An Interesting Piece On Landlocked Countries

One of the almost ineluctable laws of economics is that countries with higher trade costs are poorer because of those costs. One way to make your country poorer is to limit your international trade. Another way is to place tariffs on imports. Because open trade enriches a country, it is essential that every nation tries its best to maximise its trading opportunities in the global market. This means that geography plays a key role in a nation's ability to trade openly and cheaply. Quite naturally a landlocked country in Africa - particularly one surrounded by other countries with civil strife and instability - is not going to have the import/export possibilities of somewhere like England, Spain, Italy, France or Germany.

But the question is; to what extent does being a landlocked country appear to disadvantage a nation?  A very informative article on this in The Economist came to my attention recently, which seems to give some indication of the answer to that question:

"With a few exceptions the world’s 45 landlocked countries are poor. Of the 15 lowest-ranking countries in the Human Development Index, eight have no coastline. All of these are in Africa, which is a poor region. But even compared with similar sea-front countries those without coastlines have lagged behind. Their GDP per person is 40% lower than that of their maritime neighbours."

You can read the full article here - well worth a look.

The Biggest Nail In The Coffin Of Corbynomics

Last week you probably saw the article doing the rounds trying to claim that 35 economists nutters support Corbynonics, and other articles by economists vociferously disassociating themselves from all things connected with Corbynomics. Going through all the pros and cons of each policy would be very time-consuming - so I won't do that. Instead I'll tell you one simple, over-arching reason why, even if the intentions are noble, Corbynomics fails. It fails because it has fatally unrealistic expectations about what an economy actually is. Here's why.

There are two main reasons that an economy is impossible to command efficiently from on high. The first reason is that the entire nexus of economic activity is just too complex and too diverse for any politician to get a handle on. The second reason is that human beings, even when acting rationally, are still very difficult to map to a final theory of predictable behaviour. Without having full knowledge of the entirety of society and every detail, even a world in which every human acted rationally for the majority of the time would still leave us unable to arrive at a gland slam model on which to base any kind of sovereignty.

Humans are often selfish but they will also act selflessly, particularly when there are selfish gains, but also for sporadic acts of kindness at a cost to themselves. They often have strong moral convictions in one area of life (it is wrong to avoid taxes) but relax their moral convictions in other areas of life (like being willing to cheat on a partner). They will often behave one way when caught up in a group collective, but depart considerably from such behaviour at an individual or familial level. They will be quite prudent in spending money on things they need, but in times when status-mongering or social gain is in front of them they will spend quite recklessly. The upshot is, let humans loose in society and they become a mess of contradictions and opposites.

Society isn't a giant piece of clay that can be moulded exactly as a potter wants it to be - it is a multi-faceted network of activity in which millions of people, including business owners (who themselves have a family and staff to think about), have to make local decisions most conducive to their own survival and well-being.

Consequently, then, the kind of Corbynomics that looks to favour some citizens in the free market against the free choices of other citizens in the free market only usually occurs by harming the latter group - most of whom are individuals trying to make the decisions they can to secure the solvency of their business and the jobs of that business's employees.

Here's what I think the real problem is - one that leads to most people having a far more idealised idea of the free market than is actually the case - it is that few people understand quite how we got to the stage we're at in terms of global development, and the varying degrees of it. Think about some of the diversity of things you could buy if you went to London tomorrow for a day trip. You could buy a crucifix necklace, a funk CD, some candy floss, a can of coke, a place in an eat all you can Chinese buffet, polyester trousers, a pack of post-it notes, a bunch of roses, antique spoons, and so on.

Now think about it, why do those things exist on sale and not some other variants of them? Why a funk CD and not some other musical genre that never took off? Why candy floss and not some other sweet treat that no one has ever heard of? Why do we tend to buy a bunch of roses as a gift and not some daisies or blossom flowers? There are easy explanations for all those questions, but the point I'm making is that you can only see these outcomes retrospectively - you could not possibly plan all this in advance.

The socialist or (heaven forbid) communist plans were flawed not just because of their disregard for economic liberty, but because they failed and continue to fail to understand just how complex and unpredictable the market is - because the market is the aggregation of billions of exchanges every day. No over-arching economic system of control would ever have produced the rich diversity of goods, services and jobs we currently see, and that's not just because we cannot plan or predict what we are going to value, it is also because there is no rhyme or reason to how much of our economic activity has panned out. Who in 1850 could ever explain why we would go on to value party poppers, rock music, pierced tongues or candlestick ornaments instead of other alternatives that never made it onto the market?

And now you have to extend that to the entire market of goods, services, labour to see how ludicrous the idea of such idealistic top-down micromanagement actually is. Human beings simply don't have the apposite knowledge or necessary timescales to govern an economy in a detailed manner, because every human being only has the immediacy of the local perspectives from which to derive his evaluations. As my above explanation of the free market will have hopefully made clear, a model of the economy that gathered the requisite data to enable us to run it would need to be as big as the economy itself. That is, we'd need the economy to model the economy, and thus we can do no modelling.

The Thing That Might Prevent Developing Countries From Catching Up

If you're wondering quite why there is so much fuss made of China's present economic difficulty, it is primarily because China is an economy that 'greatly' impacts the rest of the world. Its own economy accounts for around 15% of the entire global GDP, but its growth constitutes over 25% of the whole world economy, with perhaps as much as 35-40% in the near future. Because of this, any slow down in Chinese growth or any currency plunge is going to put emerging economies under duress, particularly the ones most dependent on China's economy for industry and growth. What underpins this truth is something very interesting regarding what the future might be like for the rest of the world in terms of economic growth.

I've said before that the past 200 years has seen an exponentiation of progress unprecedented in human history. The planet has never had such advanced technology, such a high standard of living, such increased well-being, so few people in poverty, such quality healthcare, and so many people trading in a global economy. As more and more nations have less corruption, a more stable rule of law, freer societies and increased market opportunities, we are seeing more and more prosperity come their way, and we look further ahead to how more and more countries could well join them.

However, one must not assume that the future growth of the next few hundred years will resemble the past growth of the last 200. In spite of the progression-explosion we've seen for so many countries, it is still the case that there about two dozen or so dominant countries that have the lion's share of the market in terms of supply and production. That is what might slow down future economic growth.

