Everything You Always Wanted To Know About Immigration (But Were Afraid To Ask)

You’ve probably heard of Schrodinger’s immigrant – the person who migrates to Britain to simultaneously steal your job and cause a drain on the economy by being a benefit claimant. Although in reality few people actually believe in the existence of Schrodinger’s immigrant (for obvious reasons), there is an awful lot of nonsense spoken about immigration. It’s quite easy to see why. Unless you think about immigration by considering the whole picture, your analysis will be partial, and skewed in an unhelpful way. Let me try to help.

First, are working immigrants a net gain on our society? It's tempting to say yes, as many people do, because, so the narrative goes, most immigrants work, and therefore bring gains to our economy. True, but that's not the best way to look at the net contribution question. Over a lifetime some UK citizens will pay more in tax than they get out of the system in terms of public services, and some will pay less. Long term welfare claimants tend be net beneficiaries, lower earners will tend to be a mixture, but most are not net beneficiaries, and higher earners will all tend to be net contributors. When you consider that the poorest 50% of the population pay only 5% of the total tax collected, it's clear that most people do not get much more out of the system than they put in.

Further, given that most immigrants tend to be among the poorest 50% of the population, then on those figures alone (stress 'alone') technically immigration may not constitute much of a net gain on our society, but it is a gain nonetheless. The graph below shows the fiscal impact of migration on countries in Europe – and as you can see, migrants in the UK are net contributors.

But that's only one corner of the picture, because we have to also factor in the people who gain most from immigration - the immigrants themselves. I think it’s a shame that whenever the subject of immigration comes up (recent Middle East crisis excepted) most people seem to primarily think of the matter in terms of how it affects ‘our country’ by which they usually seem to mean the people already here, by which they usually mean Brits. It’s rare that they think of the effects of immigration from the perspective of the individual immigrants themselves, not the immigrants already here. But, still, there are plenty of people around that are able to think beyond how immigration affects Brits to how it affects immigrants (of which more in a moment). 

What you hardly ever find, however, or at least find too infrequently, is a Brit thinking of the effects of immigration from the perspective of the people left in the immigrants’ country of origin. Given that in most cases when it comes to the poorest countries it is often the poorest people that cannot leave, how much of a negative impact does it have on them when they lose many of their brightest people with the most potential to countries already much more advanced and developed than them (this is what they call the ‘brain drain’)?  

It's quite easy to see why immigrants gain so much from immigration by seeing the situation in reverse - when investment is made in their countries. Developing countries don't have much material prosperity compared to wealthy countries like ours, but they do often have resources and labour to sell. Depending on the nature of their government and the internal civil set-up, what most people in developing nations have as their only genuine chance of working their way to prosperity is their opportunity to sell labour. Because those countries are usually rich in labour (and often in natural resources) but poor in capital they often only get the chance to increase their prosperity with outside investment from large corporations. 

That is why it is important to see that corporate investors are about as attractive to impoverished nations as impoverished nations are to corporate investors, as long as the nation is question has the requisite stability, basic human rights and rule of law to facilitate economic growth. So, far from being the capitalist bogeys that lefties love to excoriate, foreign investors are actually the main drivers of increased capital in developing countries, as well as, along the line, higher wages and increased human rights. In calling for less foreign investment by corporations lefties are also calling for fewer opportunities for many of their citizens by holding down their earning potential. 

The situation works in reverse regarding the subject of immigration, where instead of capital-rich investors coming into labour-rich countries, we have labour-rich immigrants coming into capital-rich countries like ours. Increased immigration to the UK increases the ratio of labour to capital. This would bring almost endless benefits both to the UK and to migrants themselves, but those benefits are reduced slightly by the fact that as our nation has a limited infrastructure (land, housing, schools and hospitals) immigrants also decrease some of the ratio of these things to labour and capital.

This usually would have a knock on effect of decreasing the marginal value of labour and increasing the marginal value of land, housing, schools and hospitals. Given that numerous government regulations impede the natural process of supply and demand curves being in equilibrium, it is obvious that the full benefits of immigration are not being enjoyed.

Take the most obvious example of those four - land, which is obviously also tied in with housing as houses are built on land. A country that has political and special interest group restriction on the supply of land being closely matched to demand naturally is a country in which the benefits of the relationship between labour-rich immigration and capital-rich employers are not being fully realised.

Immigrants aren't a threat to my job, but they might be a threat to some jobs. That's not an argument for reducing immigration, it is simply a point to understand how things work in a competitive market economy. Generally immigrants make the country better off, but more so for highly skilled people, and less so for low-skilled people who are competing for the same jobs. Skills are a resource just as a chocolate cheesecake is a resource. If chocolate cheesecakes are a scarce resource, I'll be paid well for a slice of it in my patisserie, and if skills are a scarce resource then people that have them will be paid well (assuming a demand for those skills).

