Why Can't More People See The Obvious Distinction Between Banning & Disapproving?

There was mass outrage yesterday in response to a London jazz bar whose job advert specified they wanted 'extremely attractive staff' who 'must be comfortable wearing heels'. Now personally this doesn't seem like a very great place to either work or visit - it seems quite superficially minded, and will probably have a client base that reflects this. Hopefully, if enough people act with their feet, then this jazz club will be hit with lower profits, and may then look to advertise more prudently (because the point is, it's easy to hire good looking females if you want to without having to state that's what you're looking for on the job advert).  

Notice what I did in the above paragraph - I told you about my personal feelings towards the advert and the jazz bar. What I would not do, and nor should anyone else, is say that this advert should be taken down or banned from existing. Because one of the basic principles of being free citizens who enjoy personal liberty is that if you happen to run your own business you should be able to hire whoever you like. 

If you make bad decisions you may suffer loss of profits, and develop a bad reputation - sometimes you may even go out of business - but a society that thinks it can tell you who you can and cannot employ is an oppressive wolf, even if it appears to be dressed in the clothing of protective sheep. C.S Lewis put it well:

The example I've given above pretty well summarises why I write as I do on a broader level. That is to say, people know how to run their lives better than any state, monarchy or government. That's not a blanket truism for every single individual in the world, but it's true for the vast majority of people, and it's true in the majority of ways that relate to how we live our lives by making cost/benefit analyses and exercise freedom of choice.

Governments are always going on about the welfare of its citizens - but the irony they miss is that a lot of what they do compromises the welfare those citizens would otherwise enjoy. Take an obvious and frequent example - the price of alcohol. Every government policy is based on the notion that alcohol is bad for its users. It is, but it is also good for its users, because the people who drink alcohol wilfully choose the pleasures and accept the costs. 

Alcohol drinkers are people for whom the pleasure of social drinking outweighs the risk of death, liver damage, addiction and a shorter life. If they valued better health and longer lives they'd drink less or not at all. If you're in the first group then drinking lots of alcohol delivers a net gain; if you’re in the second group then drinking lots of alcohol delivers a net loss.

Because it is impossible for the state to know how much every individual values health, exercise, weight training, smoking, alcohol, casual sex, and so forth, it is impossible for the government to know better than its citizens what is good for them. A good government would understand this, and seek to minimise its involvement in our lives to enhance our welfare and liberty.

But: and here's the important but - there is one important caveat – people’s decisions are affected by the information they have. A lot of people are informed enough to make rational choices about whether they want to drink alcohol. But some people are not. If they’ve lived in a house in which drunkenness was the norm, or in which information about healthy living was scarce, they may not properly understand the benefits or costs. Misinformation increases the likelihood that you’ll either underestimate the costs or underestimate the benefits.

Light regulation is fine

So clearly, for this reason, being a libertarian doesn't mean adopting a 100% erosion of regulatory influence. Many regulatory laws are superfluous, but not all of them are. We need laws that protect factory employees from working in dangerous conditions unbeknown to them. If two people know the details and engage in a mutually beneficial transaction, then state involvement is mostly superfluous. But if Jack is employing Jill and putting her life at risk due to faulty equipment or dodgy wiring, I don't want Jill to be devoid of protection through the law.

Where the law works for me is when it guards people against harms that live outside of anything that could be defined as a mutually beneficial transaction with transparency. But there are lots of ways the government harms mutually beneficial transactions and makes the nation worse off. Here are three examples off the top of my head.

1) A government will impose import tariffs on consumers at prices they wanted to pay, and tell them it's for their own good because they are only better off if they doing more exporting than importing (which even a simpleton ought to know isn't true).

2) A government will use taxpayers' money to bail out or subsidise a failing industry that has simply been outcompeted by other industries abroad or has lost its relevance by ever-changing technology. In doing so they will make their citizens believe they are doing good thing, even though there is a huge net loss, and that a lot of that loss is felt by British consumers and by other British industries that trade with these foreign companies two, three, four or five steps down the line.

3) A government will distort the natural and important information-carrying signal of value by imposing price floors and price ceilings because it follows the lead of the majority of its citizens who are almost wholly ignorant on these matters.

Those are just three examples that first spring to mind - as regular readers of my blog will know, there are dozens of other examples.

I've always said, I'm fine with light government regulation for health and safety standards, protection against nefarious use of asymmetry of information, a stable rule of law, property rights, etc - but the moment the state interferes in the natural mechanism of prices, supply and demand, I want them to relinquish their control.

Pondering our freedoms

All that said, here's where things get a little knottier. Being a libertarian I don't want the state to interfere much in our freedoms - therefore, I don't want them banning things related to what we do to our bodies, like abortion, prostitution and drug-taking. But being a Christian, I do disapprove of those things - not in the sense of being sententious or judgemental against partakers in those activities, but simply in thinking that they are bad for us and harmful to the people involved, and therefore undesirable.  

But quite why so many people think that that means we ought to call for their criminalisation is peculiar to me. There is nothing terribly inconsistent about believing things to be socially undesirable yet still not wanting them criminalised. After all, infidelity is one of the most socially hurtful things, so is unkindness, but no one thinks they should be illegal.

Just because some of us don't want the state telling us how to behave when it comes to abortion, prostitution and drugs, it doesn't mean we need to proclaim those things as wonderful - it is easy to simultaneously value the liberty to do these things and the prudence to advise against them. And this is perhaps the key take home lesson - we must be wise of the difference between banning and disapproving: they are not always natural bedfellows.