You may not have considered this before, but if you're a typical person in one of the many developed countries in the world, you pretty much have all the day to day goods and services you need - everything from a place to live, transport, food, heating, clothes, gadgets, holidays, health care, education, entertainment, and access to pretty much all the non-luxury goods and services you need.

Someone on median income in the UK has a way of life for which most aristocrats of 300 years ago would have given up the majority of their wealth – most notably for things like the internet, the vastly superior technology, the health care and medicine capabilities, and the ability to travel anywhere in the world in under 24 hours. The truth is, apart from buying expensive luxuries for status, enjoying more leisure time, and consuming better versions of what the rest of us consume, the rich have a fairly similar quality of life to the average citizen in Europe.

By and large, then, the diminishing returns attached to the improvements we've seen in recent times indicate that the improvements in the future are going to be of a similar nature. In other words, there probably won't be scores of new consumer goods or services devised to supplement the lives we already have. The corollary of this is that if the leading two dozen or so countries can pretty well cater for the relatively small number of new products devised, and also augmentations to already existent products (technological tweaks here and there) it could mean that there is very limited potential for other nations to break into the leading group of countries already dominating the lion's share.

So the upshot is, given that the citizens of the world's most well off countries are well catered for in terms of goods and services, and that they can also provide for a high proportion of citizens of most developing countries, it may well be that developing countries struggle to attain their own progression-explosion due to the difficulty in joining the dominant countries.

However, there is a flip side to that coin. While it's good avoiding the basic mistakes of sloppy growth economists who just assume the future growth of the next few hundred years will resemble the past growth of the last 200, the contention I just offered has to come with some caution too, because the things we consume (goods and services) are not fixed - there are going to be plenty of innovations that change the way we can be supplied in a global market.

It's a bit like the fallacy I wrote about in this blog - the one that forewarns of robots bringing an end to half of today's jobs by 2025. It’s certainly true that augmentations in technology will mean an end to many roles currently undertaken by humans (one need only think of all the jobs we used to do that are now being done by machines). But that doesn’t necessarily mean what the doomsayers believe it will mean – because as history shows quite clearly, humans have the capacity, imagination and skill to do other things.

Imagine if you were having this conversation with a journalist at the beginning of the Industrial Revolution, and he told you how fearful he was that these new farming, printing and transportation machines would bring a gradual end to humans’ ability to work. You'd simply have to tell him that a lot changed after the Industrial Revolution, and that those changes saw more people on the planet than ever before, and more jobs than ever before. The key reason why there probably is nothing to worry about is that what constitutes ‘work’ (where work means earning a living) changes with growing societies and increasing technological advancements.

In the early 19th century you wouldn’t have been able to imagine how people could earn a living, say, making films or television programs, doing stand up comedy, providing complex domestic litigation, designing cars, driving taxis, flying planes, building speedboats, producing Kindles, playing football, working at a bowling alley, advertising on websites, fixing telephone lines or analysing DNA or quantum mechanics.

The same is true of this generation – the future ‘work’ that lies ahead is currently bound by technological limitations and unawareness of the activities that are currently not jobs but will be one day. As technology increases and those robots do things we used to do, we go on to do things we never used to do. In other words, we lose jobs thanks to technology (and make our lives a little easier in the process) and we create jobs thanks to ingenuity.

The same probably will apply to the global market, as (hopefully) developing countries get wealthier by having more involvement in the global market, and come up with ways to attract buyers' attention, just as it happened in the above cases.

All that said, the point about the two dozen or so dominant countries and the extent to which they dominate the lion's share of innovation at the expense of less developed nations looms large - and it is because those countries can more than easily cater for the future demand of consumable goods that developing countries may find it hard to achieve their own progression explosion any time soon.

On Fairness & Equality

What's the difference between a parsnip and fairness? Their differences are too numerous to mention, but here's just one: Everyone agrees what a parsnip is without necessarily agreeing that they like it, whereas everyone likes fairness without necessarily agreeing what it is.

When I was a boy and my parents had company I would often want to stay up late to join in the merriment. My parents, knowing better, would still send me to bed if I had school in the morning. I would cry foul that their decision wasn't 'fair'. When children grow up into adults they understand more clearly what fairness means, and that decisions made on our behalf for our benefit are not as unfair as they seem. Sadly, when adults become politicians they often forget many of the things they learned about fairness. What they actually do is oscillate between two different types of fairness - the Marxist type and the Aristotelian type.

Just about everyone knows the Marxist conception of fairness, based on the maxim "To each according to his need, from each according to his ability.", where people can justifiably be treated unequally to bring about a perceived 'fair' outcome. And most people know the Aristotelian conception of fairness, which is a principle of proportionality about the need to treat equals with full equality when required, but also unequals unequally when required too.

In life we sometimes treat people unequally in order to achieve a more equal (i.e. perceived fairer) outcome. Other times we treat people equally in order to achieve a perceived fairer outcome even if that outcome produces less equal outcomes. Call the first one A} and the second one B}. An example of A} is progressive income tax. Earners are not treated equally in the tax system but the intention is to equalise society slightly more than it is by having higher earners contributing proportionally more tax. An example of B} is sport. A referee applies the same rules to both football teams (equality) even though it's more likely that the better team will win (less equal outcome).

 

When it comes to sport we are all pretty much agreed. If Real Madrid played Norwich in the European Cup they probably would win. A fair referee would adopt the Aristotelian type of fairness and treat both teams equally in terms of the rules. An unfair referee might adopt a Marxist type fairness and make biased decisions in favour of Norwich to give them a better chance of winning* .But I think the majority of fair-minded people are glad that sport is conducted under the Aristotelian type of fairness and not the Marxist one.

 

But when it comes to income tax we are not all agreed. Some people take a more Marxist view of fairness and want high and low earners treated unequally to bring about a fairer society, whereas some people would prefer an 'all people equally' Aristotelian approach which confers a flat rate of tax on everyone. And it’s not just income tax – there are many others socio-political issues about which people regularly disagree regarding fairness: the minimum wage, positive discrimination, drug use, education, and so on.

The problem that underpins this situation in politics is that most leading politicians are slightly more hamstrung because they work on the basis of "That which is good for vote-winning is a good model for fairness" - which means they apply the Marxist type and the Aristotelian type of fairness for their convenience, often inconsistently.

