Tuesday, 30 May 2017

What Would The World Look Like If These People Told The Truth?


 In a Blog post the other day I made three principal points about the subject of inequality, namely:

1) That despite always going on about it, people don't care very much about inequality, it is other things (poverty, perceived unfairness, perceived injustice) that they care about, but they confuse those concerns with concerns about inequality.

2) That politicians and social commentators who continually bang on about our society being the most unequal ever have got it backwards - we have never been more equal than we are today.

3) That their motives for these misunderstandings, distortions and fallacious arguments ought to be scrutinised more rigorously because it paints them in a bad light, and causes their integrity to be questioned.

That Blog post was principally a commentary about UK inequality. I'm sorry to say that when global inequality is measured, the distortions get even worse (which is to the huge discredit of places like Oxfam, who although they do an awful lot of good, tend to promote a deliberately false and misleading narrative). 

They will promote headlines along the lines of the top 1% owning about the same as the bottom 50% of the world’s population put together, which as they well know completely ignores consumption parities, counts those with negative net wealth as having zero, includes pensioners who live comfortably off but whose capital income is relatively small, and overlooks students with future earning potential. In fact, using Oxfam's metric, a group photo containing students who had just graduated from Oxford or Edinburgh or Yale would be a photo containing some of the poorest people in the world, which is absurd.


As I reminded readers in this Blog post, people's wealth accumulation happens over decades in ways that static data analyses just don't capture. You'd like to think there'll come a point when someone at Oxfam will sit up and suddenly think to themselves that it is preposterous to record people about to graduate from Oxford, Cambridge, Edinburgh or Yale as being among the poorest in the world.

I've made these points before, of course - but what I really want - what I'm desperate for, is for someone from the left to tell me what is going on with this misleading data. Is it a marketing campaign designed to paint a picture that will help achieve the aims of the charity or political party, or is it that the people who compile these statistics genuinely do not know how much they veer from the true picture? I am genuinely interested.

On top of that, let me articulate something that I believe most people see as being totally obvious when they are told, but before which almost no one manages to notice. Those people that get rich can only do so by making others better off, both in providing consumers with things they value more than the money, and by providing prospective employees with jobs they value more than not working. And the higher up the rich scale you look - digital tech entrepreneurs, authors, musicians, film stars - the more widespread value they provide (Google, Facebook, Amazon, popular books, great albums, enjoyable movies, etc) - in both goods and services that bring about mass value, and in the jobs they provide. As we learn in this IEA article:

"Over 60 per cent of Kenyans use mobile phones to make payments. Mobiles are used by farmers to compare and check prices so that they are not exploited by local monopolies. Globalisation in general and mobile phone technology in particular are major contributors to the huge growth in incomes in poor countries in recent years. "

The people who have made Google, Amazon, Facebook and best-selling books, films and music ubiquitous are not wealthy at the expense of others, quite the opposite - they are wealthy because they have made tens of millions of their fellow human beings better off.

There is a crisis that tears right through the inner organs of left wing social commentary. One would like to believe that their intentions are good, that they do have the poorest people's best interests at heart, and that they are really the champions of the underdog. But what casts such huge aspersions over this is the fact that so much of their narrative consists of deliberately misleading counterfactuals, bogus statistics, calculated attempts to overlook or ignore much of the whole picture and basic errors of reasoning.

As I always like to remind people, actions speak louder than words, and the left do not behave as though they have integrity and are on the side of the underdog, even if they state that they are. If truth and facts were at the heart of their narrative, and they wanted to make the world a better place in conformity with the facts, you would hear them say things like:

"Yes, the world is hugely unequal in terms of disposable income, but it is greatly narrowed by taxes, benefits and the closing of the gulf in terms of consumption; Society is less unequal than ever before, but we still want to do all we can to help the poorest in the world".

"Yes, increases in tax for the rich will have a detrimental effect on our economy in terms of reducing productivity, stifling innovation and deterring outside investors, but in spite of this, let me give you a list of reasons why I'm willing to take a gamble on it for reasons I believe are principled".

"Yes, the minimum wage does untold damage to the economy, as well as pricing low-skilled people out of the labour market. And I'm even aware that on top of that the minimum of wage is really a transfer of wealth that has a cancelling effect because what extras these workers gain in one hand they lose in the other through higher consumer prices".

"Yes, carbon taxes and green regulations achieve one of our aims in costing in some of the price of people's negative externalities, but we also acknowledge that they disproportionately hurt small businesses, and may well turn out to have been a huge unnecessary cost as market progression naturally takes care of supply and demand problems".

"Yes, rents and house prices are so high that they are unaffordable for many. A lot of this is because we've so heavily restricted the amount of land that can be built on, and heavily regulated the building industry. We appreciate the negative impacts this has, but we understand the trade off, and believe that preserving green land and restricting the building industry has benefits that outweigh the costs".

"Yes, we understand that tariffs have numerous spillover costs, we even understand that they make the nation as a whole worse off because while they protect some domestic industries they hurt others, and make our own citizens pay more for their goods. But nevertheless, we have weighed this up and believe that as the costs are spread thinly throughout the country, and that there are tangible groups of people that can be clearly seen to benefit, it is a trade off we are willing to take".

"Yes, knife crime has risen under the government, immigration hasn't fallen as much as we hoped, nor have NHS waiting times - but we understand that these factors are hugely complex, and these things might have occurred independently of MPs in Westminster. Therefore there is every chance that things wouldn't have been any better if our party were in government, as not everything that happens in complex societies is the fault of or the cause of governments".

I could carry on with many more examples, but you get the point, I'm sure. It would be so tremendously unusual if you ever heard a politician speak like that - so unusual that you wouldn't be able to help but think that he or she had had a bang on the head akin to Basil Fawlty's in the episode with the Germans. It's such a shame people cannot hear things as they really are more readily, rather than having a society where politicians habitually mislead and distort because the public insists on nothing more.