In other words, if the nation is short of consultants and overflowing with factory labourers then wages for consultants will rise to attract more consultants and wages for factory labourers will be kept low. New people entering the labour market with assets that are in short supply are good for the market, whereas new people entering the labour market with assets in abundant supply are bad for it, but particularly bad for others with similar skills. That's why, in actual fact, the people who are worst affected by immigration in the UK are other immigrants already here, as well as indigenous people who are low-skilled or un-skilled.

For balance, the gains for immigrants have to be measured against the losses felt by their countries of provenance, because if the most skilled people from Africa, Europe and Asia are flocking to more prosperous countries, then our gain is their countries' loss. Given the intrinsic gains by those going to better themselves, all the inward investment in their countries of origin by entrepreneurs, and the benefit of experience they can offer their country by benefiting their own lives (called the 'reverse brain drain'), it's probable that the overall the economic gains outweigh the losses, particularly when you consider that according to the World Bank, migrants will send back well over $400 billion in remittances to developing countries this year, which is triple what the developed world gives in development aid and, because it goes straight to immigrants’ families, avoids some of the corruption problems that bedevil aid money.

Nigeria, Kenya, and Ethiopia are thought to be three of the countries worst affected an exodus of skills and intelligence through human capital flight, which has been very damaging to their nations. But on the other hand, China and India have recently topped the list of those nations experiencing the biggest exodus of human talent, yet not only are they two of the world's fastest growing economies, they are two of Africa's biggest investors too, so to the largest extent it probably plays out that when skills and intelligence leave a country to become more prosperous, some of that prosperity finds its way back into those nations still ripe for overseas investment.

Besides, even if we could enumerate all the cases in which the human capital flight has drained a developing country of important skills and talent, we really just have to take that as a given that humans are naturally primed to look after themselves and their family first, and that the drive to better their situation will always come first. It's not as though we'd ever want any restrictions on people's ability to move upwards on the economic ladder.

Returning to the economic benefits of working immigration to a place like the UK, on top of all the intrinsic benefits we've talked about, there is also the additional benefits immigrants bring in terms of job creation. As we’ve seen, in terms of the economy immigrants bring net benefits to the UK, but a lot of people don’t seem to understand why. This lack of understanding is down to something called ‘the lump of labour fallacy’, which is the mistaken belief that allowing immigrants in to work reduces the availability of work for native born workers. But, of course, this isn’t the case.

Not only do immigrants brings many skills not available in the indigenous workforce, not to mention a work ethic, they also bring with them additional job-creation and also consumer needs too, as well as a rich diversity of culture to enrich indigenous folk. In other words, when immigrants work they create jobs for other people, both in the people they employ directly, but also in the consumer demands they bring with their wants and needs (clothes, groceries, cuisine, mobile phone contacts, haircuts, books).

The lump of labour fallacy mistakenly asserts that jobs are zero sum, in that there is a fixed amount of work to be done and once the right quotient of people have those jobs there are no more to go round. But a simple look at the history of the UK would tell anyone that this isn’t so, so quite why they fall for it with the immigration issue is beyond me. If you think about it carefully, then by the same logic all school leavers who get work must be stealing jobs – but of course we know that isn’t true.  In reality, of course, the opposite happens – when school-leavers get jobs they make the economy larger and the nation more prosperous.

An even further benefit can be seen by looking at the chart below. 

This chart shows the projected UK government debt over the next fifty years under high, low and no net migration projections. Because Britons are getting older and living longer, immigration is probably going to carry on being a vital vehicle to generate the tax to pay for all those pensions and healthcare bills.

One final point and then I'm done. The economic analysis may well look at all those benefits for the UK – the jobs, the taxes, the consumer goods, the diversity and the cultural enrichment - but you may argue that what it doesn't do is factor in the negative effects on the home nation, namely the two biggies: increased security threat and increased friction with locals when integration is a problem. 

On the issue of increased security threat, well yes, immigration may ever so slightly increase threats, but by a similar measure going out in your car increases the risk of car accidents, but no one seriously thinks we should stop driving our cars (while we await driverless cars, that is). Even if we ignore the fact that a lot of the atrocities committed on British soil were not perpetrated by immigrants, it is difficult to claim increased security threat as a problem with immigration, because the government's inability to stop would-be terrorists coming in illegally and thwart the complex problem of home-grown Islamic terrorism is not really a point against the merits of working immigration and beneficial diversity. 