It’s exasperating to keep hearing politicians saying they want a 'fair' welfare system or a 'fair' pension system or a 'fair' tax system, without giving even the slightest elaboration on what they mean by fair. 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.

 

They often mean equitable distributions when they talk of fairness - but 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.

They also often mean inequitable distributions when they talk of fairness - but an equitable distribution need not be unfair either. Take university education as an example. Cambridge and Oxford universities are the seat of academic excellence in the UK. The statistics show that only 10% of UK pupils are privately educated yet around 50% of Cambridge and Oxford graduates are privately educated. Politicians on the left continually bemoan this 'unfairness'. They are confused. A scholastic system is fair if results match ability, hard work and diligence. If Cambridge and Oxford are trying to attract the most academically gifted students in the country, and if 50% of the most academically gifted students in the country are in private schools, then Cambridge and Oxford's admission policy is completely fair.

 

Because of the ambiguity regarding fairness, politicians switch back and forth from A} an “equal to achieve an unequal outcome” meaning (like sport) and B} an “unequal to achieve an equal outcome” meaning (like progressive income tax), knowing they can get away with it because most people won’t notice. Sadly, there are plenty of instances of A} that should be a B}, and B} that should be an A}.

Here are some examples where politicians or the authorities adopt a Marxist conception of fairness when they should be adopting an Aristotelian concept, and vice-versa. The mansion tax, the minimum wage and positive discrimination are all examples where an Aristotelian conception of fairness would be better employed instead of the Marxist conception that is usually employed. People with mansions should be treated equally with regard to tax on their property but instead they are penalised unfairly. People in the labour market should have an opportunity to work commensurate with the value of their labour, but instead the imposition of a minimum wage unfairly precludes many low-skilled workers from employment. Positive discrimination laws artificially smooth the path for some by artificially disadvantaging others.

 

On the other hand there are examples where the Marxist conception of fairness would be better employed instead of the Aristotelian conception that is usually employed. Stop and search regulations are good cases in point. The authorities treat people far too equally here when instead they should be targeting people who have a greater probability of being the people actually committing the crimes.

Generally, this notion of equality has a lot to answer for, because humans are not equal. For a start there is the key differences between women and men, there is the difference between those who try hard and those who do not; there are differences in people's genetics, family background, upbringing, geography, natural talents, mental capacity, and so on. One also mustn't forget that nature is not very democratic at all. When it comes to health, looks, size, shape, talents, intelligence, sensory apparatus, opportunity and background - there is a notable difference in all of these human qualities in each of us, as nature pays no regard to democracy.

Not only do too many of our politicians hyper-inflate the notion of equality - they also pick and choose which conceptions of fairness they want to use in a way that best enhances their popularity and reputation. And that's not 'fair' on the general public at all.

 

 

* Sometimes in sport there is handicapping. In horse racing, handicaps are races which make more equal horses of varying levels of ability. The idea is that the better horses in the race carry more weight than the poorer horses, giving a more equal chance of slower horses winning, if they all run to the best of their ability. But handicapping aside I think the majority of fair-minded people are glad that sport is conducted under the Aristotelian type of fairness.

Ok, We're Having Fun; We're Going To Have Some More Fun - But Then This Nonsense Has To Stop

Jeremy Corbyn has hit the headlines yesterday after being accused of associating with a divisive, controversial figure whose views one ought to find repellent. But that’s enough about Diane Abbott. Let's talk about important stuff.  

A couple of weeks of Corbynomics has more than compounded the view that economically old Jezza is as daft as a brush full of Russell Brand's chest hairs. We've heard about his desire to reopen Britain’s coal mines; to renationalise energy companies, railways, and goodness knows what else; to end privatisation in the health sector; to scrap tuition fees; to introduce price caps; and to play Russian roulette with our international future by weakening our military and nuclear capabilities.

All this really means that he wants to take a lot more of our money through taxes and give some of it back to us in ways that are bound to make us less well off. To use an analogy, if Corbyn was managing a pizza parlour his economic policy would be to charge each customer for a 14 inch pizza, give them a 9 inch pizza, and tell them that they enjoyed a good deal on him. The analogy works equally well for his 'People’s Quantitative Easing' scheme as well - a scheme in which he wants the Bank of England mandated to invest our hiked up taxes in large scale socialist projects that would give us more of the things he thinks we need, while failing to realise that where the market isn't providing these things it is due to government interference hampering the process.

Regular readers of this blog will know precisely why renationalisation would be a horrid step backwards, why tuition fees are a good thing and should not be scrapped, why privatisation is the only thing that can save the health sector, why price caps are a terrible idea (you can read about all these things by searching on my topic sidebar to the right), and most of you already know why discontinuation of our nuclear potential makes the world less safe, not safer.

However, an awful lot of people do not understand these facts, so Corbyn will be able to run his polices by large swathes of the electorate and gather popularity in doing so.

What he really shouldn’t be able to get by anyone though, except perhaps the most dissonant out of work ex-coal miners, is even the entertaining of the idea that Britain should re-open coal mines - and nationalised ones at that. Surely such a prosperous idea can only be a vote-winning bribe designed to appeal to the most uninformed in our society - I mean, whoever is going to fall for that? Coal mines were shut down because coal could be bought cheaper from abroad. Cheaper coal is better than expensive coal for the one buying it, irrespective of the country from which it happens to come. Trade should have no national preferences, and generally coal mining in the UK is expensive compared to open cast mines in countries such as China, Russia, India, Australia, and Indonesia. It’s the old Adam Smith wisdom again - you can try to produce wine in Scotland, but much better to produce it in vineyards in sunnier countries like France and Italy.

That in a nutshell is what's wrong with Corbyn's idealistic idea of re-developing Britain's manufacturing industry - it's crazy talk, for exactly the same reason Adam Smith said - other countries are now much more efficient at manufacturing goods than us, as we have become primarily a services-based economy – and the future prosperity (as is demonstrably shown in London) involves playing to our service-industry strengths, not being stuck in the industries of the past.

