallacy


Forbes tries to shock us with the news (from an Oxfam report) that The 85 Richest People In The World Have As Much Wealth As The 3.5 Billion Poorest. It’s the sort of fact that can very easily elicit cries of ‘global injustice’ and calls for greater equality in the world. The reality, though, is very different.

All this talk of 'making the world more equal' may come with noble intentions and genuine concern for the poorest people on the planet, but unfortunately the philosophy and economics that bootstraps it is mistaken. Consequently, these mistakes lead to a plethora of bad ideas and injudicious policy proposals that only hurt the people they are trying to help. Contrary to a lot of leftist propaganda, many of us want the world to be more equal, we just realise that redistributionist polices implemented by the State are much less successful than free trade (and the concomitant necessities like rule of law, property rights and a stable government that protects its citizens).

This isn't just an elaborate libertarian theory; it is empirically demonstrated by observing the progression explosion of the past 200 years and the increased real income per head that has occurred in every country that has seen the positive effects of free trade for its citizens. Yes, the rich become richer, and in some cases the wealth gap increases, but this is not really relevant - what's relevant is everyone's absolute gains because of free trade - and the most significant shifts in absolute gains are seen in the poorest people becoming less poor. Anyone who claims to care about the well-being of the worst off in society should care about what's making their absolute standard of living better, not how they compare to the richest people in the world.

The best that can be done to help the world’s poorest is to open up trade and development opportunities – this is exactly what happened to all the countries that were once impoverished and now prosperous. What's so amazing (as I touch on here) is that nothing in the entire several hundred thousand year human history has done for the material prosperity and life expectancy of the human race what capitalism and science have done in the past 200 years. Blaming capitalism for the remaining poverty and hardship in the world is like trying to throttle a goose that has already laid plenty of golden eggs, and still has plenty more still to lay.

To prove the point, consider how easily misled people are by the fact that the 85 richest people in the world have as much wealth as the 3.5 billion poorest. The way Oxfam arrived at this fact is adding up the total wealth that was attributed to the poorest 3.5 billion of the world's population (which amounted to $1.7 trillion), and compared it to the Forbes rich list, counting the aggregate wealth of the top billionaires until it matched $1.7 trillion (which turned out to take them down to number 85).

Alas, although the analysis does show that the 85 richest people in the world have as much wealth as the 3.5 billion poorest, it doesn’t really tell us anything meaningful or change-inducing. Here’s why. Suppose the redistributionists got their way and were able to steal the wealth of the 85 richest people and distribute it evenly amongst the world’s poorest 3.5 billion people. Each of them would get a mere $485. Better than a smack in the eye, you might insist, but the trouble is, nothing sustainable would have been achieved by this mass distribution. What about next year or the year after? And what use would the $485 be to those in war-torn countries, without a stable government, or in places where resources are scarce?

In fact, my redistributionism thought experiment actually goes to show precisely the principal flaw in the agenda of the Robin Hood-types who want to make the world more equal by redistribution rather than free market trade and participation in capitalism. Allocation of resources outside of trade only briefly suspends the problem, it doesn’t solve it. Once upon a time just about everyone in the UK and US was living on the poverty line. What changed for them was the industrial revolution, progression explosion and scientific enhancements as economies became vastly more productive and human prosperity increases.

The 85 richest people in the world consist of one or two heirs who inherited their fortune – but most of the people on the list made their wealth in the same way that all economic prosperity occurs, through free trade. Wealth does not come from magic fairies, nor is it created from a vacuum. It is created by the voluntary transactions and exchange of currency of millions of people every day.

* Photo courtesy of stylemagazine.com

Tuesday, 7 October 2014

What People Keep Getting Wrong About Food Banks


Something I've been hearing rather too much of recently - from politicians and from political commentators - is that the increasing number of people relying on the foodbank scheme is evidence that poverty* is increasing in the UK.

People who make such a claim are confused. It is evidence of no such thing. Irrespective of whether or not poverty is on the increase, the number of food bank users is not the right metric to use to determine the number of people in poverty. Increased food bank use does not necessarily mean increased hardship - it probably means increased help for those in situations of hardship. Here's an illustration that will show why.

Imagine a village called Poppellville consisting of 100 people. Ten years ago 30 of the people in the village were below the median line and only 2 of them were getting help from food banks, as the foodbank scheme was still in its infancy. Fast forward to the modern day, 18 of them are below the median line, and 16 of these 18 are receiving help from the foodbank scheme. Clearly this increase in people using the foodbank scheme in Poppellville is not coinciding with an increase in poverty. In absolute terms, there has been an 800% increase in the number of people in Poppellville now benefiting from food banks over those ten years, while poverty has dropped by 40% in that same time period.

That illustration sums up what's probably the case in the UK. Rather than food banks being an indication of increased economic hardship, they most likely are a demonstration of our increased ability to respond to economic hardship with donations of food for those that need it.

* For simplicity's sake, I'm using the woeful definition of poverty that the UK Child Poverty Act 2010 uses - a definition over which I've been critical in the past.

Wednesday, 1 October 2014

The Guardian's Confusion About Manufacturing


I just read this lament in The Guardian about how the UK and the Eurozone are 'suffering' from a steady manufacturing slowdown. Basically, they think it's really bad that our manufacturing industry is declining because it means we must be suffering economically. Alas, their confusion is in failing to see the changing landscape of our economy - we do not manufacture as much in terms of raw materials - what we 'manufacture' more of nowadays is services (anything from litigation to TV programmes) - and they are what contribute greatly to our economic prosperity.

If the weight of economic prosperity really was measured in terms of weight of manufactured goods produced then Newcastle or Leeds would be wealthier than London's city centre, and Detroit would be wealthier than Manhattan. You would also see investors being keener to invest in companies that manufacture goods than in services, but we find that's also not that case.
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