On the issue of friction with locals and lack of integration - yes that is a significant problem in parts of the UK, especially with the sheer volumes of immigration over a relatively short space of time. Pockets of Britain where immigrants do not integrate, and have values that are radically different from ours, are natural sources of tension and frustration in some communities, especially in areas with high unemployment, rapid immigration influxes, low levels of social integration, pressure on public services, and specific challenges linked to certain Islamic groups. It's also a problem that genuine concerns about the issues just mentioned are too often rubbished or written off as mere intolerance or xenophobia, which is sadly too typical of the left. 

Regarding what politicians could do to help the situation; a good start would be lessening some of the restrictive measures that affect planning and building. Britain has a lot more capacity for people, jobs, transport, education and increasing city sizes, but the recipe for its fruition needs to be better in place. Clearly open borders that allow any number in, is problematical, because there's the danger that immigration moves too fast for the more-slowly changing infrastructure. More market forces would improve the balance of supply and demand, but with anything on this scale there are trade offs.

As far as the majority of the general public is concerned, the narrative we have with immigration is the irresistible force of not curbing people's freedom of movement coming smack bang up against the immovable object of not overfilling the UK at the expense of all its infrastructure - and something has got to give. As my blog on big cities argues, places like London are wonderful social and economic metropolises, and there is plenty of scope for many more cities like London, as long as market forces and state governance can see this happening at the optimum rate. You may not know this, but cities currently only cover 2% of the entire planet's land.

Providing options are not retarded, people will still be able to choose the urban or rural settings commensurate with their preferences, even when the UK has hundreds of millions of people. Immigration is currently so high here because so many jobs are being created. What would help the rest of Europe (and us) would be if they enjoyed a similar success - but for that to happen there'd need to be a serous reduction in legislation and interferences in the market.

* In 2011 Michael Clemens looked at the economic estimates https://www.aeaweb.org/articles.php?doi=10.1257/jep.25.3.83 of the global GDP growth that would come if every country in the world abolished restrictions on the movement of goods, capital and labour across national borders. According to the papers Clemens looked at, removing all barriers to trade would increase global GDP by between 0.3% and 4.1%; removing all barriers to capital flows by between 0.1% and 1.7%. Those are big gains that would make the world a substantially richer place. Clemens also found that similar estimates suggest that removing all barriers to international migration would increase global GDP by between 67% and 147%.

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The EU Referendum: Remain or Leave? You Might Like To Ask The Question In Another Way

First a quick intro

While immeasurably worse off than modern times, generally speaking, one good thing in its favour was that in the late 19th century Europe was pretty much borderless, barring a few exceptions - it was a world of free trade, mass immigration, low taxation and hardly any regulation.

Then two world wars interrupted the free flowing migration of widespread trade, and as well as mass murder on an unprecedented scale, socialistic tyrannies were spread across lots of Europe via the Russian, German and Italian dictatorships. Consequently, many of the resultant post-war government interventionist policies that followed the world wars set precedents for the economically stultifying State meddling that we’ve become so used to in the past six decades. Once upon a time, the idea that Europe would need a bunch of unelected socialist bureaucrats for its nations to enjoy the free movement of people, goods, services and capital in a “single market” would have been ludicrous.

The EU officials and their misguided desire to create a single homogenous European identity through stuffy centralised regulation rather than allowing the heterogeneity of individual nations to construct a Europe with their own strengths is bad – not wholly, of course, there are obviously some benefits to inter-relation cohesion – but given that by far the most successful vehicle for progression is the trial and error mechanism of competition and co-operation, the EU monolith is a project that does an awful lot to retard and in many cases jeopardise human progression, particularly in developing countries.

So what is this big question then? I'm glad you asked: The question is: Would you vote for the current EU if you didn’t have it?

With the above intro in mind I think the most helpful way to ask about Europe is not to think of us as currently in and deciding on whether to get out, but actually imagine there was no such thing as the EU in its current form and ask ourselves whether we would vote for such a thing if we had the chance. I think when the question is framed that way, there would be far more people in the UK saying ‘no’ to this EU proposition than ‘yes’, which rather suggests that if they applied their feeling of the proposition in prospect to the actual EU referendum question in retrospect the ‘leave’ contingent should be a lot more numerous than the ‘remain’ contingent.