The upshot is, while Blair had his WMD controversy, Corbyn has a PMD controversy – that’s Policies of Mass Destruction of our economy. Corbyn's economics is tantamount to buying votes with promises of bad policies paid for by taxpayers. It misses the key truth in all this - that supply and demand curves most efficiently balance at a particular price in the market (goods, services and labour) thanks to the freedom of the market itself, not politicians' involvement. That is, and always will be, the fact among facts that Corbyn and his supporters just won't grasp - because at heart they are, I’m sorry to say, uninformed idealists.

Utter, Utter Facebook Madness

Today I saw one of the daftest arguments I've heard in a long time – it was from a guy called Jaron Lanier – proffering the absurd idea that Facebook should be paying us for the data they gather from us, especially given that they make $3 billion a year in profits from our usage. This is bat dung crazy - and Jaron Lanier seems like he should be doing better - he is, after all, according to Wikipedia, an American computer philosophy writer, a computer scientist, and apparently in the TIME 100 list of most influential people.

Alas, his error is so basic that it's hard to believe it didn't come from someone with a much more consistent track record for buffoonery - someone like Owen Jones or Julie Bindel - people who are remarkable in their ability to get just about every issue wrong.

There are two obvious reasons why Lanier's proposal is of the utmost buffoonery; the first is that the data Facebook gathers is gathered precisely because people voluntarily want to share it on Facebook. If I make a comment on a philosophy forum, or share holiday snaps from Barcelona, I'm doing so because I value Facebook as a medium through which to share things in that way. Criticising Facebook for having the data that we share on Facebook 'because' of the facilities Facebook provides is as silly as complaining that the roads we use to drive on are bad for our car tyres. Yes, silly, but we drive on them 'because' we are willing to wear out our tyres enjoying the speed, convenience, socialising, and travel opportunities that roads provide.

The second reason should be even more blatantly obvious - it’s that Facebook does already kind of pay us for our time - it pays us in rewards, and those rewards are, of course, Facebook itself. In other words, we don’t need paying for our interactions with Facebook because the reason we spend time on Facebook is because we enjoy it, and because it brings value to our lives in the shape of everything we do on it.

Moreover, let’s just do the maths to see how those profits compare to the number of active users. We’ve seen that the annual profits are $3 billion, and a quick Google search reveals to me that there are currently around 1.5 billion Facebook users worldwide, which amounts to $2 per person per year. If we use a very conservative estimate and say that the average daily Facebooking time is 30 minutes per person, then that means that each of the 1.5 billion people is spending just over 182 hours per year on Facebook. $2 profit for every person’s 182 hours per year seems very reasonable to me – it amounts to less than 1.1 cent per hour.

China's Current Stasis Won't Stop It From Being The World's Biggest Economy

As I predicted nearly a year ago, China's economic growth has seen a significant slow down, despite growth in the early part of the year. The main reason for its growth slow down is that China's economy relies too heavily on exporting consumable goods. China leads the way on consumable goods largely because they can produce those goods cheaper than anyone else. One reason for this is that they have a work ethic that most can't compete with - and their recent success in the past few decades has seen them go from a poor country to a middle range country, and probably eventually the world's biggest economy.

But that journey looks to have hit a stasis, and the most popular reason, stated by the Financial Times here, is "sluggish demand in developed markets". True, the recent financial instabilities have brought about some demand-side lethargy in the global market, but that lethargy hasn't had any kind of negative effect on Europe's biggest financial capital cities, so why has it on China?

I'm going to suggest the reason why China has hit this stasis is as much to do with their own internal economics as it is any demand-side sluggishness. Despite being a huge economy in terms of exports, China is still a relatively small economic power when it comes to domestic demand. Lacking citizen stability in terms of welfare, pensions and health and social services provisions - at least compared to Europe's biggest economic powerhouses - it is more difficult to drive up domestic spending, which makes China's economy vulnerable to an over-reliance on exports.

Plus, let's not forget, old communist habits die hard, and while China is capitalist in its global; expanse, it is still communist with regard to the State involvement in interest rates and other areas of the banking sector, which, as usual, is the case of too much state and not enough market.

I predict China will go on to be the world's biggest economy - but it will only do so when it engenders a domestic economy that matches its exportation economy, when it has a service-based industry that is on a par with its consumable goods economy, and when it eventually looses its State thrall and realises that competition is big driver of prosperity.

Would You Pass My Xenophobia Test?

Civitas wants the government to introduce a ban on black people buying houses in London. Just kidding, they are not a racist charity. They are, however, a xenophobic one, because if you replace the words 'black people' with the word ‘foreigners' then the statement I wrote is the truth - Civitas wants to ban foreigners from buying homes in the UK (well, some foreigners, those that are outside the EU). 

I ended the last blog on London housing by mentioning that I know all those buyers who purchase properties in London as an investment but have no intention of living in them make many of you mad. The main reason they make you mad is because their purchases mean that there are thousands of London homes sitting empty, while at the same time there are thousands of people looking for housing in London. If Civitas reflects the views of a proportion of the demographic then statistically there are likely to be many people who agree with them that many of these sales should be banned.

Alas, this sort of feeling is dangerous - wanting the State to intervene to prohibit transactions just because they think the wrong kind of people are buying these properties. Their misunderstandings are plentiful, but I'll just focus on the two biggest ones.

Firstly, in a free market the people that buy property are not the 'wrong kind of people' - they are precisely the right kind of people because they are the people who valued that property more than anyone else (this is evidenced by the fact that they were the ones that bought the properties). You may argue that people who want to live in London but couldn't afford the properties, and people without homes at all, would value them more, but the knowledge that those properties are far out of their price range shows evidentially that those properties are not being bought at the expense of either of those groups of people. It's a tragedy that there are so many people who are homeless in the UK, but people buying expensive properties in London are not the cause of their plight, and nor are any actions that prohibit those purchases going to be the solution.

