Sunday, 16 June 2019

Corbyn & Blair Have Both Got It Wrong

This week Jeremy Corbyn and Tony Blair have been having a spat about which of them cares the most about inequality in accordance with Labour party values. They may not be confused at the same level (it's difficult for anyone to be more confused than Jeremy Corbyn about anything) - but watching their squabble unfold is a bit like watching a tarot card reader and an astrologer arguing about the best way to teach astronomy. Both Corbyn and Blair are so far from the truth that their litany of economic nonsense seamlessly blends together to a messy ideology that bears little resemblance to reality.

Here's the reality: in every way that's important to what humans desire in an economic system, the rich have got richer, but the poor have done best of all. As Matt Ridley reminds us in The Rational Optimist, the poor in the developing world grew their consumption twice as fast as the world as a whole between 1980 and 2000. Poverty has been reduced in the world more in the past 50 years than in the previous 500.

What the Blairites and Corbynites need to understand most pressingly about inequality is that it is only by the rich getting richer that the poor get richer (the past few thousand years ought to be demonstrable evidence of this). An in-country increase in inequality is one of the natural and wholly expected consequences of a growing economy - it almost always entails that income inequality widens, because the way a nation spends its money on voluntary transactions is not in a way that transfers income equally to all kinds of people - it is, by and large, a very naturally unequal and democratic merit-based distribution.

To see why, think of your monthly expenditure, once you've paid your tax. The chances are a great proportion of your monthly needs and enjoyment is going to go to businesses already more wealthy than you: a food bill to Sainsbury's, a television subscription bill to SKY TV, a music CD to Amazon (and the artist), a takeaway bill to KFC, a fuel bill to Shell, and so on. All of those voluntary transactions make people already wealthier than you even wealthier, because those goods and services are also being consumed by many others too. The providers are good at providing what people want and need, and because of this, the income distribution among the population is skewed in favour of a small percent of the population. There is no global conspiracy - just natural concentrations of earned income from market choices (for more on this, see this blog post). 

Further, it is because wealth is not a fixed pie that it should be easily seen how the rich get rich and the poor do as well. It is because of all the wealth creation that even the poorest people in the UK and USA are living lives that their forbears could only dream about. When Harold Macmillan uttered his famous phrase that the folk of 1957 had 'never had it so good' - he was speaking to people who were earning less then on full time wages than the average state welfare beneficiary now - particularly when you factor in other ways to be better off, like better standards of electricity, running water, bathrooms, kitchens, cars, entertainment, widespread communication, health care, hand held devices, and unprecedented access to knowledge that even the richest people in the world a few decades ago would have marvelled at.  

There are also other perfectly natural things that concentre income in richer circles purely due to people's freedoms in making choices - such as assortative mating, freer movement of people, and increased competition - all of these liberalising phenomena increase in-nation inequality. But there's more, because what this also does at the same time is reduce global inequality (as I explain more fully in this blog). Countries expand their economies, and in doing so global inequality falls. If you begin with the base error of unjust inequality, as Corbyn and Blair do, your whole narrative is set up to be wrong.

I'll leave you with this nice quote from Matt Ridley, that the Malthusian alarmists would also do well to heed:

"Since 1800, the population of the world has multiplied six times, yet average life expectancy has more than doubled and real income has risen more than nine times. Taking a shorter perspective, in 2005, compared with 1955, the average human being on Planet Earth earned nearly three times as much money (corrected for inflation), ate one-third more calories of food, buried one-third as many of her children and could expect to live one-third longer. She was less likely to die as a result of war, murder, childbirth, accidents, tornadoes, flooding, famine, whooping cough, tuberculosis, malaria, diphtheria, typhus, typhoid, measles, smallpox, curvy or polio. She was less likely, at any given age, to get cancer, heart disease or stroke. She was more likely to be literate and to have finished school. She was more likely to own a telephone, a flush toilet, a refrigerator and a bicycle. All this during a half-century when the world population has more than doubled, so that far from being rationed by population pressure, the goods and services available to the people of the world have expanded. It is by any standard, an astonishing human accomplishment."
Matt Ridley - The Rational Optimist

Monday, 10 June 2019

Placard Theory & How To Know When A Group Is Wrong

I have a theory about people who take to the streets to hold up placards. My theory is, it's not quite an ineluctable law of human behaviour, but if you're the sort of person who would write a statement on a placard and take to the streets with it to join a mass demonstration, there is a very high probability that you're quite a myopic person that isn't very good a seeing situations with a very balanced or broad perspective. I'm not 100% sure the theory is right - but it looks to be highly probable - like the chances of throwing six dice and it being highly probable that you'll throw a number between 10 and 30.