Don’t get me wrong, I’m not wholly anti the EU – there are some good elements to it (which I mentioned in this Blog post), but the reason I’m voting to leave is because so much of the EU is inimical to free trade, as its unelected busybodies get about as much wrong with their analysis of markets as is possible to get wrong. When two countries, even slightly politically hostile countries, agree to trade, they sign up for a deal in which both have self-interest. Economic trade deals do not need to bear relation to political differences, they are largely transcendent of political borders. The idea of a single marketplace into which you have to pay to gain access to the benefits of trade with a fellow self-interested trader is quite bizarre, particularly when large chunks of the money actually goes towards paying for the bureaucratic centralised structure that we’d be better off without.

So although it is not without its positive elements, broadly I think if offered the chance to vote for it coming into existence, most people of today would not vote for a single currency (the euro) that’s so often inimical to successful free trade, nor for the imposition of a political monolith that tries to homogenise different and diverse countries within Europe as well as imposing stultifying restrictions on their economic well-being (both cases assume, of course, that the individual voting actually does understand these issues competently).

And then there are tariffs

The other big question just about everyone seems to be failing to mention is the one about import tariffs. For sure you’ll hear lots about to what extent we’ll be subject to tariffs if we leave, how many different ones, and what rates the tariffs will be, but I’ve heard no one actually stop and ask “Why the heck do we even entertain tariffs of this kind when it is so obvious (or should be) that tariffs harm both the importer and the exporter?" To me it beggars belief that their ubiquity is so lazily accepted without more pressure for a huge set of culture changes. Let me explain with a simple illustration how it is that import tariffs make both countries worse off.

Some people wish to trade pounds for dollars, or pounds for euros, or euros for yuan and so on. Let's simplify it and say x is one type of currency and y is another. If more x are supplied than demanded, the price falls; if fewer, the opposite. When supply equals demand, the price is at equilibrium, just as it is with bananas, blouses and laptops. To understand this in relation to pounds, dollars or euros you first have to understand why people want to trade currencies. Forget for a moment the incentive to invest in other countries (in land, shares, debt, and so on), and pretend that the only reason to buy British pounds or euros is to buy their goods.

For simplicity, suppose that with the present exchange rate most goods are cheaper in China than in Britain. In other words, Britain is uncompetitive compared to China. Many Brits want to trade pounds for Chinese yuan in order to buy Chinese goods, but not many Chinese want to sell yuan for pounds as very little in Britain is worth buying. Consequently the demand for yuan is greater than its supply, so the price of the yuan goes up. Yuan are now traded for more pounds than before, and pounds for fewer yuan.

The result? The fewer yuan you get for the pound, the more expensive Chinese goods are to the Brits, since Brits have pounds and Chinese goods are priced in yuan. The more pounds you get for the yuan, the less expensive british goods are to the Chinese. The exchange rate adjusts dynamically until pounds offered by Britain equals the quantity the Chinese wish to buy - or in other words, until the prices are on average the same in both countries. This means that by and large Brits export goods in which we have the comparative advantage, and import goods in which China has the comparative advantage - all of which is measured by production costs being low compared to the country with which we trade.

From all of the foregoing, it ought to be obvious that import tariffs make imported goods more expensive for the nation imposing the tariffs (something Donald Trump can't seem to grasp at the moment with his election rhetoric), which affects the goods we buy and the demand for the currency. A British import tariff against Chinese imports would mean the price of the yuan measured in pounds falls, making British goods more expensive to the Chinese, which reduces demand for things priced in yuan and reduces demand for yuan, making UK consumers worse off.

Obviously the reason the Chinese want pounds or dollars is not just to buy our goods, it is to invest; in shares, land, businesses, and government bonds, all of which require our currency. Therefore demand for pounds on the currency market consists in part of demand by the Chinese who want pounds or dollars to buy goods, and in part to invest.

Tariffs do have a bearing on our decision because the EU rather closely resembles a protectionist trade bloc, where a tariff wall has been erected around EU member states which raises the prices of protected goods, making it worse for both buyers and sellers. The economist Patrick Minford suggests consumers waste around 4% of GDP on excessive costs because of EU protectionism, because the EU marketplace has prices fixed significantly above world market prices, and because of this, it distorts the flow of our economy towards these EU-protected goods and away from better value in the marketplace outside the EU.

The consequences of which, as I illustrated above, means inside the EU bloc we produce more of the goods and services over which we do not have the comparative advantage, and fewer goods and services over which we do. Or to put it in even simpler terms, we produce an excessive amount of the things we are less good at producing, and insufficient amount of the things we are better at producing.

There is nothing unique about competition that comes from non-EU producers that necessitates politicians to treat it differently from competition that comes from EU producers or producers in one's own country. As long as suppliers adhere to the requisite standards (standards that can be enforced in their own country pre-export) then there is absolutely no need for any cross-border penalties (tariffs) from politicians.

What about a post-Brexit UK?