Secondly, and following on from the first point, even just a basic understanding of economics would inform people that Britain is actually better off when those properties are sold, irrespective of whether the buyer is an English person or a foreigner. To see why foreign buyers make Britain better off, and why banning them would be counterproductive (not to mention xenophobic), consider who benefits when an Englishmen (Jack) buys a house from a second Englishman (Tom). Suppose Jack buys a house from Tom for £300,000. Jack must value the house at more than £300,000 otherwise he would be unwilling to buy it, and Tom must value the money more otherwise he would be unwilling to sell it. Suppose the maximum Jack would pay is £310,000 - his consumer surplus (the difference between the most he'd pay and what he actually pays) is £10,000. Suppose that Tom would have sold his house for no less than £295,000, then his surplus is £5,000, which means the transaction generates a net societal surplus of £15,000

Now suppose that up steps Johnny foreigner, out-bidding Jack by £7,000, offering him £307,000. Jack gets no benefit from the sale of Tom's house to Johnny foreigner, but Tom's surplus has risen to £12,000, meaning that if Johnny's consumer surplus is the same as Jack's then society now has a net gain of £22,000, which is £7,000 more than when the transaction was between Jack and Tom (there are complex reasons why, in terms of a weighted average, we’d expect the consumer surplus to be roughly the same – but we won’t deviate into that now). Of course if you ban Johnny foreigner then Jack gains, but his gain is less than the loss incurred by Tom - plus on top of that you also have to count Johnny's lost consumer surplus.  

The desire to ban foreigners from buying homes in the UK (by which we really mean London) is perfectly coterminous with the definition of xenophobia you’d find in any dictionary – it is a desire to impose an unfair discriminatory procedure on a bunch of people solely on the grounds they do not share the same nationality as you.

The test for you, dear reader, not just on this, but in life in general, is to keep a check on how often in the free market you find yourselves favouring people who just happen to share your nationality – in terms of jobs, goods and services – over people who happen to be of a different nationality. For I hope I don’t need to remind you too often that the more globalised we become the more we should erode away these old misconceived notions of jobs, goods and services being available only to people who share your place of birth.

No Use Crying Over Spilt Milk Profits

I really do despair of some people - to be precise 46,899 people (the current number of signatories for this daft petition to introduce minimum milk prices to artificially support milk producers in our farming industry).

There are some things that are so mind-boggingly obvious that it truly beggars belief to see so many  people not getting it. There is a very good reason why the market prices milk at lower than what many UK farmers can charge - it is the same thing, nothing new - that there is an over-abundance of milk suppliers in the global market, which means a superfluity of production compared with number of consumers. 

That UK farmers are being priced out is a clear signal that some of them need to produce more of other goods, or perhaps even try their hand at something different. The very fact that someone in business needs subsidising is all the indication one needs that the business is not doing as well as competitors, and that's true of milk production, stationery, airline flights or clothes selling.

Minimum milk pricing is one of the craziest ideas you'll see; it helps British farmers and hurts just about everyone else, including consumers enjoying low prices. That there are currently 46,899 people oblivious to this most basic Econ 101 exercise is seriously worrying.

What You Need To Understand Most About London House Prices

Hardly a day goes by without hearing someone complaining about London house prices. I think London is a fantastic city - far and away the best in the UK. A lot of other people agree, and because of that they want to live there. Such demand means London house prices are high, but that's not bad for society. The negatives of high house prices for buyers are offset by the positives of high house prices for sellers. There is no net loss for society.

So how, then, do low prices benefit society? There's only one way - when they cause consumers to buy more of what they want. Consider a large Domino's pizza costing £12. If you buy a Domino's pizza for £12 you are signalling that you value it more than the £12, otherwise you'd buy something else. Suppose you value a £12 large Domino's pizza at £15, the £3 difference is what is known in economics as your consumer surplus. If Domino's makes £7 on the pizza (their producer surplus) then society has a net value gain of £10. That applies to anything – cinema tickets, washing machines, clothes, DVDs, and so on.

Now suppose the price of a Domino's pizza falls to £11 and Domino's producer surplus drops to £6. Nothing has changed in net terms because Domino's loss is the customer's gain. But something else does change. What then happens is that more people are willing to buy Domino's pizzas. All the people who were willing to pay £11.50 for a pizza didn't buy one when they were £12, but will now. All these extra purchases create more consumer surplus, which creates more societal value. Remember Domino's gains too because they sell more pizzas (the very reason businesses cut prices).

Why doesn’t the same thing happen with housing? The key difference between Domino's and housing is that Domino's don't have a fixed supply of pizzas - they can make as many as the demand necessitates. Housing supply increases are severely restricted by regulations, bureaucracy and influential lobbying groups, which means even a theoretical drop in property prices couldn't benefit consumers in the same way lower pizza prices could.

The other factor to consider is utility. When there was a petrol crisis in the UK some of the more unscrupulous garage owners put their petrol prices up to account for the increase in demand and decrease in supply. This is very ignoble - but increased prices when supply-side diminishes tells us one key bit of information - it tells us who most values the product. Suppose there's only one garage in a town, and the garage owner puts up his prices to £7 per litre during the shortage. By and large the people who buy the fuel are going to be the ones who most need it. People for whom driving in the next week is less of a necessity won't buy the over-priced fuel. Yes it's unfortunate for the average consumer but it does at least separate the must-haves from the rest of society.

London house prices involve the same logic - by and large the properties go to people who most value owning property in London*. People with alternatives to living in highly priced London will take those options, leaving in most cases the people in London who most value living there. Moreover, as demand to live in London drives up prices, much more prudent use is made of the limited space available. Not only do prices that rise with demand ensure the best allocation of residents to the fixed number of properties, it also ensures that the best use is made of the land.

The primary cause of London's housing problem is overly-stringent regulations that starve supply in an inelastic market (the inelasticity being the limited supply of land). London is the main place where the demand to live there is hugely greater than the supply-side availability, not least because the supply is limited to a 1500 km2 area, whereas the buyer-side demand comes from anywhere in the world, and not always from people who want to buy those properties to live in.

The real truth of the matter is that politicians artificially choke the supply of housing in places like London by restricting supply and driving up prices. In doing this they are only succeeding in restricting competition, which hurts the people they are pretending to try to help – particularly young people looking to get on the housing ladder. 

 

 

* I know all those buyers who purchase properties in London as an investment but have no intention of living in them make many of you mad, but you've no reason to be, as I'll talk about in my next blog post.

 

 

 

We Did *Not* Evolve From Apes

 

We *Are* Apes, Silly!

If you do happen to be a member of that anachronistic group that still hasn't learned this fact yet, I'll explain just one of the many ways we know. We used to have vitamin C synthesis genes, but as we switched our diet to include more fruit we no longer needed these genes to produce vitamin C. The energy spent producing the enzymes needed for vitamin C production could have been better spent doing something else, such as finding food or pursuing mates. So losing the complex vitamin C synthesis pathway resulted in a survival advantage once we had plenty of vitamin C in our diet.