Some personal thoughts
I have to confess, while (hopefully) most balanced minds can agree that making abortion illegal would be a terrible thing, I'm not actually very comfortable with the idea of making prostitution legal (by which I mean brothels, as technically it is not illegal to pay someone for sex - what is illegal is soliciting in a public place, kerb crawling, owning or managing a brothel, pimping and pandering), and I'm still very torn on the issue of drug legality.

The main issue I have with laws against prostitution and drugs is that it creates an underground sub-culture, which in itself brings additional criminality. On the one hand, making it legal would eradicate much of the underground sub-culture that puts young women at risk (although not all of it), but on the other hand keeping some things illegal has positive societal influence in that it tries to avoid normalising things that are possibly social undesirable.

It would seem, then, that people who disagree about the (il)legality of activities may disagree on whether an activity is desirable, or they may simply disagree about to what extent the state should interfere in our liberties. For example, I think brothels are socially undesirable from a Christian perspective, but from the libertarian perspective that doesn't necessarily mean I want them to be illegal. I perhaps could argue that the costs of prohibition (underground sub-culture, state suppressing our liberties, home office costs) are not a worthy price to pay, and that allowing this socially undesirable act is the lesser of two costs. Someone else, on the other hand, may disagree that it is socially undesirable, and call for its legality on grounds of social approval as well.

For me, whether an act is socially (un)desirable or not, and whether it should be illegal or not are perhaps two parts of the same question about whether the act harms anyone else in a way that's socially undesirable. I say 'socially undesirable' because almost all acts cause some social inconvenience to others, even buying the last newspaper on the rack, or joining a queue on a busy road, but no one seriously thinks these acts should be illegal.

Is it socially undesirable to have an abortion to the extent that it should be illegal? I'd argue definitely not, because the rights of a woman over her own body always trump the right of the state to force her to keep a baby. But do the rights of a woman over her own body extend to selling her body for sex in a brothel and taking drugs? One could possibly argue a case for selling sex in a brothel - it's her body and if she wants to use it to sell sex she is perfectly entitled to do so. The social harms would be that this kind of transaction becomes more normalised, and it may encourage more married men to pay for sex. But as we've said, affairs harm relationships and the children, but no one is saying they should be illegal. As long as the profession was well regulated to guard against exploitation and, rather like it is in the ordinary workplace, I think I could argue for its legalisation, and for people's freedom to engage in sex for money if they fancied.

Drugs is the most difficult issue for me

This just leaves drugs, and I'm afraid that even as a libertarian, of the three, I find drugs the most difficult, for reasons I'll explain. I was challenged by a friend, who said something along the lines of "I find it odd that you claim to be a libertarian and yet support legislation restricting access to currently illegal drugs. Care to elaborate why this isn't oxymoronic?"

As I indicated, I'm still not 100% sure how I feel about the issue of drugs like cannabis and their legality. I said earlier that where the law works for me is when it guards people against harms that live outside of anything that could be defined as a mutually beneficial transaction with transparency. And I understand the liberalising argument that if Jack wants to smoke weed, and Jill wants to take LSD, and Geoff wants to get drunk, and Mary wants to ride a horse, and so on, that they should be free to do as they wish provided it doesn't harm others.

But heroin does harm to more than just the user - its addiction is behind so much crime - and that wouldn't change if it was legalised, because as far as I can see, for the addict demand for the drug exceeds affordability, so they turn to crime, or in the case of young girls, they get sold into prostitution against their will to feed their habit.

So although small state works well for me in areas in which people have lucid self-determination, I think there are quite a lot of people that do require a strong state that can legislate of their behalf. Maybe that's not an argument against legalising cannabis, but I feel it is an argument against legalising heroin.

I was challenged though by a friend to read some Douglas Husak on this. He makes the point that heroin, and opiates in general, are still lower harm than even alcohol, according to ISCD. And we now know that diamorphine can effectively be "brewed" - very cheaply - the lab that discovered it has put it on hold until someone in government can tell them how to handle it, but the upshot of it is that some sugar water and GM yeast can create it by the vat load like beer.

He also made the challenging point that it is perfectly possible in the right circumstances to maintain a heroin habit. Like alcohol, it will catch up with your good health eventually, but it does not require crime to fund it except that it is controlled so heavily. The illegal supply chain makes it many hundreds of times more expensive than it need be. And some of the worst effects are because people who are desperate for it in that market are lured into other things - the man in the white BMW doesn't care whether he sells you rubbish diamorphine, or crack, and you don't care what you get so long as it does something.

It's also worth mentioning that diamorphine (heroin) is the world’s most powerful painkiller. It and the less powerful morphine are used currently in UK hospitals. So the question is whether various chemical compounds should be classified into 1) freely available, 2) licensed over-the-counter, 3) prescription, 4) hospital controlled and 5) illegal. It’s a big and complex debate.

I think at the moment I'm concerned about legalising heroin outside of the medical profession because it does so much harm to people's lives, and to the countless victims of crime, exploited girls, etc. If we got to a situation where it could be intelligently bought and sold without the criminal/exploitation factor, rather like alcohol is now, I'd be more up for it. I just think that we are not at that stage yet, for all sorts of complex reasons. Take countries like Mexico and Colombia - they certainly don't seem ready yet.