Monday, 29 May 2017

On The Pursuit Of Mental Excellence


I was just editing one of my books, and stumbled upon some old scraps I'd written years ago - one of which was this little passage about mental pursuit, which I quite liked and thought could bear repeating here:
 
It seems to me that the pursuit of mental excellence can be thought of as being a bit like getting a plane off the ground and into flight, because consistently solid and comprehensive thinking comes with many components necessary for the task. A pilot has to get all his (or her) dials and instruments in order before he can take off, and keep a check on all the elements associated with aircraft's altitude, air speed, air pressure and rates of ascent and descent.

For a pilot before take off, some of the dials and instruments may be well attuned for flight, but others may not be, thus affecting his ability to fly. Similarly, the human mind may have some of the dials and instruments in the right place but have others set wrongly. Perhaps a person is very logical and rational but is lacking in elements like emotional intelligence, empathy and kindness, so is impulsive and never sees the full picture properly. Or perhaps the person is excellent when it comes to emotional intelligence, empathy and kindness, but has inadequate knowledge or poor reasoning skills. The latter people may well often make arguments based on moral persuasion, sounding caring, but will, in fact, lack the concomitant rationality and proper assessment of the facts.

The human mind can be thought of as something similar to the dials and instruments in the cockpit: to attain mental excellence the mind needs to try to master all sorts of qualities, like logic, analytical intelligence, emotional intelligence, empathy, reason, rationality, lateral thinking, argumentation, assessment of data, wisdom and sound philosophical enquiry - as well as gathering stores of knowledge and understanding, which constitute the oil that lubricates all those proprietary parts. In addition, being truly mentally excellent requires, I believe, qualities like love, kindness, generosity and solicitude too.

There could be quite a bit of (air) mileage in that illustration J

Saturday, 27 May 2017

One Way To Reduce Terrorism In The UK Would Be To Pay Young Muslims Not To Become Terrorists


Ok, yes, that was a deliberately provocative title to grab your attention - but bear with me. Some of you may remember a film called Ransom, released in 1996, and starring Mel Gibson as a father of a kidnapped son, who after a first failed attempt to pay the kidnappers the $2,000,000 ransom money they demanded, gets a sense that they have no intention of retuning his son alive.

As a response he decides to appear on television to offer the ransom as a bounty on the kidnappers' heads, with the bounty being withdrawn if the kidnappers return his son alive. The kidnappers' inner circle is now far less stable as each gang member is now unsure whether they can fully trust the other members not to betray them and pick up the bounty. Later on the bounty goes up $4,000,000, and things get even more tense within the gang's inner circle until (spoiler alert!!) the gang implodes and their plan is thwarted.  

This kind of observation is nothing new. Plato talked about similar dictatorship insecurities in his Republic, and everyone knows that when a group becomes less tight, be it a criminal gang, a political group or whatever, the most prominent members with the most to lose become the most vulnerable.

Now when I suggested paying young Muslims to help stop terrorism, what I mean is this. Suppose the authorities offered to pay would-be radicals, say, £2000 if they shop someone they know to be planning a terrorist attack. Maybe pay them more, I don't know what the market value would be to grass up a fellow Muslim in your neighbourhood who is playing around with explosives and detonators, but sums of money like this would be chicken feed compared with the overall counter terrorism budget (the UK government currently spends over £15 billion a year on counter terrorism).

Perhaps it would only yield one or two positive outcomes, but even that is better than nothing if it leads to the arrest and conviction of prospective attackers. Let's face it, this kind of set-up already goes on with police informants in areas like drugs and gun crime, and we see every day how market incentives regulate all kinds of human behaviour, so why can't it work in exposing terrorism?

Not only would offering financial incentives help police catch would-be terrorists and other dangerous extremists before they went on to commit an atrocity, it would also create instability among gang networks. If a prospective Islamist is planning a bomb attack in London and the people in his inner circle, or even people outside it, know they can receive a few thousand pounds if they shop him in to the police, the would-be terrorist has got to watch who he trusts very closely, which is bound to make his inner circle far less tight.

You may object that the kind of radical suicide bombers that want to blow up infidels in order to ride up to heaven on a winged horse where they'll be met by 72 virgins might not be the sort of people who are very likely to be motivated by money, and you are probably right. But equally the kind of person who is likely to inform on a dangerous radical for a few thousand pounds is very unlikely to be the sort of Muslim who is on the verge of being a suicide bomber. It cuts both ways.

Once you add up the £15 billion a year spent by the authorities, and all the costs that occur when we do have a terrorist incident, it doesn't seem unreasonable to me to offer generous financial rewards to anyone who can help thwart an attack and send a group of radical Islamists to jail to keep our streets safer.

Providing market invectives to shop would-be terrorists means it would increase the cost of being a would-be terrorist, which not only makes someone a potentially less effective terrorist, it increases their risk factors too, and makes Islamist coteries less tight and more unstable, increasing their chances of imploding, and at the same time making it easier for the police to infiltrate their organisations.

Wednesday, 24 May 2017

Everything You Need To Know About Why We Absolutely Should *Not* Scrap Tuition Fees (But Were Afraid To Ask)


Politicians are often playing political football with the matter of university tuition fees and whether they should be 'free' or not. I italicised the word free because, as any thinking person ought to understand, free university education is not free at all - it simply means that the cost of obtaining a degree is transferred from the beneficiary of the degree to the taxpayers. It also means forgetting about all the spillover costs of scrapping tuition fees - and here is not the sort of place where I am going to let you get away with that.

It's actually unbelievable to me that people can argue for 'free' tuition' fees, and not be embarrassed by how careless they've been in ignoring who picks up the cost, the nature of supply and demand, and the numerous unseen costs attached to this policy.

The supply and demand problem of further education began to get worse with the Blair government - his party wanted more people to go to university, and they wanted tuition fees lowered so that it encouraged more people to sign up to higher education. Alas, Blair never bothered to consider whether too many people might go to university at a reduced rate, and that the lower fees might increase demand to an unhealthy or unmanageable level. As for the fact that however much you increase demand you will not increase the universities' capacity for more students than they can take....nope, there wasn't even a mention of that.

At their most expensive, tuition fees are currently at the top level of £9250 - which basically amounts to a loan from the government which is paid back when the graduate earns more than £21,000 per year. The current tuition fees system is pretty much the fairest system imaginable: the government loans to those who need the money to obtain a degree, and it only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings. Anyone who thinks that that is unfair has a pretty peculiar idea of unfairness.