Studying information enables us to compare different species and observe the exact DNA differences between them. Vitamin C is a vitamin because it is essential, but it is not produced naturally by our bodies. Many species still have the genes for producing vitamin C. We know the pieces of machinery that are involved in its biosynthesis, and we know which DNA sequence makes these pieces of machinery. When humans had their DNA sequenced, scientists found relics of vitamin C biosynthesis genes. A broken gene with no function; still mostly intact but riddled with a number of mutations. When the DNA sequences of other simian primates are sequenced, not only do we find the same broken gene, in exactly the same place, we find the same mutations too. This is just one of many excellent pieces of evidence that show that humans and other apes share the same common ancestry.

But the story goes deeper. There are other primates that still have vitamin C genes intact - such as tarsiers and members of the strepsirrhini sub-order. These primates eat mainly insects, and we higher order primates eat more fruit. Fruit is rich in vitamin C, insects are not. We know that the last common ancestor that we shared with insect eating primates was approximately forty million years ago, as ascertained by dating the fossils which connect us and them. It appears that around forty million years ago primates switched from a vitamin C poor diet to a vitamin C rich diet. As there was no longer any evolutionary pressure on the vitamin C producing gene, mutations accumulated because detriment of this gene no longer affected survival rates.

What biological studies show is that we share EXACTLY the same broken gene, in EXACTLY the same position, on EXACTLY the same chromosome, with EXACTLY the same mutations, in EXACTLY the same positions in the gene. This is even more remarkable when we consider how big the human genome actually is; we have more than six billion base pairs. This is precisely what we would expect from common ancestry. The fact that the genes correlate with feeding habits is both the icing on the cake and the cherry. Moreover, it isn't just this broken gene with which we see common ancestry. Genetic homologues are the same for almost every single gene in the human body. Of the 22,500 genes in the human body, every one that has ever been used in comparative genomic studies shows EXACTLY the pattern expected.

 

That's the rub folks - we may be very intelligent apes, with fecundity and awareness unlike any other primates - but we are apes nonetheless!

Beware The Corbyn Factor

In recent weeks Jeremy Corbyn has gained the kind of publicity of which a rock star would be proud. Just recently we saw a huge number of "Corbyn-For-Prime-Minister" supporters queuing hundreds of yards down the street to get to hear him speak, and it seems likely that the same thing will happen when he visits Norwich (my home city) tonight. With no small irony, the lengthy queuing these supporters are enduring will be something they'll have to get used to if, heaven forbid, Corbyn ever did become Prime Minister and impose his economically illiterate policies on our nation (of which, doubtlessly, more in future blogs) - because with him in power there will be queues outside the job centre like you've never seen before.

Corbyn is picking up advocates through his courage to speak frankly, through his willingness to stand up for his principles and go against the party leadership when he disagrees, and for his ability to offer something very different from the usual Westminster careerist public relations ministers to which we've become so accustomed. But it's foolish to think that offering something different is equivalent to offering something better. Riots are something different to the everyday peace of our streets, but they do not constitute an improvement on the proceedings. Faith schools that teach anti-science rubbish are something different to the standard school curriculum, but again they do not constitute an improvement.

The same is true of Corbyn - he may be offering something radically different, but only in the same way that a restaurant might offer their customers something different by serving food out of the bins in the area. Nice and likeable guy that Corbyn is, one just can't avoid pointing out that he is trying to administer poison to credulous citizens by pretending it is medicine and convincing them they are ill.

No Wonder We Disagree So Much

Here's an interesting neurological study in psychologist Dr. Jeremy Dean's excellent blog to which I'm subscribed, showing that although the brain is well equipped to be both empathetic and logical, it may find it difficult to manage both of those qualities simultaneously. Brain scans revealed that activation in the analytical neuronal network suppresses some of the empathetic neuronal network, and activation in the empathetic neuronal network suppresses some of the analytical neuronal network.

As you may know, I'm a firm believer (with good evidence as backup) that when it comes to objective facts there are no rational disagreements if truth-seeking is pursued with honesty and rigour, and that it is only because of flawed reasoning skills, misinformation, sensory faults, biases and incomplete knowledge that there is so much disagreement in the world.

In addition to that, according to Jeremy Dean's article it would seem that the brain's difficulty in being both simultaneously empathetic and logical is a further barrier to people agreeing on things more freely. If you're empathetic you are likely to be much more empathetic to people who already share your beliefs, which militates against your employing the necessary logical steps to see whatever weight is behind arguments from your opponents. And if you're logical you are likely to be short on empathy regarding your opponents' position.

Consequently, if all these things are stacked against us, it is little wonder that there is so much disagreement out there, and that when two people are having a debate, they are probably going to be hamstrung by being not empathetic enough or not logical enough.

Still, no need to be a Cassandra-esque purveyor of doom on this one; I believe that the brain can be trained to overcome this problem. Once we become aware that when we are being logical we may have to work that bit harder to be empathetic, and vice-versa, we should be able to surmount what is stacked against us and master an adept balance of logical output and careful empathetic considerations of the alternative propositions.

 

Career & Maternity: When The Irresistible Force Meets The Immovable Object

On Thursday in this Blog post I set about dispelling one or two myths about sex pay differences. It was a popular blog post, generating about seven times as many hits as an average blog post of mine, but it did come with a bit of heat as well as light, mainly to do with the issue regarding how prospective employers may sometimes discriminate against women in their thirties to avoid taking on someone who might soon become pregnant and need maternity leave.

I explained in a subsequent debate that while it is illogical for employers to discriminate due to sex, there are conditions under which they might be driven to discriminate due to maternity. A critic thought that inconsistent, but alas, there is no inconsistency - this only goes to show a misunderstanding of the important difference between sex discrimination and maternity discrimination. Fairly obviously it is not in the interests of an employer to discriminate based on things like sex skin colour, sexuality, and so forth, but it can be in their interests to discriminate when other factors, like maternity, come into it.

To give you an illustration that makes the point even clearer - an employer might not be discriminatory at all when it comes to young black men but he might choose not to employ a particular young black man because he happened to have four different children by four different women. The same is true in the case of women - an employer may not have any reason to be biased against women in general, but he may have a reason to be biased against women with a high probability of being pregnant soon.