I suppose, finally, there is a quite interesting subtext for me regarding the drugs issue - a kind of meta-analysis - in that I'm quite torn about the legalisation of some of these drugs, but am also not entirely sure why I'm so torn or what it would take to make me adopt a more convinced viewpoint. Would more information change my mind? Is it that the wider issues are too intractable to formulate a solid but philosophically justifiable conviction? Or is it that there is no easy answer and that being able to see merit and demerit from each side means a somewhere-in-between position is the most intellectually tenable? I'm not entirely sure.  

The Pros & Cons Of Driverless Cars

Totally coincidentally to this week's news, I stumbled on a page that said the following:

"The Texas Transportation Institute estimates that in 2000, the 75 largest metropolitan areas experienced 3.6 billion vehicle hours of delay, resulting in 5.7 billion gallons in wasted fuel and $67.5 billion in lost productivity."

A quick calculation suggests that that's about 0.7% of America's GDP. What struck me most about reading that was a somewhat unrelated thought that has become more topical this week - that one thing those statistics show is just how tremendously beneficial driverless cars are going to be to humans and to the environment, as many of the costs in time and pollution will be eradicated. No doubt this will be expedited by the government's latest desire to ban the sale of diesel and petrol cars by 2040.

What will driverless cars be like?
It seems fairly certain that future cars will have computers that can drive more safely resourcefully and efficiently than we can, with far fewer queues and a reduction in hold ups. Drink-driving won't be an issue, nor will tiredness at the wheel. Gone will be the car insurance industry, and the driving school industry, and there'll probably be no need for car ownership either, as technology devices and advanced algorithms will probably be able to satisfy any customer's need for a ride to any destination any time they need one. 

Journey times will be shorter, as self-driving cars will be able to whizz around within inches of each other under precise computational commands, thereby removing the need for traffic lights, roundabouts or stopping at junctions. Bear in mind, though, those gains in journey times will need to be offset against increased road usage, because when self-driving cars offer more benefits than trains, I'd excect there to be more road users making more journeys in driverless cars.

But there is something else to consider here. For many, car ownership is something of a status symbol, and for many others there is genuine enjoyment in driving, particularly if you have a fast car. It's possible that those could be the two things that delay the transition from all human-driving cars to all computer-driving cars. Status-mongering in the driverless car industry will largely be confined to what kind of car you can afford to hire - which may not be much of a status symbol anyway if taxis are anything to go by.

Other than that, when it does eventually happen in a widespread fashion, the gains are going to be immense - and the next generation born thereafter, and all subsequent generations thereafter still, are never going to know what it was like for us to live in a society in which we got to drive ourselves, went fast if we wanted to, and had to do things like purchase car insurance, queue in traffic jams and look for parking spaces.

Why Graveyard Robbery Will Hurt The People It's Trying To Help

A columnist called Abi Wilkinson suggested in The Guardian yesterday that the government should fund the welfare state with a 100% inheritance tax. It's a nice idea, but like many nice ideas it reeks of confusion regarding the consequences of such a short-sighted brainwave: consequences that would hurt the people the policy intends to help - the poor.

To understand why the policy is a bad idea, it's important to understand the difference between money and resources. A 100% inheritance tax would send a message to anyone with any equity along the lines of "Your loved ones cannot inherit any of your wealth, so you might as well spend all your money before you peg it".

But that's another way of saying "Hey, consume more raw materials while you still have half a chance - oil, steel, timber, etc - and leave fewer resources for others". Encouraging more reckless and less prudent spending to avoid being taxed at 100% on your death means consuming more resources that are then no longer available for others to consume, or are more expensive with which to build factories, and machines, and equipment, and schools and buses. This ultimately hits the poor hardest in terms of the opportunity costs of fewer jobs and more expensive goods and services.

A 100% inheritance tax encourages us to swim against the tide of progression we've enjoyed in the past decades. All the technological advancements, the innovations, the research, and even the increased capacity to help those worst off in society through welfare payments, have come from job creation, which came from using raw materials in an effective way. Part of what made that possible was the availability of resources when people with equity were able to conserve their assets - something they'd be disincentivised from doing under Abi Wilkinson's idea for daylight grave robbery.

You may be tempted to argue that if we allow inheritance then wealthier people may consume less but their heirs will consume more, so the result is pretty much the same. But that's not true - judicious consumption delayed is still better than ostentatious and injudicious consumption in the here and now, as UK citizens get years of forgone raw materials to consume, and additional production from which they will benefit.

A tax that encourages any transactional behaviour that is (at best) sub-optimal and (at worst) tantamount to reckless overconsumption is going to be a bad tax, and one that will hit low earners and jobseekers hardest, as in many cases it will have the knock on effect of increasing prices and decreasing job opportunities.

Do You Know Good Discrimination From Bad Discrimination?

Economics tends to distinguish between two types of category discrimination. The first category is what's called animus discrimination, which is discrimination motivated by aversion to a particular group of people based solely on things like skin colour or sex. An example would be something like not employing a woman because you're a misogynist, or charging a black man more for a car than a white man because you're racist.

The second category of discrimination is what's called statistical discrimination, which is discrimination motivated by statistical trends associated with groups. An example would be an insurance company charging women a lower premium than men on the basis that they are statistically safer drivers, or counter terrorism authorities targeting more Muslims at airports because there is a higher risk that they will be terrorists.

The first type of discrimination is rightly frowned upon by everyone most of the time. Although even animus discrimination has its place in society. At school I actively discriminated in favour of girls over boys in the dating market on grounds that I was only attracted to girls.