What you have to realise is that nothing comes for free in education. If tuition fees are scrapped, then the cost of obtaining a degree is picked up by the taxpayers. Tax that goes on to subsidise higher education amounts to lots of tax paid by low earners to subsidise people better off than themselves. We know this because we know that two thirds of working people do not have a university degree, and we know that on average obtaining a degree boosts one's life earnings by 60% (at least, that was true last time I checked - but that percentage is going to decline if the market is oversaturated with post graduates).

The only way to think correctly on this matter is to try to ascertain the value of higher education in terms of prices. The value of higher education is this. University fees should amount to exactly what it costs to obtain a degree, and fees (prices) should match demand, whereby the right number of people are getting degrees, and degrees are priced at their true value - a value that measures costs associated with supply and demand. As I said the other day to a proponent of scrapping fees, you cannot even begin to argue for 'free' university education until you have tackled the four most pertinent issues:

1) How would you square the demand-side problem of your policy, given that prices (to the students) will be misaligned with limited supply?

2) How would you square the supply-side problem of your policy, given that even with highly increased demand, 'free' tuition won't magically make all those extra university places available?

3) How would you ensure the equitable allocation of resources (degree courses) in a system where demand heavily outweighs supply, and in a situation where you no longer have price signals to ensure the supply and demand curves intersect?

4) How would you respond to the fact that the UK will suffer a degree inflation due to a surplus of post-graduates?

As expected, she made no attempt to answer any of those questions - she barely even acknowledged that they needed answering. But this was no surprise, because the reality is, answering the questions properly will not lead you to conclude that scrapping tuition fees is a good idea - it will scream the opposite. Scrapping tuition fees would distort the market signals regarding supply of degrees and demand for university places, as it would artificially ramp up demand for places, and bring deadweight losses regarding how people value university education.

You're not even getting off the ground if you're not getting this most basic of points. When fees are too low, people will study even though the cost of going to university is greater than the benefits of a university education. When fees are too high, people will be put off studying, which means there'll be too few university graduates. A few of the low-fee protagonists have argued that a decline in applicants would be evidence that the fees are too high. It would not be, as I'll explain in a moment; it would be evidence of less educational waste, with those no longer doing degrees being the people for whom the cost of going to university is greater than the benefits of a university education.

Of course, the standard argument in favour of subsidised higher education is that higher education confers benefits on others as well as on the main beneficiary, so it must be good for society if it is subsidised. It's a nice idea, but like many nice ideas, the logic is faulty. Deodorant, mouthwash, shampoo and washed clothes each confers benefits on others as well as on the main beneficiary, but no one is arguing for deodorant, mouthwash, shampoo and washing powder to be subsidised.

Here's the key reason why - to take washed clothes as one example - when you wash your clothes you enjoy the benefits of clean and fresh clothes, but so do others too - your not smelling, your looking smarter, and your being a generally more pleasant person to be around are benefits that do not need subsidising, because you'd willingly buy washing powder yourself to ensure such things happen. The same is true of avoiding bad breath and greasy hair - the government doesn't need to subsidise mouthwash and shampoo because it knows you'll willingly pay for them yourself in order to feel fresh and at the same time be socially agreeable.

This is what higher education is like - the benefits and rewards that are obtained (increased employment opportunities, higher earnings, being more highly educated, higher social status, academic prestige, greater knowledge, better conversations, and greater opportunities) certainly extend beyond the person doing the degree, but they are benefits and rewards that people feel are worth having without the need for a subsidy. That's why a heavy education subsidy only encourages inefficient numbers of students, and why a system that charges people the cost of their degree won't discourage people with real promise and potential from entering higher education.

For those reasons - unusual as it is - the government has its policy just about spot on with tuition fees. It loans to those who need it, and it only asks for payment when the post-graduate can afford to repay with a small proportion of their earnings, which means smart people from poorer backgrounds need not be put off from further education. To have no tuition fees would be to spread the cost of people's higher education amongst the rest of the taxpayers - and quite why anyone thinks they should foot the bill is beyond me.

Another good thing about the government's policy is that it also avoids too much of a market mechanism in higher education, which, if too money-centred can be a bad thing. Consider why. Suppose Oxford and Cambridge had hiked up admission fees to attract the elite. Such a policy goes against the thing they should value most - academic credentials. If you are an employer looking to employ an Oxford graduate, who would you prefer; one who got in on scholastic merit, or one who got in because of a privileged financial background? The value of attending Oxford depends largely on the university's reputation, which is built primarily on prior academic excellence of former students. By having applicant quality as the measure of admission, the average student quality can be increased, which then further increases the prestige, which then increases the allure for high-quality future applicants.

A system that neatly balances the admission quantity between talented young people that can pay (and do), and talented people that can't pay and are helped along the way, is a system that is just about right. It is inevitably true that being from a privileged high-achieving background does confer advantages on young people that young people from working class backgrounds do not enjoy. This upsets lots of people - but it should not. Privilege mostly comes (either directly or indirectly) from high achievement. Therefore if you want to argue that that is a bad thing, you are arguing that a world in which achievement engenders advantage is a bad thing, which amounts to devaluing merit-based advantages - and to do that is to make a mockery of applying skills and working hard in general.

Are fees actually too low, not too high?
Instead of worrying too much about rising tuition fees, what should be considered is that putting up tuition fees might actually be a good thing for the country overall. There's no doubt that higher education brings about huge financial benefits to the county*, but there's also no doubt that having too many graduates devalues graduation in the labour market, and that in a state of diminishing returns the financial benefits would no longer bring about such efficiency.

The irony is, instead of worrying too much about rising tuition fees, what should be considered is that putting up tuition fees, or demoting some degrees to college level qualifications, might actually be a good thing for the country overall. We know that currently around 20% of post-graduates are doing a job that doesn't require a degree (this figure might actually be higher) - which is indication itself that there is a surfeit of degrees in a labour market with too few degree-level jobs.