The difference between the first case and the second is that in the case of the black man he could have changed the fact that he was irresponsible enough to father four kids by four different women, whereas a woman who soon wants to be a parent can't change the fact that biological evolution has conditioned that only women have babies.

So, the upshot is this; in life we have this issue to contend with - the immovable force of female biology coming up against the irresistible force of businesses needing to make decisions that are best for their firm's survival, and that in life this sometimes causes a conflict of interest. Despite this, one of the key basics of economics is that sometimes problems that look like they need solutions are in fact non-problems that just describe different people wanting different things or making different life decisions.

What I really want to get across here is that I'm always happy to hear people's views on problems in society, and I am open to hearing solutions - but a lot of the time people want to tell us problems and not attempt to offer solutions. Sometimes it's clear to me that they are non-problems, sometimes they are small problems with no realistic solutions, and sometimes there may well be solutions to make things better - but either way, my interest in these so-called problems dwindles if no one wants to talk about solutions.

Despite some impassioned reactions to my blog, anyone who thinks the maternity pay gap/discrimination situation is a problem that needs changing must at the very least tell us how they think things should be changed, and explain why it's practical - not just complain about the situation with no recourse to resolve it. It's no use saying things are wrong without first establishing that there are things that can be done that actually will help the situation without harming others, and also that there are actually realistic solutions to any problems identified.

The 'without harming others' point is so essential and so often missed - you cannot artificially put things in place to protect one group in the employment market without artificially hindering another group at the same time. For example, there is another group in particular that gets penalised when would-be mothers get artificially protected - that group is the women that don't want any children but may miss out through discrimination to account for all the women that do. As things stand if you're a 33 year old woman that doesn't want kids, you are highly unlikely to require a career break, which means there's no reason for you to be discriminated against. But your prospective employer won't know that, so he or she is likely to believe you have a high probability of being a mother, and may act accordingly.

What's the solution then? The truth is, I don't think there is one (except through some kind of binding contract - of which more in a moment), and I've not heard any single detractor suggest a solution, they've been too busy trying to convince me that there is a problem but offering nothing further.

Control is beyond your control

There are two main reasons that an economy is impossible to command efficiently from on high. The first reason is that the entire nexus of economic activity is just too complex and too diverse for any politician to get a handle on. The second reason is that human beings, even when acting rationally, are still very difficult to map to a final theory of predictable behaviour. Without having full knowledge of the entirety of society and every detail, even a world in which every human acted rationally for the majority of the time would still leave us unable to arrive at a gland slam model on which to base any kind of sovereignty.

Humans are often selfish but they will also act selflessly, particularly when there are selfish gains, but also for sporadic acts of kindness at a cost to themselves. They often have strong moral convictions in one area of life (it is wrong to avoid taxes) but relax their moral convictions in other areas of life (like being willing to cheat on a partner). They will often behave one way when caught up in a group collective, but depart considerably from such behaviour at an individual or familial level. They will be quite prudent in spending money on things they need, but in times when status-mongering or social gain is in front of them they will spend quite recklessly. The upshot is, let humans loose in society and they become a mess of contradictions and opposites.

One relatively small element of this complex society is each individual woman's life choices. Some women will choose an uninterrupted career over motherhood; some will choose motherhood over any kind of career; some will choose motherhood and an interrupted career; and even on top of well-intentioned plans some women will fall pregnant unexpectedly when they didn't plan to, whereas others will plan to fall pregnant and find it never happens.

Society isn't a giant piece of clay that can be moulded exactly as a potter wants it to be - it is a multi-faceted network of activity in which millions of people, including business owners (who themselves have a family and staff to think about), have to make local decisions most conducive to their own survival and well-being.

Consequently, then, legislation that seeks to protect some citizens in the free market against the free choices of other citizens in the free market only usually occurs by harming the latter group - most of whom are individuals trying to make the decisions they can to secure the solvency of their business and the jobs of that business's employees.

Although all I've said favours the contrary to what I'm now going to say, if you have got this far and you still are insisting that some kind of solution be put in place, then all I can say is, when you get a situation like this, where there is a clear distinction between maternity discrimination and sex discrimination, the most obvious solution is some kind of binding contract. After all, let's not forget, an agreement between an employer and an employee is already a binding contract, so if you really want to ensure the artificial protection of one group in society then a binding contract could be the only answer that can be entertained, short of becoming a nation that can arrest people for thought crimes.

The advantage of a contract is most conferred on all the women who don't want kids but who may be treated as they do, but it would also bring transparency to thousands of employment contacts that looked to protect women who didn't yet want kinds and employers who feared they might. If you think it's a problem that requires an interventionist solution (and personally I don't) then that might be your best solution.  And if it isn't you're perfectly welcome to comment below and suggest your own solution. But for goodness' sake, please do give up this habit of telling us all about the problems without first working out the following:

A) Whether they are actually problems or just facts about differences in life.

B) Whether, if they are actually problems, they are problems that can be solved without making the situation worse, or another group equally worse off.

C) What, if they are actually problems that can be solved without making the situation worse, or making another group equally worse off, you are proposing as a solution.

Then, and only then, does this become a proper debate that sheds light instead of heat.

The Truth About Pay Differences Between The Sexes - Things Aren't As They Are Made Out To Be

David Cameron wants to force companies with over 250 employees to disclose sexes pay gaps. He's doing this because he has swallowed the ubiquitous myth that women are systematically unfairly discriminated against in the workplace. 

The reality is, there isn't much of an unfair pay gap between sexes, despite common myths to the contrary - although there used to be, but for good reason. Britain has changed a lot in the past few decades, from a manufacturing-based economy to a service-based one. When physical labour was the driving force in the economy, male labour was valued higher, so it was easily understandable why there was a sexes pay gap.  

However, as service-based industry has emerged more prominently, coupled with increased technology that make domestic jobs less time-consuming, and women's lib, the wage gap has narrowed so much that it has equalised. In fact, if you measure just male and females in their 20s and 30s, females earn slightly more. Obviously this tails off in the late 30s and 40s as motherhood becomes the primary driving force in the re-introduction of a wage gap - but it's not to do with discrimination, it is to do with biology and life choices.