The second kind of discrimination, statistical discrimination, is often frowned upon too. But not always wisely, as people regularly miss the fact that statistical discrimination is often a very wise kind of discrimination. Why wouldn't we target more Muslims at airports if there is a higher risk that they will be terrorists? It's a no brainer.

Statistical discrimination is simply a case of someone making what they believe is a rational distinction between good and bad outcomes, like when blind people aren't recruited as lifeguards, and when snake-handling shamans are not hired as primary school teachers. Other times people think unfair discrimination is going on when, in fact, there is a perfectly rational explanation for it.

A huge proportion of the debates we see in the media about so-called unfair discrimination are really enquiries about whether the discrimination is animus discrimination or whether it is statistical discrimination - that is, whether the discrimination is coming from a bad place or a good place. Sometimes, like in this example, it is not always easy to tell.

Recently I read about a couple of natural field experiments of significant interest in this matter. John List and Uri Gneezy are to behavioural economics as Jimi Hendrix is to guitar playing, and they have an interesting case study on what appears to be animus discrimination against the disabled when it come to getting their car fixed:

"First, we recruited several men between the ages of twenty-nine and forty-five to act as our secret agents. Half these men used wheelchairs and drove specially equipped vehicles. The other half were non-disabled, but in all cases the individuals hopped into a specially equipped vehicle for the disabled with a fresh ding on the side and headed to Chicago-area repair shops. When our secret agents got to an auto repair shop they simply asked for a price quote to fix their car. What we found initially was shocking. The disabled were given quotes 30 percent higher than the quotes given to non-disabled for the exact same repair!

Curious about the extent to which car repairman were motivated by hatred or just profit motive, though, we did one run of the experiment where both types of our secret agents got a quote and told the repairman that they were, “getting three price quotes today. What did this extra sentence do? Well the figure shows that for the able-bodied subjects, their price quotes didn’t change at all, but for the disabled they plummeted. Furthermore, the difference in prices for the disabled and abled disappeared."

Whichever way we cut the cloth, it seems like the repair men were engaging in blatant economic discrimination by charging more because of a customer’s disability. Here's another one: if you were looking for an iPod, would you care if the person holding the device in a catalogue was black or white? Surely not, right?

But economists Jennifer Doleac and Luke Stein suggest otherwise. Over the course of a year, they placed hundreds of ads in local online markets, randomly altering whether the hand holding an iPod for sale was black or white. Here's what they found:

"Black sellers do worse than white sellers on a variety of market outcome measures: they receive 13% fewer responses and 17% fewer offers. Conditional on receiving at least one offer, black sellers also receive 2-4% lower offers, despite the self-selected-and presumably less biased-pool of buyers. In addition, buyers corresponding with black sellers exhibit lower trust: they are 17% less likely to include their name in e-mails, 44% less likely to accept delivery by mail, and 56% more likely to express concern about making a long-distance payment. We find evidence that black sellers suffer particularly poor outcomes in thin markets; it appears that discrimination may not “survive” in the presence of significant competition among buyers. Furthermore, black sellers do worst in the most racially isolated markets and markets with high property crime rates, suggesting a role for statistical discrimination in explaining the disparity."

Is this kind of discrimination coming from a bad place or good place? Maybe many white people still harbour an evolutionary hardwired animus-type of negativity towards black skin, even though in terms of outward behaviour most don't act as if they do. Or maybe the black skin is serving as some kind of misguided proxy for black associations like higher crime rates (not that that's an excuse). It's difficult to know. One test might be to measure this against whether black sellers do particularly badly in high crime cities. Another test might be to use only white people, but with half the models having a neck tattoo and half not. Both of those tests might give more of an indication about the discrimination was animus or statistical discrimination.

Whenever we look at discrimination, our first job is to ask whether the discrimination is unfair and socially noxious (in which case carry on doing our best to stamp it out) or socially desirable, as much of it is (in which case carry on promoting the benefits of discrimination). Because remember, in the second kind of discrimination, trade and competition depend on it. If movies do better with attractive leads, then it's in the filmmakers' interest to hire attractive actors; if a 7 ft tall man is going to have problems being a fireman, he should not be hired; and if a shopkeeper doesn't want to hire a young man because he is a member of the BNP, he is perfectly entitled to make that call.

Remember too that imprudent animus discrimination by buyers or sellers in the marketplace penalises in terms of personal costs to the discriminator, as I explained in this blog post. On the other hand, statistical description is usually perfectly fair and desirable because as the above examples show, it starts with everyone on a level playing field and then looks to preclude those that are no longer objectively on that field.

Employers want to hire those who are most productive, just as the counter terrorism organisations want to investigate the people who are most likely to be terrorists. There is nothing unusual about that. The only thing that's unusual about this matter is how many people there are in society that do not really understand basic statistical principles.

The New York Times Manages To Get This One Entirely Backwards

Some people really don't think things through very well. The New York Times ran with a story that celebrated the fact the solar industry employs far more Americans than wind or coal: 374,000 in solar compared with 100,000 in wind, 160,000 in coal mining and coal-fired power generation, and narrowly behind natural gas, which employs 398,000 workers (in gas production, electricity generation, and petrochemicals).

The article writer was trying to insist that this must be a good thing for solar power, because it demonstrates how important solar power is in creating jobs. Alas, anyone who understands economics would not reason this way - they'd instead reason that solar power presently shows itself to be a pretty unresourceful and inefficient part of the energy industry.