There is another very good reason why value is so important - if degrees are valued commensurate with the landscape of both supply and demand, and of the labour market, there is a better chance of the number of graduate-level jobs matching the number of graduates. For example, the future job market is going to see many current graduate-level jobs replaced by computer technology, but it will also see an increase in other graduate-level jobs that look likely to grow in number. Only a proper market-based further education system can be optimally responsive to a rapidly changing labour market environment, particularly with the proliferation of service-industry jobs.

Prices are the market's method of signalling how much of a good is available against the level of demand for that good. An expensive good (like a degree) costs resources (time and money) but those costs signal that those who value degrees most will get them. The abolition of tuition fees would mean that universities have no way of signalling the true scarcity and value of university places to prospective students, particularly as through a taxpayer-funded system high and low demand opportunities are going to be similar if not equal in price. Students, like people in general, make much more informed decisions in life when signals accurately match supply and demand.

The supply-side problem of inflated degrees causes another issue too. According to Merryn Somerset Webb at MoneyWeek - one of the go to places for statistical updates - currently around 45% of student loans end up being written off, where the tipping point at which the whole thing starts costing rather than saving money is 48%. This problem is in part due to graduates earning less than expected, or sometimes nothing at all, but also due to the tax avoidance incentives woven into the system, such as salary sacrifice.

“With clever planning, an employee can use salary sacrifice to reduce their income below certain thresholds and therefore make further savings. Take student loans, for example; many students leave university with high hopes of landing a top job but can find themselves undone, with low pay and laden with debt. Repayment of student loans is 9% of income earned above £17,335 for those taking out student loans before September 2012, and £21,000 for those taking a loan out after 1 September 2012. This can often leave many university leavers with a lot less take-home pay than they need. Taking into account Income Tax and National Insurance, a graduate will take home just 59p in the £1 for part of their income earned above the repayment thresholds. This would further reduce to 49p in the £1 for income earned above the basic rate tax threshold and a quite frightening 32p in the £1 for each pound of income earned between £50,000 and £60,000 if the graduate has two children and is in receipt of Child Benefit payments.”

It's not exactly rocket science, is it? Suppose our graduate earns £30,000, and has a choice of putting money into her pension either via salary sacrifice or out of her net salary (whereby the tax is claimed back). If she does it using salary sacrifice, her official gross salary is not £30,000, it is £27,000. That cuts her National Insurance bill and her income tax bill – but most essentially, it also cuts her loan repayments from £810 to £540, where the resultant outcome is a take home pay of £20,907 instead of £20,277. That's all very nice for our graduate, but it's not such good news for taxpayers as a whole. It might well be time to ditch the salary sacrifice scheme.

The thing is, if the university supply and demand curves intersect - that is, if the demand for degrees and the supply of degrees are in market equilibrium, then you can be confident that the price at which this happening is an accurate one. However, once the system becomes skewed whereby a loan is involved yet nearly half the graduates never pay back even a penny of that loan, the alarm bells ought to start ringing, because it's obvious that this is down to there not being enough post-grads doing degree-level jobs. This is the market’s way of trying to tell us that there are currently too many people doing degrees.

Because the taxpayer picks up the cost of unpaid student loans, it means the surfeit of university degrees in this country end up being subsidised by the general public - many of which are low earners. Consequently, this means a great many of them are subsidising people that are doing degrees and never earning enough to pay them back, while the rest of the post-grads, the people that do pay them back, are effectively being taxed twice on the same degree. Only a very narrow thinker could believe that this is a system that's working well.  

I am fairly certain that even Jorbyn Corbyn is not stupid enough to think that if tuition fees were scrapped, there would magically be enough university capacity for everyone who wanted to take him up on this offer of a taxpayer funded free lunch. The only effective way to align number of degrees with demand for degrees is to allocate them with an efficient price system, because there are not an unlimited number of degrees nor are there a limited number of degree level jobs. Subsidising further education can no more eliminate degree inflation than adding more dollars to Zimbabwe’s hyperinflated economy can ease its monetary crisis.

Are universities bastions of unfair discrimination?
I remember when the then Prime Minister David Cameron launched a scathing attack on the universities of Oxford and Cambridge for failing to recruit more BME (black minority ethnic) students, saying that racism in the UK’s leading institutions “should shame our nation”.

He was right that it's a shame that there are not more BME students in our leading universities, but he was quite wrong to lay the blame at the door of Oxford and Cambridge universities. The so-called fact of Oxford and Cambridge being under-represented by BME students is not to do with institutional racism at our top universities, it is to do with the fact that prospective BME candidates are far outnumbered by white British candidates, which has a lot of complex causes - but none of them are the fault of Oxford or Cambridge.

It is quite easy to be outraged at statistics if you don't understand them, and clearly David Cameron just didn't get that there are simply not enough BME people in the country to fulfil his wish. A quick Google search reveals to me that if a top university accepted students in a way that precisely represented the UK demographic, then for every 100 people, there would be 87 whites, 7 Asians, 3 blacks and 3 others. Even on strict egalitarian grounds it is very difficult to justify a selection policy that doesn't see BME people outnumbered by whites.

But, of course, that's only part of the flaw in David Cameron's reasoning - the other thing wrong with his misunderstanding of statistics is that Oxford and Cambridge are not looking for a representation in terms of ethnicity or skin colour, they are looking for representation in terms of academic ability. That is to say, Cambridge and Oxford universities are the seat of academic excellence in the UK - and if the statistics show that only a small proportion of BME people get into Oxford or Cambridge, and a large majority of students are white, that does not show any institutional unfairness on the part of Oxford or Cambridge. It merely shows that if Oxford and Cambridge are trying to attract the most academically gifted students in the country, and if by far the greatest proportion of the most academically gifted students in the country are not in the BME demographic, then Cambridge and Oxford's admission policy is completely fair.

There is certainly a conversation to be had about all the ways that BME and under-privileged pupils in schools are disadvantaged or coming up against barriers to fulfilling their potential, but that's not an indictment against our two best universities - and David Cameron should have known better - particularly as it's very likely the case that this phony 'outrage' is really just an attempt to court popularity amongst the BME demographic

More bad reasoning
Another piece of faulty logic doing the rounds in recent years has been the issue of caps. There used to be a cap to ensure universities had a limited number of students achieving grades AAB or higher at A-level. When the cap was lifted a few years ago, some higher education commentators were concerned that this would lead to the creation of an elite English “Ivy League”, reflective of the American higher education systems, and possibly even alienating students from poorer backgrounds less likely to achieve high grades.