Although I’ve given several reasons why I think we should vote to leave the EU, some may feel that I haven’t answered sufficiently the question that everyone seems to be asking: what precisely will a post-Brexit United Kingdom will look like? The reason I’ve not gone into lengthy prose on this is that, truthfully, no one actually knows for sure – quite simply because we don’t know what our government’s policies are going to be if we do exit, nor whether the UK will begin the process of breaking up, particularly with Scotland being so pro-EU, and Wales starting to show more support for remaining in too.

We don’t know what the effects of Brexit will be because we don’t know who’ll be governing the UK if we leave, what economic policies they will adopt, to what extent we’ll remain under certain regulations, what policies will accompany any unilateral free trade we have, or whether immigration levels will drop to the detriment of our economy. Because the truth is, even if we leave there are still a lot of unknowns.

To compound this point, consider leaving the EU and being governed by someone like Jeremy Corbyn - someone even more economically illiterate than many of the EU regulators. Corbyn is a man who wants to renationalise most of our industry, impose further price controls, artificially subsidise our manufacturing industry and bail out any UK industries that lose out to foreign competition. If you are the sort of person that cares about economic growth then Corbyn is a very dangerous leader to contemplate having.

While this doesn't in any way endorse the overall structure of the EU, one tiny thing in its favour is that some of the EU regulations would keep the wolf of Corbyn's Anglo-centric economics quite far from the door, as EU competition law prevents member countries from granting the kind of Corbyn-esque special treatment like subsidising, bailing out ornationalising domestic firms over competitors from elsewhere in Europe (much of this is thanks to Margaret Thatcher and Leon Brittan in the 1980s, both of whom knew the dangers of this).

For me, despite some obvious interruptions to normalcy as we gradually extricate ourselves from much of the EU influence on our laws, regulations and trade, the post Brexit UK probably will go on to be in an even more prosperous nation, and this in spite of the fact that seemingly any party that runs our country is a country mile away from a proper endorsement of the free market (one might say they are all socialists).

It’s worth mentioning too that growth of non-EU economies has outpaced the growth of EU economies in recent years, and looks set to continue at an even greater extent, which means future indication is that leaving the EU would free up Britain's non-EU trade potential, enriching us along the way (since we've had a floating exchange rate the balance of trade is less important than it used to be, as a trade deficit simply means we are up on consumption, which is the primary benefit of trade). A situation in which we treat the most emerging countries like China, Brazil, India and Russia less distantly and patronisingly in deference to Brussels is highly likely to be beneficial to the future UK economy, particularly with our proficiency in exporting services such as in education, digital technology, neuroscience, financial and litigation expertise and the sciences as we are well poised to do.  

How do trade deficits fit into the equation?

Well currently the UK goods trade deficit with the EU is over £77 billion, last I heard, plus we have a service trade surplus of over £15 billion, which means an awful lot of trade to and from, which obviously all agents involved will want to retain, irrespective of whether we leave the EU or not. In other words, by themselves, the arguments that leaving the EU will be terrible for trade are almost certainly spurious.

The other thing you need to realise is that a trade deficit is a good thing, because it means we are consuming more than we are exporting. A lot of people think the net benefit is when the opposite occurs, but they have misunderstood the purpose of trade which is ultimately consumption. I'll explain it with an analogy about my life. I live in Norwich, and I like our market. I like it particularly for the food I often buy there when I visit the city centre. Given that I don't work on the market, but do spend money there, I have what's called a trade deficit with the market. A trade deficit is the amount you spend in a particular place minus the amount you earn there (a trade surplus is just the opposite).

In recent times many Brits have argued that we are worse off because of a trade deficit with China. But by that same logic I would be better off without Norwich market. When people are able to trade to acquire things they want, value is created in their lives, and it makes them better off. Whenever trade increases between James Knight and the Norwich market stalls both James Knight and the market stalls are better off. Similarly, whenever two countries are able to trade to acquire things they want, value is created for its citizens (note, I'm talking about open, mutually beneficial trade).

That's also why trade deficits are not the bogey so many on the left imagine. Recently I bought £750 worth of shirts for £330 in a sale. I earned nothing that Saturday so my trade deficit for that day was £330. By the logic some of the 'Remain' campaign use they would have to tell you that I had a bad day - but, in fact, I had a great day - I bought shirts that I value much more than the money, and the clothes store had a good day because it made a profit on the merchandise (albeit a limited one, it was a sale - but still a profit nonetheless).

Nations consist of millions of people all doing as I am doing. They work to earn money and they buy when they value the goods or services more than the money (the exact opposite is true for sellers). Hopefully you can see now, if you couldn't before, that there is no reason why coming out of the EU should have a negative effect on our trading or our economy, providing the British government's post-Brexit polices are favourable to its citizens. 