And once you then compare number of workers to energy output as a percentage, things look even worse for solar energy. 398,000 natural gas workers amounts to 33.8% of all electricity generated in the United States and 160,000 coal employees amounts to 30.4%, whereas 374,000 solar workers amounts to just 0.9% of total electricity.

If you try to break that down to electricity generated per worker, then coal generates 7,745 megawatt hours of electricity per worker, natural gas is 3,812, and solar is a measly 98 megawatt hours of electricity per worker. That is to say, producing the same amount of electricity requires 1 coal worker, 2 natural gas workers and a whopping 79 solar workers.

To put that into perspective, it would be like having three large supermarket chains across the country, producing the same output, but Supermarket A does so with 300,000 workers, Supermarket B does so with 600,000 workers, and Supermarket C doing so with 23.7 million workers, and the state subsidising Supermarket C because it thinks it provides better value than A and B.

Solar energy is, at present*, showing itself to be a wasteful and inefficient method of producing energy, but people won't get why until they understand that jobs are a cost of doing something, because they are the price we pay for people's labour.

I encourage any readers who deny that jobs are a cost to email me immediately, as I have plenty of opportunities for you to partake in some 'cost-free' activities. You can come and wash my car, do the dusting and hoovering, and while we're at it, my bathroom could do with a good clean too. And, of course, you won't want paying for any of that because according to you those activities do not have any costs attached to them.  

* I say at present, because there probably will be a time when solar power is the predominant and most efficient energy technology

The Tax Love That Dare Not Speak Its Name

 

 

John McDonnell, the Marxist in the Shadow Cabinet with about as much charisma as a cactus plant, was on The Andrew Marr Show explaining how their excessive tax programs pay for themselves because the revenue they generate will help them break even, therefore creating a value to society. This is wrong, wrong, wrong. As I said the other week, taxes have deadweight costs, roughly to the tune of 30p in every pound. That is, if it costs £1 to provide something in the private sector, it's going to cost something like £1.30 for the equivalent thing in the public sector, which robs society of value.

 

Consider one of Labour's programs to create jobs, costing £10 million a year in salaries. Let's even be generous to McDonnell and suppose that the program manages to generate a profit of £1 million a year. Labour records this as a success and offers it as proof that their job investment program benefits society. Now factor in the 30% deadweight costs of taxation - you'll find that a program with an £11 million return (that is, a £10 million yield + £1 million profit) actually costs £13 million to create due to the financial distortions that come with taxation.

 

The other glaring omission from John McDonnell's medley of myopia is that such programs fail the second test too - that is, they rob society of some of the instances in which people can spend their own money on things that benefit them most.

 

Suppose a mugger waves a knife at you in the street and asks you to hand over your wallet containing £130. After giving it to him, he promises to spend £100 of it on a pair of shoes for you and he'll keep the remaining £30 for himself. Not only are you £30 worse off in terms of opportunity costs, you are also worse off in the fact that you probably didn't want to spend the whole £100 on shoes, and even if you did, the chances are he is not going to pick the same pair you'd buy for yourself with your own money.

 

Our present party leaders are not quite like muggers, they are more like mafia bosses. When the mafia used to start up protection rackets they had to strike a good economic balance. Suppose they were going to operate in an area with 50 bars and restaurants - how much should they charge the owners for 'protection'? If they charge too little they don't maximise profits, but if they charge too much they might drive the bar and restaurant owners out of business, which means no more revenue.

  

While government taxation is slightly different to a protection racket, in that the benefits from taxation do extend out to taxpayers more than the benefits from 'protection' extend to bar and restaurant owners, the ethos isn't too dissimilar - the likes of Theresa May and Jeremy Corbyn want to get as much tax out of the electorate as possible without reaching the tipping point of election-losing unpopularity.

 

It is a mistake though to think of the Laffer curve - which looks at the relationship between tax collected and the rates at which they are collected - as determining the rate of taxation that will raise the maximum revenue for the government. That's not what we should think of as the optimal tax rate - the optimal tax rate is the tax that raises the optimum revenue with the fewest negative spillover effects on the economy.

 

To suggest that a healthy tax rate is one that maximises government revenue is like suggesting that a healthy conscription rate is one that maximises the number of soldiers in the armed forces, or that a healthy diet is one that maximises food intake. The true value of a tax rate or an army quantity or a healthy diet is one that proves most effective when considering all effects, not simply getting the most of something we can.

 

As things stand with the 45p top tax rate, the tax gained from the top 1% is apparently at a record high. The top earners earn 13% of the income but now pay 30% cent of income tax collected. Even the top 0.1% (stress that's nought point one percent, not one percent) pay a comparably astronomical 14% of the total income tax paid, which is an increase by a factor of 140. If you want more money to spend on public services, more borrowing isn't the answer, and neither is higher taxes - you have to adopt policies that will generate more income. And in that failure, both main parties are on a mission to become more and more alike in this.  

 

 

A Fascinating Article That Comes To Totally The Wrong Conclusion

I stumbled upon this intriguing article in the New York Times by Nicholas Kristof, entitled “What Monkeys Can Teach Us About Fairness” in which the author tells us about an experiment in which monkeys were taught to hand over pebbles in exchange for cucumber slices. They were happy with this deal. He goes on:

"Then the researcher randomly offered one monkey — in sight of a second — an even better deal: a grape for a pebble. Monkeys love grapes, so this fellow was thrilled. The researcher then returned to the second monkey, but presented just a cucumber for the pebble. Now, this offer was insulting. In some cases the monkey would throw the cucumber back at the primatologist in disgust. In other words, the monkeys cared deeply about fairness. What mattered to them was not just what they received but also what others got."