Their fears have come to pass, as currently over half of students achieving AAB or better at A Level are concentrated in just twelve universities (they are: Manchester, Durham, Oxford, Cambridge, Nottingham, Leeds, Exeter, Bristol, Warwick, Birmingham, Sheffield and Southampton.)

However, even though there is a high concentration of high grade students attending just twelve universities, there is absolutely no reason why this should be a problem - in fact, it is quite the opposite: it is a blessing in disguise, because it gives exhibition to the healthiness of competition and the value of incentivisation to do well and go to the best universities.

By equal measure, a competitive higher education market incentivises universities to pull out all the stops to attract the brightest and best students and be as high up as possible in the league table of results nationwide. In a marketplace with healthy competition and demonstrable incentives to strive for high standards you would expect to see cluster groups of high achievers, just as you see in sport, in retail and in entertainment. But competition doesn't just make the best better, it raises (or has the potential to raise) the standard of everyone, because it should incentivise lower performers to up their game, either by improving standards, by innovating to capture an unfilled niche, or in some cases by trying something different altogether.

The other peculiar thing many people tell us is that if a higher education marketplace is too openly competitive it will work against people who are bright but from disadvantaged backgrounds. This is an absurdly counterfactual objection to have, because it will actually have the opposite effect. An education marketplace that is too money-centred will be a bad thing because, in terms of performance and results, selection against bright disadvantaged students will disadvantage the university.

Consider why. Suppose Oxford and Cambridge had hiked up admission fees to attract the elite. Such a policy goes against the thing they should value most - academic credentials. If you are an employer looking to employ an Oxford graduate, who would you prefer; one who got in on scholastic merit, or one who got in because of a privileged financial background? The value of attending Oxford depends largely on the university's reputation, which is built primarily on prior academic excellence of former students.

By having applicant quality as the measure of admission, the average student quality can be increased, which then further increases the prestige, which then increases the allure for high-quality future applicants. A system that neatly balances the admission quantity between talented young people that can pay (and do), and talented people that can't pay and are helped along the way, is a system that is just about right.

By capping or scrapping the fees universities can charge, politicians are depriving these great institutions of resources and stifling the competitive component out of the market, which is ultimately worse for students, universities, prospective employers and the everyday taxpayer. A reliable price system is the only way to show who benefits most from obtaining degrees and who benefits most from providing them. I don't think I could put it any more unambiguously and compellingly than that.

Sunday, 21 May 2017

Despite Myths To The Contrary, Society Has Never Been More Equal


Last I heard in the Guardian, around 80% of Britons think there is a big problem with inequality in the UK. They are not alone. Barack Obama once stated that income inequality is the "defining challenge of our times", while Pope Francis calls inequality "the roots of social ills", and Harvard professor Ichiro Kawachi described inequality as a "social pollutant".

From my experience, inequality is one big non-problem - it is the issue that everyone thinks everyone else has a problem with, but no one really does. It's perhaps rather like the mythological claim that violence on television causes viewers to go out and be violent. If you asked anybody off the street whether they think television makes them more likely to be violent, they'd say no, but they could imagine it might be true in the case of some people. Well it might be true of the odd few, but I see no reason why it would be generally true, because there are lots of other qualities expressed on television, like kindness, humility and generosity - why does no one argue that television makes us kinder, humbler and more generous?

The main reason I think very few people actually have a problem with inequality is that they do not behave as if they do - they only say that inequality is a national problem, they do not act as if it is. Instead almost every day they spend their money in ways that make the country unequal, and they compete (for jobs, for status, for a partner, etc) not with those who are financially out of their league, but with those socio-economically closest to them.
 
People certainly do lament the amount of poor people struggling to make ends meet, but that's nothing to do with inequality at all. 200 years ago, all but about 1% of the population were mired in poverty and struggling to feed their families, not because poverty is caused by inequality, but because poverty has been the natural state of humans for most of our 200,000 year history.

Some will make claims that an unequal society causes more civil tension, unhappiness, obesity, drug use and crime - but even if there is a good argument for a direct causal link (which I severely doubt, and have not seen), no one seriously thinks that anyone who does these things would ascribe it to having damaging feelings about inequality. Actions speak louder than words. And from what I've seen, I'm going to say that the claim that "around 80% of Britons think there is a big problem with inequality in the UK" is simply not true.

I suppose one of the main reasons they frame it in terms of 'inequality' as opposed to plain 'poverty' talk is because 'inequality' terminology helps give them a platform to peddle the narrative of grabbing more and more wealth from the rich, as though it's the rich's fault that people are poor. If people are brainwashed to believe that wealth is a fixed pie, that it's zero sum, and that the rich are making fortunes at the expense of the poor, it is easier to convince them that the politics of envy can be made palatable in the form of redistribution initiatives.

We know that humans have deep-seated psychological reactions to matters of social hierarchy, feeling they need to ensure the underdog is represented. This would be noble except for one key thing - if they really had these people's best interests at heart they would learn the facts and get their reasoning right instead of propagating falsehoods. This is the big contradiction that undermines the left - if they are so on the side of the poor why do they do so much to falsify the truth, distort facts and support ideas that will achieve the opposite of what they claim to want?

Perhaps being human it is easy to not learn the facts and run along with lazy assumptions, but it's no small irony that the ones most often accused of being elitist, greedy and uncooperative are the ones doing the most for the underdog and for human progression; and the ones most loudly proclaiming themselves as justice-seeking champions of the poor are the ones doing the most to hinder the underdog and protract human progression.
 
 
Part of the misleading distortions are centred around how people do their measuring. Claims are made about wealth disparity using only a narrow range of measuring criteria - usually disposable income - when it's perfectly obvious (or should be!!) that what defines a person's well-being is so much more than that.

What I really want to push the left on is why they deliberately ignore methods of measurement that paint a truer picture and intentionally cherry pick data to distort the true picture. Because, to that end, once you factor in everything people have, inequality is at the lowest it has ever been. Once you include the market value of all the other things people have, from pensions, welfare benefits, food stamps, vouchers, state-funded health, education, social services, access to the Internet, social media, and countless other things I could mention, you'll find that apart from disposable income and status goods the world is the least unequal it has ever been.