To compound the point, here's an exercise for you. Think about all the transactions you've ever undertaken in your life, and then consider whether any of them had the remotest positive bearing to whether we were in the EU or not. I'll bet, like me, you'll find it is virtually none of them. In reality, the reverse is true: when you consider the huge expense, subsidies, trading tariffs and countless regulations that hamper the process of free trade - not to mention the hugely excessive bureaucracy these things create - you'll find the balance sheet has an almost uncountable negative bearing on our transactions.

Note: I haven't mentioned immigration, but will do so in an imminent blog post.

EDIT TO ADD: Personally I suspect that even if we do leave the EU, the Brexiters won't exactly have many reasons to do cartwheels. If the politics of the present day socialist Tory and Labour parties are anything to go by, the post-Brexit UK government will probably actively mirror most of the annoying interferences that are currently present in the EU from which they are filing for divorce.

* To give you a microcosmic example of the cost of overly-bureaucratic political interference by looking just at America, Dan Mitchell of International Liberty (who is about as well researched as anyone on these matters) shows how Americans spend 8.8 billion hours every year filling out government forms, how the economy-wide cost of regulation is now $1.75 trillion, and how for every bureaucrat at a regulatory agency, 100 jobs are destroyed in the economy’s productive sector.

  

On Zoos, The Gorilla, The Death & The Reaction

I'm soon expecting to see the first of many memes expressing the following:

"Every day hundreds of people are dying in x conflict or under y oppression or of z disease and it goes largely ignored, but one gorilla is killed in a zoo and everyone can't stop talking about it and posting photos and comments".

What's been interesting for me about human nature and the reaction is that I'll bet the totality of sadness and regret for the gorilla dying is much greater than it would have been if the boy had fallen over the edge, hit his head and died.

There's probably a threefold reason for this, and possibly not wholly irrational either, roughly along the lines of:

1) There are far more humans than gorillas in the world, so proportional to the size of the species, one less gorilla is (sub)consciously seen as more regrettable than one less human, particularly as there is much talk about whether they could have intervened in a non-fatal way.

2) The cost of this gorilla's life is rightly seen as so easily avoidable, so there is some form of sublimation whereby underlying resentment is (un)consciously directed towards the parents for not keeping a better eye on their child.

3) There are all sorts of multifaceted emotional responses to the death of the gorilla (the photo itself is enough to elicit sadness) which extend to associative thoughts of keeping animals from their natural habitat, the effect the human species has on other animal species, and that there is a taint to the human condition - a kind of fallenness - that other primates do not possess.

Three points on the above. Firstly, as tempting as I'm sure many might find it, I wouldn't wish to see too much opprobrium directed at the parents. While we can all say with hindsight that they could have kept a better eye on the boy, I'm sure every parent will tell you that realistically it's terribly hard to keep your children in the safest proximity to a parent at all times. Even within the vicinity of their parents, children wander, they explore, and 99.9% of the time nothing serious happens. This has been a case with a tragic outcome - but I think if too much condemnation is directed at the parents there will be an awful lot of hypocrisy reflected back at those that condemn (specks and planks in eyes spring to mind).

Secondly, it's understandable why more is made of this incident than of the continual conflicts, oppressions and diseases that blight humanity every day - shooting a gorilla in a zoo is a lot more unusual to the casual observer than the regular torrent of tragedy and adversity one rather expects to see on the news every day.

Thirdly, putting aside all moral views and knowledge of hindsight for a moment - there is one thing I feel certain about: in the heat of the moment, if it were your child down there with the gorilla you'd have very little thought for the well-being of the gorilla, whether it's an endangered species, and so on, you would be terrified out of your mind at the thought of losing your child and be screaming at the response team to shoot the gorilla.

Are zoos good things?

In the wake of the death of Harambe the gorilla, and all talk of whether the fences should have been better, and whether all the decisions were the correct ones, some people have been declaring that zoos are bad things and should be discontinued. Immediately after an event is the worst time to assess a proposition like that, as people tend to be reactionary and not weigh up all the pros and cons (which in most cases are the same before or after events like this) - but I have a couple of thoughts on the matter.

When considering whether zoos are a good thing, what I mean is, do the net positives outweigh the net negatives (including for humans as well as animals)? In most cases, pet ownership seems to me to be a good thing for both the animal and the owners because the pleasures of having a dog or cat or horse at your property far outweigh the costs (food, injections, the looking after time, etc).