If you're the sort of person who can intelligently think things through, you've probably already thought up something better than holding up a placard, you're probably intelligent enough to realise that standing in the street holding up a placard is not going to do much good, and you've probably already gathered that you are almost certainly going to be surrounded by a mob of incompetence. Hence, the sort of person who would hold up a placard expressing outrage is likely to be someone who has been presumptuous in arriving at a limited and short-sighted conclusion, and sees the world through a very limited perspective.

Here is one of my favourite examples of this:

Given that most decisions, outcomes and ideas have many broad and complex tenets to their execution - this, I think, helps us draw a more generalised probability estimate that if you're the sort of person who would stand on the streets exhibiting *any* placard, you are likely to be the sort of person who is afflicted with the Dunning-Kruger effect: that is, you are so inept that your ineptness means you can't see just how inept you are.
Occasionally though, someone comes along and bucks the trend, like this guy:

Lastly, I have another observation too that's worth adding to this. A general rule of thumb I've noticed is that when ideological groups get together, a good way to predict whether they are wrong is by observing their method of operation. Groups that politicise their agenda, and get their arguments woefully wrong - young earth creationists, socialists, communists and climate change alarmists, to give four prime examples - don't really have any ideas of their own; they exist only like parasites that feed off the facts of things to which they are opposed.
Young earth creationists don't have a single factual claim of why anyone should believe the earth is only 6,000 years old - all they try to do is construct bogus arguments against established science in a way that sounds convincing to the pliable individuals too unapprised to see through the nonsense, but that everyone else knows to be ludicrous. Climate change alarmists spend their lives declaring war on everything linked to progress, but they have not the faintest suggestion of an alternative. Socialists walk around condemning capitalism, while enjoying everything that capitalism has enabled them to enjoy. They lament the rich while not realising that they are among the richest people who have ever lived. These people are the court jesters of our age.
So, whenever you encounter any group who are standing up for a cause that involves interpreting facts about the world - try to determine whether they claim to have any facts of their own - because if their whole agenda is based on a leech-like mentality that only sucks blood from their opponents, and has no factual blood of its own, then you can be pretty sure that they are wrong, and to be given a wide berth. 






Monday, 3 June 2019

We Have Progressive Tax, Why Not Progressive Sex & Progressive Exercise?

I'm going to offer a proposition that will startle you at first, but one which you'll probably then go on to see as intriguing. Imagine what the UK would be like if the government treated sex and exercise the same way it treats income tax.

In the UK we have a progressive tax system, which is a tax system whereby the tax rate of a working person increases as the taxable base amount (their salary) increases. So someone earning £100,000 per year will not just pay more than the average earner in absolute tax due to higher earning, relatively they will pay a bigger proportion of their income too.

I've argued before on this Blog that although we shouldn't assume the rich should automatically pay more tax, it is good for society (and that includes good for rich people) that they do, because rich households have a lot more of their income that is not spent on basic necessities, and thus have more to spare in a way that the poor do not.  

But if we consider what progressive taxation is - the rich doing favours for the poor by having more privileges with which to help - we get into knottier territories, because we can begin to ask why we don't go beyond financial favours into areas like sex and exercise. For the purposes of fun, bear with me for a moment, and imagine this; realising that money isn't the only way that the better off can help the worse off, the government decides to introduce two other kinds of 'progressive' measures to accompany progressive tax - progressive sex and progressive exercise.

The government's reasoning is that if it is intrinsically the right thing to do for those better off to give a helping hand through taxation to those born without the ability or background or circumstances (or all three) to climb up the ladder, they can make additional laws to help out further in areas of sex and exercise too.

The progressive sex law makes those really good looking people give a helping hand through sexual favours to those born without the looks or the confidence to acquire a sexual partner. And the progressive exercise law makes people with more energy go and do the shopping or mow the lawn for those unfit people in society.

You may say that such proposals would disincentivise unattractive people from sprucing up their appearance and trying to meet partners on merit, and that it would disincentivise people unfit people to get off their bums, get fit and mow their own lawn (and you'd be right), but that equally well applies to financial helping hands too - as welfare inspires many to opt for not-working and instead live a more modest life financially.