The left, I'm afraid to say, are measuring well-being with a narrow definition of wealth that excludes all the numerous societal progressions that close the gap between rich and poor. That is to say, they are bemoaning inequality by selectively ignoring all the things that reduce inequality. Because the most important measure of equality is not disposable income, it is consumption.

And the moment you get beyond the fact that Richie Rich has a few extra yachts and luxury cars that most of us won't ever own, you'll find that in terms of the most basic consumption needs, once you factor in central redistribution through the tax and benefits system, increased technology for the man on the street, more leisure time, and so forth, the gap between Poor Pete and Richie Rich has never been narrower.

And even if you only want to measure disposable income, I read in Forbes that those in the top quintile earn on average 12 times as much as those in the bottom quintile, but that the multiple dropped to 4 times once tax and benefits were factored in. Considering the skills and academic differential between the top and bottom quintiles, an average differential of times 4 isn't very great at all. As always, far from being a den of injustice, the system is heavily skewed against the rich to favour the poor.

"Cash benefits have the biggest impact, with the average household in the lowest-earning fifth receiving £7,612 per year across pensions, tax credit, housing benefits and other means of support. Benefits in kind such as healthcare are also significant, adding up to £7,586 per household per year, but they are also received by richer households and so do less to cut inequality on this measure. In the financial year ending 2016, the average income of the richest fifth of households before taxes and benefits was £84,700 per year, 12 times greater than that of the poorest fifth (£7,200 per year). An increase in the average income from employment for the poorest fifth of households has reduced this ratio from 14 to 1 in the financial year ending 2015. The ratio between the average income of the top and bottom fifth of households (£63,300 and £17,200 respectively) is reduced to less than 4 to 1 after accounting for benefits (both cash and in kind) and taxes (both direct and indirect)."

There is no question that we are the most equal society that has ever lived. Through tax and benefits the state reduces a 12 to 1 income differential to a 4 to 1 consumption differential. The jury is still out on whether the left do not actually understand this, or whether they do but wilfully ignore it because it impugns the uprightness of their agenda. Either way, these faults continue to cast aspersions over a group that are always claiming, in public, to have more integrity than the distortions and untruths they propagate.

* A few months ago I wrote a blog post exposing some of the ways that politicians and the media distort the truth using bogus statistics.

Wednesday, 17 May 2017

Why Brits Would Probably Be Better Off If UK Nations Split & Became Independent


A couple of weeks ago I created a poll asking if readers thought the nations of the UK would be better off if the UK split up or remained together. As expected, an overwhelming majority thought it would be better if the UK stayed together.

I'm not so sure - by which I mean I'm pretty confident that there'd be more positives to a split than negatives. If you went away and wrote a list of all the things you like about the UK and all the things you dislike, here's what I think you'd find. Just about everything you like would still be equally liked and appreciated if England, Scotland, Wales and Northern Ireland had been separate, independent countries all along, whereas some of the things you dislike would have been rectified if the four countries were not part of a United Kingdom.

Roll off some of the things you like about the UK - the literature, the scenery, the tolerance, the fish and chips, the lakes, the coastal attractions, the music, the films, the comedy, the pasties and the history, and you'll probably find they are tied to a concept of a United Kingdom far less than you think.

With Brexit and the very real possibility that Scotland could become independent in the near future, the splitting up of the UK is a distinct possibility. I'm now going to explain why after the initial upheaval this would be the best thing for the people of England, Scotland, Wales and Northern Ireland. To begin to see why, have a look at this:

 
 
As you can see from the image above, the United States, the world's largest economy, accounts for approximately 25% of nominal world GDP, and the seven largest economies (if you include the European Union economies as one) account for 75% of the total.

However, there is a difference between GDP and GDP per capita. GDP is the total economic output of a country - that is, the amount of money a country makes. GDP per capita, however, is the total output of a country divided by the number of people in the population, which measures the average amount of money each person makes.

The leading countries in GDP per capita - countries like Qatar, Luxembourg, Macau, Liechtenstein, Singapore, Bermuda, Isle of Man, Ireland, Switzerland, Norway and Hong Kong - have two very interesting commonalities. Number one, they are relatively small countries, and number two, they are all by and large the highest scorers on the Human Freedom Index. That is to say, once you have in place essential things like a stable society with human rights, property rights and a proficient rule of law, the two most important factors in having a high GDP per person is that the country is small and that it has economic freedom to enable market forces to do their work.

There is a very noticeable pattern regarding these small countries that top the league for GDP per capita - they each have a state that interferes minimally in their economies. Even when the politicians exude bossiness and heavy cultural shepherding, they usually interfere in the economic transactions of their citizens very lightly: they don't have minimum wage laws, nor a big public sector, nor do they interfere very much in the freedom of contract between buyers and sellers, and employers and employees.
 
In the past few decades the median (real) income of these small, laissez faire nations has gone up by 30, 40, sometimes even 50 percent - and conversely, the nations that have adopted the opposite approach have continued to be many of the world's poorest countries.

What does all that have to do with the United Kingdom, you may ask? Well firstly, the main benefits of a smaller nation are benefits that would diminish a lot of the so-called societal problems that make up present day Britain. For example, the smaller the nation the smaller the state, and the more accountable it is to the population it governs. There is more transparency and more competition, the success of laws and regulations are easier to evaluate, and the efficiency relative to neighbouring countries can be more easily observed.

Let us suppose that England, Scotland, Wales and Northern Ireland became completely independent nations with their own elected governments, their own exclusive set of laws and regulations, and their own financial autonomy. A few years down the line, England and Northern Ireland have pursued more liberal economic policies, lower taxes, lighter regulations and more personal freedom, whereas Scotland and Wales have tried to pursue their socialist agendas resulting in failing economies and social unease.
 
At election time, voters will have a more transparent perspective of how different national preferences yield different results, with the Scottish and Welsh governments being held more accountable for their dismal performances, and the public being able to look over the borders and assess which policies or freedoms are working for the betterment of the English and Northern Irish citizens.