If Kristof had stopped there, that would have been an interesting account - when monkeys receive something but see other monkeys receiving something better they react dissonantly. That in itself is fascinating.

Unfortunately, Kristof uses this to propound the theory that what monkeys care about here is income disparities, and that this has parallels with the wider human concern about income inequalities. This is a step too far, and takes the conclusions into illogicality, because interpretations of income distribution are based on something fundamental that is missing from the monkey experiment - and that is, what people do to earn what they received.

If the teacher gives little Johnny 2 chocolate bars and little Freddy 1 chocolate bar, it might be that she has treated Johnny better than Freddy. But if beforehand she stipulated that there will be a classroom maths test, and the person who scores top marks will get 2 chocolate bars, and the runner-up 1 chocolate bar, then nothing she has done has been unfair, because Johnny and Freddy's chocolate bars were given based on merit. Their rewards were commensurate with what they did to earn those rewards.

The same is true of wages - they are not arbitrarily distributed like the cucumber and grapes in the monkey experiment - they are based on what people produce for their employer. Monkeys may suffer dissonance at income disparities irrespective of how those incomes came about, but humans generally do not - they recognise the source of the variance in the incomes.

Winding Back The Snowflake-Shaped Clock

Have you noticed how people habitually choose when to get publically offended, using offence as a public convenience to express phoney outrage from the comfort of their ideological hobbyhorses? Conservative MP Anne Marie Morris makes a stupid reference - to "A nigger in the woodpile" - that only someone with the brains of a suet pudding would make, and gets branded a 'racist' by the twitcherati.

Yet the consistently ludicrous Diane Abbott has a string of obnoxiously bigoted comments to her name (''White people love playing 'divide & rule", "London shouldn't have another white middle ages mayor", "Blonde, blue-eyed Finnish girls are unsuitable as nurses because they had never met a black person before" are just some of the lowlights) but you can guarantee that the people castigating Anne Marie Morris would not do so to Diane Abbott - even though it is about as unlikely that Morris is a racist as it is that Abbott isn't one.

Similarly, when the DUP registers on people's political radar, everybody Googles them and unleashes swathes of invective because they are homophobic, anti-abortion, freedom-oppressing, pro-death penalty, science-denying young earth creationists. And yet these views are so prevalent in Muslim communities in our country that very few people bat an eyelid anymore, much less express public disapproval. Snowflakes abound in this offence-seeking culture, but it seems that people are good at taking their offence a la carte.

Now for my principal point. Wind back the clock every quarter of a century in the UK and yes, for sure, you'll see a generation worse than the one that followed it in numerous ways. On things like sex, skin colour, disability, ethnicity and sexuality we used to be terrible, then we got a little less terrible, then a little less, and less still, and then a lot less terrible (as progression generally follows exponential power law patterns). There is still a lot of work ahead of us, but, the likes of Anne Marie Morris and Diane Abbott aside, things are much better than they ever have been.

There are, however, things that are slowing down the progression in some parts, and in others stifling it altogether. One is what has been aptly termed 'generation snowflake', which is where society is helping people along in being too lily-livered regarding matters of offence and/or being offended on behalf of others. The other is the preoccupation with diversity and positive discrimination, whereby everything from businesses to art are valued too much on their diversity at the cost of not being valued enough on their merits.

Now I'm all for diversity, and have written several times about its qualities, and also about how a lack of diversity limits the potential of the agency in question. I have something I call 'The Family Business Impediment' - which, to quote, is basically this:

"Family businesses have a higher probability of doing less well in the market than other businesses - where, by family business, I mean businesses that tend to favour hiring family members over a more competitive recruitment process. It stands to reason that if your opportunity pool of talent is more closely related to average percent DNA shared than it is ability, experience and merit, you limit your chances of finding the best candidate (ditto if you discriminate based on skin colour, sex and sexuality)."

But it's also very much the case that these things can be taken too far, and often are - such as the case where diversity becomes a superficial tick-boxing exercise rather than having candidates that are there on merit.

Apparently last year the Oscars got criticised for having no black actors/directors shortlisted. Now I know little of this, nor much about films released last year - and maybe this was criticism for past legacies - but we mustn't cultivate a society whereby people become frozen with fear if they do something that fails to satisfy a diversity ticking exercise.

Maybe, just maybe, it was thought by the judges that the best films of last year just happened to not have any black lead actors or directors. In fact, given the extreme duress they know they are under to include a diverse range of candidates in order to not appear prejudiced, it's possible, just possible (and I don't know, myself) that the films nominated were genuinely thought to be the best.

I don't want society's generation snowflake to impede people's ability to employ who they think is the best candidate, or to make the kind of TV show they want to make, or to give awards to whichever films they think are best, and so on. This is a thin end of the wedge problem.

I mean, I was reading an article recently (from a few years ago) where a member of staff in a job centre told a prospective employer that she wasn't allowed to put 'Must be had working and reliable' on the job ad for fear that it 'could offend people that are lazy and unreliable'. Yes this was an isolated case that the job centre repudiated, but it shows the level of fear society is able to engender about offending on people's behalf.

I don't want that, just as I don't want schools being afraid to hold an assembly, or nurses being afraid to wear a crucifix around their next at work, and so on, and so on. Personal offence, and its more annoying cousin, offence on someone else's behalf, has been one of the most unsettling and troubling culture shifts in my lifetime.