At this point in the article your mind is probably racing with thoughts as to why progressive sex based on looks and progressive exercise based on fitness are overwhelmingly less desirable than progressive tax based on income. You've probably already thought, as one example, that mandatory sexual favours would be detrimental to marriages and relationships in a way that mandatory income tax is not. You've also probably already thought that being legally compelled to do things with our bodies is an entirely different intrusion on our lives than being legally compelled to do things with the money we earn.
So feel free to relax a bit - although I was only having a bit of fun with the idea of progressive sex and progressive exercise, there is, in fact, a method for ascertaining your differing views on these things. If you consider why it is you support compulsory helping hands in the form of money but not all the other things, you'll find there is a good short-cutting maxim that makes things clearer - it's the philosopher John Rawls' famous veil of ignorance theory of justice, in which ideal moral and ethical systems are implemented through conditions under which "No one knows his place in society, his class position or social status; nor does he know his fortune in the distribution of natural assets and abilities, his intelligence and strength, and the like."
So if we pretend that prior to being born we could all partake in a committee meeting to decide upon the fairest and most just society, not knowing where we'd be in that society in terms of environment, background, and natural talents, we'd (try to) pick the most objectively good one, not the most subjectively good.
In other words, if we had the luxury of voting on a system before we were born, and we didn't know how well off we would be in the gene pool of talent and in the cultural pool of good and bad backgrounds (where good means high earning potential), we'd all vote for a system to be in place whereby those at the bottom are given a helping hand or a leg up by those at the top.
But although we'd probably vote for this in the context of income tax, we wouldn't vote for a system where good looking single people subsidise ugly single people through sexual favours - not least because it would provide an unhelpful incentive for good looking people to be in relationships to avoid this obligation (and as we all know, relationships that are pressure-based and not freely chosen because of love and compatibility are not good.

Perhaps if we'd all been fortunate enough to have a Rawlsian pre-birth committee to decide on the distribution of funds, talents and privileges we'd be able to reach a fair and equitable system. But one thing we'd have to bring to bear is the fact that for every benefit there is likely going to be a cost.

If you give some of my earnings to broke Jack and skint Stephen then their benefit is my cost; whereas if you force sexy Sadie to give sexual favours to ugly Pete and short-on-confidence Dave then you impose a nasty cost on society by creating an exchange of activities above the threshold of what the pre-birth committee would choose. That I think is the best argument we have for picking some kinds of helping hands and not others - some stay within the realms of social-desirability and some don't.

The upshot is that enforced sexual favours are abhorrent, but enforced redistribution of wealth would also be abhorrent were it not for the fact that society benefits overall from it. Don't get me wrong, there are lots of problems with the welfare system - not least the welfare trap and perverse incentives - but there are enough benefits to justify keeping it (even if people don't like it as much as they say they do). Although enforced redistribution of wealth is undesirable in the context of a mugging, burglary or bank robbery, it is desirable in some cases when it is formalised by governmental societal practices (even though politicians do often resemble the mafia.), especially as a safety net makes bold innovation less of a risk, and short-term unemployment welfare benefits gives us time to find a job that best matches our skills and talents to the new position.
Leaving aside the bit of fun we had with the progressive sex and progressive exercise propositions, I said a moment ago that if we pretend that prior to being born we could all partake in a committee meeting to decide upon the fairest and most just society, we'd try our hardest to pick the most objectively good one, not the most subjectively good. To see why, suppose just ten people are in this committee meeting.

Translating environment, background, and natural talents into earnings, you learn that one of you is going to take home £750,000 per year, and the other nine are going to take home under £15,000 per year, with two of that nine taking home absolutely nothing (for argument's sake, due to disability and a troubled background). The ten of you get to vote on two systems: system 1 leaves things as they are, and system 2 incorporates redistributive policies that taxes a chunk of the £750,000 and apportions it down the shallow end of the earnings pool. All ten of you are almost certain to vote for system 2, because while you have a 1 in 10 chance of being the high earner, you have a 9 in 10 chance of struggling by on under £15,000 per year, so no individual would be wise to vote for system 1.

Extend that to everyone in society, and regarding your own position you'll see why from behind a veil of ignorance it's rational to desire an objectively fair and just system to ensure those in the deep end of the earning pool help those in the shallow end. Given that if it were possible we would all sign up to be on that committee, there is a reasonable case for arguing that in the absence of such an opportunity the next best alternative is democratically appointing a government that enforces these systems.

Obviously everyone disagrees on what that optimal governmental system looks like, but apart from very extreme libertarians, most of us agree that the system of political representatives is pretty much the next best thing to a Rawls-esque veil of ignorance committee. Obviously a system built entirely on beneficence would be susceptible to misuse and disincentive for the worse off to help themselves up the ladder, but some kind of government controlled system could work well, even if it isn't this one.

What we have at present is a central government that tries (sometimes well, often poorly) to put a simulation of this in place on our behalf by redistributing money gathered from taxation. In a perfect world everyone who has plenty would help everyone who has little - at least to the extent of offering a helping hand related to hardships people suffer that are not of their own making. 

Perhaps the most coherent argument against excessive government intervention in the market economy is Hayek’s ‘local knowledge’ problem - which basically states that no state agent can possibly have sufficient knowledge of a complex aggregation of individual decisions in society, so there are bound to be negative consequences from interfering from on high. Markets are bottom-up, not top-down, and what’s called ‘spontaneous order’ occurs when individuals make their own decisions through local incentives, benefitting the whole as they do so. Politicians do not have the necessary information to make decisions better than the individual agents in the market, so they are bound to do a less good job than leaving it the agents in question. There are few better pieces of wisdom in economics than that one, and we ignore it at our peril.