Zoos, on the other hand, confer significantly more costs and benefits on animals. The benefits are regular food, low risk of predation or injury from other creatures, and safety from poaching and hunting. The costs are lack of freedom in their natural habitat, and having to put up with lots of people with ice creams looking at them all day, and on the odd occasion getting shot by zookeepers.

From a layman's perspective, my instinct is that the benefits outweigh the costs for the animals, but it's hard to be sure, particularly as one can't know the mind of another creature. Maybe whales and primates in captivity suffer psychologically less than, say, meerkats or iguanas - it is difficult to know.

One of the benefits of zoos is that they offer educational programs for the children, youth and family - but in today's modern age learning potential via videos and the internet is so huge that that might be less of a factor nowadays. Another benefit, and this all depends on the country, but some zoos can help preserve genetic diversity. A third benefit is that folks who see and interact with animals are more likely to support the survival of the species. Thus, whether zoos benefit individual animals or not, they may well benefit the survival of the species and biodiversity.

As everything is a trade off, one can argue that zoos are good things overall because they can serve as important reservoirs/stockpiles of rare and endangered animals and precious genetic variation until habitats can be restored. But one can also argue that zoos are an overall problem because those benefits do not make up for the negatives associated with keeping animals in possibly sub-optimal conditions. 

All that said, once we start to look at some figures, though, we get a better idea of how much value zoos provide. According to a quick Google search, there are over 10,000 zoos in the world, gaining over 600 million vistors per year, and with figures like that it's clearly an industry that's created hundreds of thousands of jobs. Consequently, once you add to that all the scientific research, the animals that are saved from extinction through the breeding of endangered species, and all the public education distilled from their existence, I think it's fairly easy to argue with confidence that for humans zoos are a net benefit to the world. As for whether that constitutes a net gain for humans and animals combined, my gut instinct is that it does - but I'll leave you to make up your own minds on that one. 

* This surely doesn't need saying but obviously I am always talking about zoos that treat animals well and with care. Unquestionably any zoo or circus that fails to do this is disgraceful and should have their licence taken away and never work with animals again.

Bad Ideas Lead To Wrong Conclusions

A new EU law has just come into effect telling tobacco companies they must sell cigarettes with restricted branding as well as containing images highlighting the damaging effects of smoking. Alas, we're getting rather used to these laws, but some people seem to be getting used to them a bit too keenly.

Discussing this issue earlier today on the radio, The Guardian's Zoe Williams made the obvious point that the more undesirable things we make illegal the better society will be. Like many observations of this kind, though, it may be obvious but it's also bonkers. It's one thing to not mind a law on cigarette packaging that tries to reduce the number of smokers - let's face it, it's not the worst law of the land. But it's quite another to say that the more undesirable things we make illegal the better society will be - which is, alas, a sentiment shared by many EU officials.

It's a slippery slope, because crime, like most things, involves a trade-off where if you get more of one thing you get less of other things. Deterrence and punishment are good things, but they don't come for free, therefore it is possible to have them in excess. Crime would be a lot lower if every road in the UK had its own designated police squad, but no one thinks that's a price worth paying.

If you make something illegal you automatically impose a cost on society - and that cost is borne by everyone involved in deterrence and prevention, but also in a small part by victims of other crimes too (the additional resources used preventing or punishing some crimes come at the cost of preventing or stopping other crimes).

Naturally the cost of catching criminals increases when there are lots of offenders, so when you decide to make something illegal you will find that if it is common it is going to be costly. Therefore calling something a crime means it ought to be efficient in terms of prevention and punishment. A crime that produces a net cost to society of £3 per person is not worth preventing if it costs £7 per person to enforce it.

A long standing debate has been about drug-legalisation. Increased enforcement of drug crimes raises the cost of taking drugs, but also the cost of dealing with drug users. It also raises the street price of drugs too, because if buying and selling drugs is a crime it increases the risk for both parties. Because drug demand is usually inelastic there will be increased crime for the purposes of buying drugs too.

Given that both drug sellers and drug buyers do not have the option of calling the police when deals go bad or when there is violence or theft associated with the transactions (drug gangs defending turf, extorting money from weak buyers, etc), there is naturally a lot of extra crime associated with drugs that wouldn't be there if it were legal, which increases drug prices too. And if there is inelasticity of demand then those increased prices won't decrease demand all that much.

Whichever way you cut the cloth, it just isn't the case that the more undesirable things we make illegal the better society will be. As I explained in this Blog post, some of the things people trivialise as simply 'undesirable' are things that millions of people can quite easily enjoy in moderation, whereas as we've seen above (plus with countless other examples I could give) many laws are just too costly to enforce and administer, and many are too oppressive to our liberties to contemplate.