It is to some extent a sign of our becoming more caring and empathetic too, but equally, I fear, a sign of our becoming more anodyne as we adopt an unhealthy risk-aversion, a protectionism if you like on intellectual ideas for fear of being hounded as a sexist, a racist, a xenophobe or an Islamophobe.

Finally, in a past Blog post, I proffered an answer to the question about what it is that has caused us to journey from reasonably intrepid proponents of free expression to lily livered impotents - and it is on this note that I shall end, as it occasionally bears repeating:

"I can think of two main changes that might have altered the public consciousness. In the first place, the country now has a lot more diversity, which means there are a lot more minority groups with views that differ from the mainstream. And in the second place, computer technology has undergone radical changes, which means there is mass communication going on, and also that everything everyone does it pretty much under external scrutiny now.

Personally I see no reason why either of things should cause us to become spineless again, but it would appear that we have. Diversity of people has generated an unprecedented range of beliefs, opinions and cultural practices that appear to make many people uncomfortable in expressing themselves for fear of upsetting someone, or being labelled a racist or bigot.

The widespread fear of upsetting Muslims is perhaps the most obvious case in point. And the extent to which everyone can have their say on social media is unprecedented too - it appears to be bringing with it a huge rise in vile threats and guttersnipe abuse, which as a consequence appears to be making many people fearful of free expression once again. But I've said it before on here, and I'll say it again - we must stop this train of timidity in its tracks as soon as possible."

 

Econocracy? More Like Idiocracy!

On Newsnight last night, there was an interview with an economics student called Joe Earle, who has co-authored a book entitled Econocracy (article link below) that has gone on to create a new student movement that looks to challenge how economics is supposedly out of touch with reality and defined by the views of the elite.

The founders of Econocracy, as the title suggests, want to make economics less about the wisdom of economists and more about the views and beliefs of our democratic nation. By making their discipline all-pervasive, the author argues that economists have turned the subject of economics into too much of a scientific discipline in a way that apparently undermines the democratisation of economic viewpoints:

“We live in a nation divided between a minority who feel they own the language of economics and a majority who don’t. As Ed Miliband and Jeremy Corbyn have found, suggest policies that challenge the narrow orthodoxy and you will be branded an economic illiterate. Academics who follow different schools of economic thought are often exiled from the big faculties and journals."

Alas, the book's authors and the reviewer in The Guardian do not really understand what is actually happening, and this is because they are missing the most important point - that despite highly charged protestations, most people really are very unapprised of even the basics of economics, and it is only because their views are subjected to rigorous analytical and empirical scrutiny that they find themselves on the periphery of rational enquiry.

To give you a fourfold and very topical example, in recent times we've seen evidence presented that tuition fees do not reduce the number of working class students (as Jeremy Corbyn claims); that Corbyn's favoured living wage increase has been shown in Seattle to engender all the negative outcomes economists have been warning about for decades; that Corbyn's favoured increase of corporation tax has been shown to be a simple sideways transfer of costs picked up by staff and by consumers and being unbeneficial to those struggling; and worst of all, that Corbyn's fairly recent praise for Venezuelan socialism and his desire for Britain and America to adopt that model as a 'rejection of neo-liberalism' is without question one of the most foolish and dangerous assertions any modern politician has made.

 

Now, if Corbyn and his cult of personality acolytes were in any way friendly to empirical evidence - that is, open to what is actually true and factual about the consequences of their views - they would humbly repudiate those four false beliefs, and honestly declare that a rethink of their position is necessary. But you just know that is not going to happen, because what these people care about is not what is true and factual, it is what best serves their own interests.

Of course, economics didn't need those four evidential examples to feel vindicated - this is what economists have been arguing for decades, and this is what the Econocracy crew do not get - economics is not for the elite because it is elitist, it merely appears to be for an elite group because that group contains a relatively small proportion of society's individuals that actually care about the truth and understand the evidence and logic to arrive there.

So when the author says “We live in a nation divided between a minority who feel they own the language of economics and a majority who don’t.", well yes, we do, but that is not really any different from a pastor in a predominantly young earth creationist church saying we have a few evolutionists in this church who feel they own the language of biology in a majority church congregation that don't. Quite! If you marginalise yourself by believing foolish, counterfactual things, expect to find yourself marginalised from the mainstream.

That is also why, when the author says "As Ed Miliband and Jeremy Corbyn have found, suggest policies that challenge the narrow orthodoxy and you will be branded an economic illiterate" - well again, yes, if you publically hold beliefs that are economically illiterate you will be branded an economic illiterate, just as if you go around breaking people's garden fences, plant pots and car wing mirrors, you will be branded a vandal. If the cap fits, and it has your name on it, you are going to find a lot of people asking you to wear it.

Economics as a science

Economics is scientific, so it is only democratic to the extent that people value evidence or don't value evidence. Economics is about human preferences and behaviour played out in the form of mathematics. Therefore although it falls into the category of soft science, it is an empirical science nonetheless. For example, indifference curves represent a series of combinations between two different economic goods, and they play out in geometrical terms when slopes of indifference curves on a graph reflect marginal value. Economics is a proper empirical method for assessing what humans prefer given many combinations of goods.

If this process is interfered with in a way that imposes unnecessary costs on individuals that know their own preferences more than politicians, then economists understand in advance why the ill-effects of scrapping tuition fees, the Seattle-effects of raising the minimum wage, and the consumer-effects of increased corporation tax culminate in undesirable outcomes. 