Because competition, remember, is the biggest driver of innovation and progress, and the most efficient expunger of waste and failure in the world. It works in the trading of goods and services, in ideas and innovations, in technological advancements, and it can work at the level of nation states and their comparable policies and systems of governance too.

Split the union, and as long as each nation has its own elected government, its own exclusive set of laws and regulations, and its own financial autonomy, you'll see competition doing its work, and eventually all four nations will rise in quality because of it.




 

 


Monday, 15 May 2017

A Popular Idea, But A Bad One


We all know really why Jeremy Corbyn is a Brexiter in a Remainer's clothing - it's because he wants our nation to undergo a prodigious re-nationalisation program, and he sees the Brussels Eurocrats as being an impediment to this (one of the few good things about the EU is they prohibit European nations from nationalising, subsidising and bailing out their own interests, as it is, rightly, seen as being inimical to competition from outside industries).

Apparently some of Corbyn's nationalisation plans (like the nationalisation of the railways) are proving hugely popular. Now, while I've written before about the imprudence of nationalised industry in the specific sense (see here and here), and while I have numerous blogs on the benefits of the private sector over the public sector (if you were ever inclined, all of them can be seen by clicking on this Private Sector vs. Public sector tab), I probably haven't written a blog post that swiftly points out why generally speaking nationalised firms are worse for us than non-nationalised ones.

A good place to start here is to remind you of Milton Friedman's famous dictum regarding the four ways to spend money:

“There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money. Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost. Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch! Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. And that’s close to 40% of our national income.”

Now, given that politicians have certain popularity-gathering incentives to spend taxpayers' money well, you'd think they might have constant mindfulness of appearing to the public to be prudent spenders. In a small sense this is true, yes - but what you have to remember is that due to asymmetry of information, short memories and copious amounts of spin, the relationship between a government's achievements/mistakes and the public's perception of them is pretty opaque and obfuscated - which is precisely what politicians and civil servants love.

If you’re spending someone else's’ money on someone else, as the government does with its various 'investment' schemes (which are rarely investments actually, they mostly mean 'costs') then the motives are likely to be less prudent than if you’re spending someone else's’ money on yourself. But both pale in comparison to if you spend your own money on yourself, which is what private businesses do, and because of which they have a better nose for efficiency, targets and outcomes.

The private sector is astronomically more competitive, because it has to forecast future demand and attract funds competitively. That's why public sector projects are far more notorious for cost overruns, being overstaffed, and for costly time delays.

That is why, apart from government spending that helps the needy and most vulnerable in society, low levels of state spending make society better off. Private investors are generally more prudent because it is their own money at risk, whereas the public sector corresponds to the fourth quarter of Friedman’s quadrant: they spend other people’s money on others far more recklessly.

And while we're at it, the national beef with big business is a strange one too. Quite often goods and services are produced more efficiently when they are produced large-scale. A firm might be able to make 50,000 burger meals in less than twice the time it takes a smaller firm to make 25,000. Trading small-scale often reduces the extent to which comparative advantage takes effect. Bob's metal firm can spend 3 days making 10,000 hooks, and Jim's carpentry firm can spend 3 days making 2,000 varnished boards, whereas one firm making both may take 8 days to produce that quantity.

A firm is said to be a more effective trader if it can produce a good or service at the same quality but at a lower cost than its competitors. And the benefits to society occur when as many firms as possible specialise in their field of comparative advantage and use it to trade. Therefore, it's usually the case that the country's biggest firms are the ones providing the most value for consumers, as well as being the biggest job creators.

To end, here's a thought experiment. Imagine if you pulled 30 people off the street in a random fashion, took them to an airfield, showed them all the parts of a Boeing 747 and asked them to work out how to build the plane from scratch. These non-experts would be clueless regarding how to assemble those proprietary parts - and the take home lesson would be: don't leave big and important jobs in the hands of amateurs, which is exactly how we should feel about our politicians and our economy.


 

Wednesday, 10 May 2017

Hobson's Choice Of Politicians: Why We're In The Height Of Mediocrity


Get ready to be frustrated more and more in the General Election build up - there will be many politicians that are going to try to appeal to us by promising to offer something 'fair'. Ninety nine times out of a hundred you are going to know that they are not even attempting to talk sensibly or coherently.

If I stood in the street asking random passers by what a banana is, they'd say something like "It's a curved yellow edible fruit", and there would be no disagreement about that description. On the other hand, if I stood in the street asking random passers by what fairness is, they'd say something "The quality of being fair", but there would be countless disagreements about that description in terms of what fairness means in a given context.

Everyone knows what the concept of fairness is, but everyone disagrees about which economic situations are fair and unfair. Consequently, then, I'm fed up hearing politicians saying they want a 'fairer' society, or a 'fair' welfare system or a 'fair' pension system or a 'fair' tax system, because they never tell us what they mean by 'fair' - they just use it wantonly because they know it's a word everyone likes, and everyone will hopefully think them caring and noble.

But what exactly is fairness in these terms? Is something 'fair' if the process by which it arrived is fair? Or is fairness an equitable distribution of something? If a politician fails to explain what he means by 'fair' his statement is ambiguous to the point of being facile. An inequitable distribution need not be unfair. Take a factory as a good example: a floor worker, a supervisor, a manager and a company director have an inequitable distribution of the business's money, but that doesn't make their salary unfair. Equally, stealing from the business in order to give everyone a fair slice of the pie would be an equitable distribution, but the process by which it arrived is unfair.

Cunning politicians and how they try to dupe you
The ambiguity around the word 'fairness' is only a microcosmic example of the wider problem of the dividing glass between what politicians say and what those words actually mean when heavily scrutinised. Politicians are quite used to this sleight of hand rhetoric, because they are taught to speak as ambiguously as possible whilst remaining in the sphere of perspicacity.

If they speak with too much clarity then the electorate will be able to see that they are against the proposal or that they have employed selective information. But if they are too convoluted they will hold no appeal either. So the key to spin is to speak in a way that will get as many of the electorate on their side. And the key to doing this is in making statements that are hard to disagree with but that remain so abstract they continue to be distinct from any coherent policy.