An easy way to tell the public that there is a discriminatory sex pay gap is to distort the picture by including the maternity/child-raising years in the overall figures. The pay gap over their careers factors in women leaving work to have children, and taking part-time jobs in motherhood. This skewed reality is a bit like a school publishing pupils' attendance records, including the summer holiday in their statistics, and then claiming pupils are spending lots of weeks not attending school. To get a fair statistic on school attendance you must obviously only include the weeks when pupils are due to be in school. Similarly, to get a proper reflection of sexes pay, you must focus on the comparison when both men and women are pursuing careers with both eyes on the job market. That's why, when this is done, the years between ages 22 to 39 show women earning slightly more than men. From the ONS report:

"Hourly earnings figures reveal that, in April 2014, women working for more than 30 hours a week were actually paid 1.1% more than men in the 22 to 29 age bracket and, for the first time were also paid more in the 30 to 39 age bracket. So women in full-time work aged between 22 and 39 are now, on average, earning 1.1% more than their male counterparts."

It certainly is the case that people's differences do contribute to different decisions having to be made in society that will affect their career and job prospects. But what we mustn't let people get away with is the idea that businesses systematically discriminate unfairly at will. Let me explain why that notion is wrong.

When Minister for Women and Equalities Nicky Morgan says "Businesses need to value diversity in their workforce and pay attention to the role of women in their organisations.” - she is being disingenuous in trying to claim to be on the side of women by painting a slightly false picture of the extent to which businesses do value both sexes equally. For fairly obvious reasons employers would not discriminate against women because it wouldn’t be in their interest to do so.

While there'll never be a completely fair market, nor a perfect solution to the dual desire of motherhood and optimal career pursuits, it's logical that businesses won't discriminate against women for the sake of it because if they do they will lower the pool of quality, and their profits too. Suppose there are two free schools - one set up by Jack and one by Jill - and 40 teachers for hire (20 women and 20 men). Jack is a misogynist and Jill isn't, so Jack discriminates against the women. Who is likely to have the better staff list of teachers? Clearly it's Jill. Jill looked to hire the best staff out of a male & female pool; Jack looked to hire more men, meaning he increased his chances of picking sex over quality. This plays out all through the market. A restaurant with a sign saying "No women" (pretend it's legal) would lose out on half the population's custom, and more once you factor in all the males that would go somewhere else because of it. Unfair discrimination is bad for business, and any half shrewd business person knows this, so would be a fool to discriminate.

There are other wage differentials to note, but they are driven by other factors, namely the differential in abilities and in preferences. Men and women are different in a number of ways - and it's no bad thing that those differences are reflected in market patterns. There are substantially fewer female bricklayers or garage mechanics than there are males, just as there are substantially fewer male nurses and primary school teachers than females. The reasons are primarily down to abilities and in preferences, not systematic discrimination.

The same is true of other work factors - risky work, manual work, driving work, outdoor work, long shifts and unsocial hours - it's not that there are no women in these roles, it is simply that males outnumber them, again due to abilities and preferences. Equally, if you focused on the skills and preferences for, say, social care, bookkeeping, personnel officers and child-care workers you'd see a similar pattern in the other direction, with women outnumbering men in those roles. Naturally, the labour value of all these jobs is dictated by all the above factors and more.

Moreover, generally you'll find two other key reasons why men earn more on average than women do. One is that women tend to be less competitive than men, because they do not have he same biological and socio-cultural needs to be as concerned about status as men do. The other reason is that men are, on average, more likely to put their skills towards more scalable earnings (inventing, engineering, technological advances, etc) - because men are much more geared towards working with things, whereas women are more likely to work with people (as ever, these are all on average, there are always many exceptions, of course).

The upshot is, yes, I grant you, evolution has made females prisoner of their biology in respect of child-bearing - but nevertheless having children does affect women's roles and pay, which is why, as women are having children later, there is no evidential pay gap between women and men in the first two decades of their working lives, but an evident one as women go into their forties, and often work less, or take on lower paid roles for parental flexibility.

Generally, discriminating harms discriminators too - and while some people are arguing that the sex make-up engenders discrimination, the reality is that sex make-up engenders outcomes that in most cases (most, but not all) aren't discriminatory at the root.

Don't Twist The Facts, Your Great-Great-Grandchildren Won't Be Impressed

In this blog I wrote about history and how best to manage it. In this blog post I just want to add something else important to it - something that probably isn't considered often at all. A good reason to be accurate on your views is the danger of how those views can be mapped in history. In other words, if we are sloppy in the present we run the danger of distorting future perceptions of history. Here's an example of what I mean. You'll hear some people say that Tony Blair is a war criminal and should be tried for war crimes for his involvement in Iraq. Now you may think the Iraq invasion unjust, that it was based on faulty intelligence, and that Blair is very culpable in the emergence of ISIS. But it absurdly distorts the picture to put Blair in the same 'war criminal' category as people like Adolf Hitler, Slobodan Milosevic and Saddam Hussein. Even the most entrenched anti-war propagandists don't really believe that Tony Blair has the same propensity for wickedness, oppression and cruelty as those men.

But a long time in the future, people's version of ancient history (our present) will be compressed to less detailed packets of information, just as ours is now when we speak of long and complex periods such as the Bronze Age, or Acadian times, or early Roman times, or the Dark Ages. Even though every generation records more information than past generations did, future humans will still have the same cognitive limitations when it comes to memory and attention span, so they will still oversimplify history, and they will still distort information in a way that their distant ancestors would see as being carelessly inaccurate. 

Suppose we fast forward to a time so far in the future that Blair's involvement in Iraq was seamlessly lumped in among other historical events involving crimes against humanity like Nazi Germany, the conflicts in Bosnia, Croatia and Kosovo, and Saddam Hussein's Iraq. A distant future citizen might inaccurately believe that Adolf Hitler, Slobodan Milosevic, Saddam Hussein and Tony Blair belong in the same category together, just as someone unapprised of Roman history might think that Augustus belonged in the same category as Tiberius, Caligula and Nero. Even the most impassioned anti-war propagandists don't really believe that Tony Blair resembles Adolf Hitler, Slobodan Milosevic and Saddam Hussein in his motivations, much less his actions, and this is why we must not be sloppy when laying down the historical foundations of information for our descendents.