Try chemistry as an illustration. Chemistry is a noble science, and one which returns reliable and consistent empirical data. The main reason for this is that natural laws that underpin the material constituents are not compromised or retarded through human interference. When considering gaseous compounds, the masses of one constituent that combine with a fixed mass of the other constituent are in the ratio of (small) integers to each other. But, if scientists interfered in this law so that it was no longer obeyed by all gas mixtures, the fundamental constituents of chemistry would be undermined.

 

This applies pretty neatly to economics as well, at least to the greatest degree. Economics resembles science in that its truths are based on empirical observations and patterns distilled from data. If we treated economics as rigorously as we did chemistry we would find one of the golden rules of economics - the fundamental principle of least resistance (otherwise known as maximum efficiency) - playing out much more prominently, and economic growth happening even more readily.

 

The upshot it, the only way that the Econocracy movement is going to get its wish for a more ubiquitously democratic economic discipline is when there is a more ubiquitously informed society. Economics is a bit like string theory in that only a relatively small proportion of society understand it. The main difference though is that with string theory most laypeople do not go around opining as though they are experts in the subject.

* The article about Econocracy in The Guardian.

A March That Was Utterly Devoid Of Logic, Arithmetic & Fiscally Responsible Citizens

Thousands of people marched in an anti-Tory, anti-austerity rally in London today - during which Jeremy Corbyn declared "This is the movement that will win the next election". He's probably right about that. The way this cult of personality is gathering momentum against a mediocre Conservative government with a leader utterly devoid of charisma, Labour is very likely to win the next election.

However, the premise on which today's march, and the movement in general, is based is faulty and illogical. In actual fact, on the austerity issues up for discussion here, the demonstrators have got their reasoning exactly backwards on both issues. They are advocating the very thing they should be opposing, and opposing the very thing they should be advocating.

I'll explain. Suppose that in the past few years your monthly spending has exceeded your monthly wages. Worried about the household budget, your partner suggests three ways in which you could be more fiscally responsible.

A} Cut down on your spending

B} Increase your earnings (either through more hours or higher wages)

C} Go to the cashpoint more often to ensure you’re never short of money

I’m sure no one needs telling why A and B are viable options, and why C is a ridiculous suggestion. But just in case there’s any doubt, the reason option C is ridiculous is that drawing out more of your finite supply of money is not going to help your fiscal irresponsibility if your spending already exceeds your earnings - it will, in fact, compound your irresponsibility.

Now replace you and your household bank account with the government and the treasury's collection of taxes, and suppose that in the past few years your government’s spending has exceeded its income and been irresponsibly spent. What could the government do?

A} Cut down on spending

B} Increase our taxes

Option A is a viable option. Spending less money means working hard to find government waste or government non-necessities and cutting back on all the profligate expenditure it can. But this is the very thing that Corbyn, McDonnell and the thousands marching today were arguing against. In times when fiscal irresponsibility has been levelled at the government, the demonstrators want more government spending, not less - the very opposite of the fiscal responsibility most people want to achieve. 

But what about option B? Option B is not a viable option, because increasing our taxes is not like earning more money. It is more like option C in the first scenario – it is like being in a state of fiscal irresponsibility yet going to the cashpoint more often to ensure you’re never short of money.

 

The government’s money comes primarily from taxpayers – and they choose how they tax us. But there is a caveat that the left seem to be missing - the taxpayers are like the government’s cashpoint; whatever you take out this month leaves less for next month, and so on. Unlike in scenario 1 when cutting down on your spending or increasing your earnings is like adding to your monthly income, government's increased taxation is not like adding to their monthly income, it is like paying a visit to the cashpoint.

Yet despite this, option B is the one Corbyn, McDonnell and their cult followers are arguing for. They have their reasoning completely backwards in both cases - they should be advocating A and opposing B, not the other way round. Instead they are arguing that cutting spending (profligacy?) is detrimental and that an extra few billion pounds in tax hikes can change government spending from fiscally irresponsible to fiscally responsible.

That's as silly as saying that buying a £300 packet of toilet rolls can be fiscally responsible as long as you go to the cashpoint and draw out the money there. Taxing more does not make a government fiscally responsible - the only thing that makes a government fiscally responsible is spending less, by cutting out all the waste and non-necessities from its expenditure (don't forget, government spending is at a record high).

I hope now you can see that the enumeration is crystal clear. You as a worker can increase your income by working more or spending less, amounting to lower depletion of your assets. The government also cannot increase its taxation without a lower depletion of its assets.

 

Whatever they don’t tax is either spent or it is saved privately by the people that earned the money. If it is spent (freely) then there is a net economic gain because both buyer and seller partake in a mutually beneficial transaction. And if it is saved then it is available for banks to use (savings are basically us lending banks our money for a small return of interest), and it is still available for taxation when it exchanges hands next time. Similarly, if you don’t spend that £300 on those toilet rolls, then the money either stays in your bank gaining you interest, and being available for banks to invest, or it is spent on one of those mutually beneficial transactions to which I just alluded.

Unless the demonstrators get the basics right, they will be running full pelt down a dark tunnel with a brick wall at the end, into which they will smack their silly heads. Instead of congesting parliament square and making lots of waffling reverberations, they'd be better off reasoning things through properly, and then putting pressure on the government to cut much of its waste and inefficient spending. The trouble is, a lot of that waste and inefficient spending comes in the shape of things the left historically supports - so don't hold your breath there either.