You see, generally speaking the most illogical and fallacious and damaging ideas that politicians come out with are not ideas that make them look immediately senseless and outlandish. They are usually ideas that appear on the surface to be somewhat plausible because they have just enough about them to seduce the average person who is accustomed to only considering ideas in terms of their tangible benefits. To put it another way, if the truth is north, and falsehood is south, most of the dodgy policies that politicians try to run by us are somewhere between north east and east - enough to steer voters off from the best path but not quite enough to have the electorate feel they are going in the opposite direction to what is best for their society.

For two reasons, then, policy-making is likely to make the main parties become more homogenised over time. In the first place because to speak in a way that will get as many of the electorate on your side means choosing from a fairly narrow range of customary voter-friendly phrases. And in the second place, most politicians if they employ a basic standard of reasoning should arrive at more or less the same conclusions about what is the right policy. That they do not - at least not publicly - shows that emotional biases and spin-friendliness are impeding this.

A party really has three groups that are the target of their spin, with one group standing out a mile (this is an oversimplification but not in any way that affects the integrity of the point). There are the two groups who are dyed in the wool either for you or against you, and there are those in between, who make up a variety of comparably amenable individuals. And as I explained in my blog post entitled One Of The Big Ironies Of Blog Writing, there are some you'll never lose, some you'll never win, and a whole assortment of people in between.

Alas, even if we believe it's the inbetweeners that have the most serious decisions to make, and the ones most genuinely open-minded enough to ponder them, I'm afraid the options voters have in front of them is rather like Hobson's choice. Because in asking us to choose between one party or another, we are not being asked to choose between a rump steak and a fillet steak, it's more like being asked to choose between a medium rump steak and a medium-rare rump steak, which is unfortunate if you happen to prefer fillet.

Thursday, 4 May 2017

Terrible Ideas On An International Scale


How familiar is this? A Guardian columnist - in this case a woman called Van Badham - sees something she doesn't like and proposes a ridiculously absurd solution to rectify it. On this occasion, the beef is with multinational corporations basing their operations in places where workers are paid a lot less than in countries like ours. The solution, she suggests, is an international minimum wage.

It's almost as though these people live in a bubble that insulates them from any critical thought or even the remotest understanding of consequences linked to actions. Yes, we all dislike it when workers are maltreated, and we'd all join the Guardian in speaking out against these abuses - but her article isn't a groan about that, it's a groan about low wages in the developing world.

To see why an international minimum wage isn't the answer, you have to first understand something basic. The reason the wages of workers in places like Thailand, Bangladesh and Cambodia are lower than in places like the UK is because their productivity is lower. Wages for textile workers in Japan used to be similar to wages in for textile workers in Thailand, Bangladesh and Cambodia, whereas now they are similar to wages in the UK. The thing that's changed in the past few decades is that Japan has become much more productive.

So while low wages in Thailand, Bangladesh and Cambodia (low relative to UK wages, that is) tend to upset cosy Westerners like Van Badham - what she is really upset about is that workers in Thailand, Bangladesh and Cambodia are, for perfectly understandable reasons, not as productive as UK workers.

Consequently, then, an international minimum wage is not going to change this productivity differential. It will, however, do lots of other damage, mostly to the poorest people in the world trying to earn enough to survive.

To see this more clearly, let me offer an analogy. Suppose the value of a manual worker around the globe is comparable to cars. A UK manufacturer can be said to be like a £50,000 Porsche, a Spanish manufacturer can be said to be like £30,000 BMW; and a Thai manufacturer can be said to be like a £7,000 Vauxhall Corsa.

Suppose an international minimum car price were to be introduced. From now on, it is illegal to buy or sell a car for less than £15,000. Who is made worse off? It's not the Porches and the BMWs, it's the Vauxhall Corsas, the Peugeots and the Nissan Micras - in other words, the less valuable cars in Thailand, Bangladesh and Cambodia. What ought to be obvious is that an international minimum car price law won't make cars worth £7,000 any more valuable to buyers, but it will make them illegal to sell at their value, because the law inflates their price by at least £8,000.

Once you bring the analogy back to poorer people trying to earn a living, it should be obvious that as an international minimum wage isn't going to increase the productivity of workers, and therefore won't make them any more valuable to employers, it will make it harder for them to hold down jobs and hinder the general growth of developing nations, not to mention probably increase worker maltreatment in the shape of black labour markets.

Other beneficiaries of an international minimum wage law would be the higher skilled workers who don't lose their jobs through such a policy but can now command higher wages as a result of the international minimum wage starving the market of less-skilled competition. History provides us with a real life example of this when in 1930s America the wages of the textile workers were higher in the north than in the south, where the cost of living was lower. The introduction of the federal minimum wage made it much easier for the northern firms to compete, because the wage advantage the south had was cancelled out, which as expected brought about all kinds of difficulties for the southern textile industry.

After spending five minutes perusing a few more of Van Badham's columns, you see the same error repeated in every one of them; she concerns herself only with who gains from a policy without the slightest attempt to enumerate the costs, never mind weighing up the costs against the benefits and giving her readers a framework for assessing what she thinks are net benefits. If she addressed this, she would be more likely to see why an international minimum wage is a silly idea.

Not only is it a silly idea for reasons already mentioned, it is also an unfair idea because it essentially acts as a tax on hiring workers, taking from the people who buy the goods and passing onto the people who make those goods. And if you're observant you'll probably have noticed by now that the many of the people who buy goods from relatively poor people are also relatively poor people. Even in the developed world - next time you're in Burger King, have a look at the people serving, and at the people waiting to be served - the latter do not, on average, appear to any wealthier than the former.

An international minimum wage would place an unfair burden on the employers who are already doing more than anyone else to provide the jobs to help citizens in developing nations - the employers of low-skilled workers with low productivity. An analogy: at lunch times in school only 10% of the pupils clear away their plates and cutlery afterwards. The headteacher decides there are too many plates and too much cutlery left in the canteen after lunch, so she demands that the pupils who already clear up after themselves should do more to help rather than the pupils who do not. In real life the firms doing most to create jobs in the developed world are like the 10% of the pupils that clear away their plates and cutlery after lunch. It is insensible to demand that they are ones that should clear up some more.
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