 

Look Who's Gaining Most From Globalisation & Why Things Are Getting Cheaper

We often hear about how much richer the top 1% are getting, and we also often hear about how many people in the lower quintiles in the UK and USA are feeling the pinch a bit. I thought some here might be interested in the latest article from Branko Milanovic (see bottom of page), which gives some nice data and illustrations about some of the things I'm always banging on about in my blogs. Namely...

1) In-country inequality in rich countries like ours has a lot to do with poorer people in less well off countries seeing increases in their real income.

2) The rich are not getting richer at the poor's expense - they are getting richer along with the poor getting richer. The poor's gains are actually greater than those of the rich, as the poor grew their rates of consumption twice as fast as the world as a whole in the past 35 years.

3) As the real income gains in percentage chart I linked below shows, even those feeling the pinch the most - that's Western lower middle classes - have seen real income gains in the past 25 years, and let's not forget they also continue to be in the top 20% of the world's wealthiest people.

4) It is primarily the globalisation of free trade that has caused these worldwide gains.

And that's not the end of it. Have you noticed how much prices have fallen in so many of the goods and services we buy these days? A whole range of things: food, drink, books, movies, music, clothes, computers, cameras, mobile phones, software, fuel, airfares, solar energy, furniture, and most household electrical goods (televisions, fridges, freezers, microwaves, washing machines, cookers, etc) have all become cheaper in recent times, and it is primarily because of more globalised free trade.

The more trade expands, the more competition there is, which means things get made more efficiently, which means humans get better at making things, which means humans feel the benefits in lower prices.

The network of the free market is rather like other networks that benefit from increased connectivity - phone networks, railway networks, social media networks - the more connections added to the nexus the greater (exponentially) its utility.

Think of Facebook as a good illustration (which is very possibly where you were notified of this Blog post in the first place). When you set up your Facebook profile, you gain local connections (real life friends), and if you're like me, broader connections too (friends from all over the world, gained usually through common interests or group connection).

Now the thing is, you don't just benefit from your connections, you benefit from your connections' connections too, and their connections, and so on - because it is through that mass connectivity that you get to share in all the interesting and edifying things out there.

The intriguing article you read about Camille Paglia, or the mind-blowing video you saw of some crazy guy doing a stunt that most of us wouldn't dream of attempting, or the really special friend you now associate with who lives in a continent you've never visited were all thanks to the connections you've gained, or connections friends or friends of friends have gained and made their way into your life.

Just as on Facebook you don't just benefit from your own connections, but by connections generally - similarly, the market works that way for our benefit too. As more and more people from other countries enter the global marketplace, we find an influx of new skills, new innovations and increased competition, which drives up efficiency and drives down prices.

To read the full article (click here).

For further reading, in April 2015 I wrote an article on Branko Milanovic's findings from last year (click here).

The Economics Of Terrorism, And Why Islamic State Will Eventually Crumble

A recent poll revealed that just over 70% of people in the UK think that immigration increases the likelihood of terrorism. They are right, but not in any way that should cast aspersions over the merits of immigration, because immigration increases the likelihood of terrorism only in the same way that having roads increases the likelihood of speeding. The cause of an increased likelihood of terrorism is down to something else.

Terrorism, like fruit, vegetables, cars and holidays has a supply and demand curve. Consider terrorism as a good with a demand curve - by which I mean that terrorism is an activity that currently some people wish to engage in to achieve a religious or political goal. The price of engaging in terrorism is paid in the form of the risk of death, injury or imprisonment.

Similarly, there is a demand curve for burglary, speeding, and fraud, and the price paid to do these things comes in the cost of a fine or a prison sentence. To put it in formal terms, we could in theory draw a demand curve for all of these crimes and then plot the likelihood of punishment on the vertical axis, and the number of crimes committed for each on the horizontal axis.

Ascertaining the steepness of the demand curve is like asking whether an increase in the probability of punishment will amount to reduced instances in crimes committed. Measuring the slope of the demand curve for, say, burglary is equivalent to measuring the deterrent effect of the punishment for burglary. Crimes like burglary, which are often committed to feed a drug habit, are likely to have steep demand curves because drug demand is usually fairly inelastic for an addict, which is why recidivism rates for drug addicts are so high. With speeding, on the other hand, the demand curve seems to be pretty flat. In other words, the single appearance of a speeding sign or a camera leads to a huge decrease in the incidences of speeding.

Now when it comes to terrorism and the sort of people who are likely to commit terrorist acts in the name of ISIS, the demand curve is about as far from flat as it is possible to be, because most of the causes with which the terrorists identify are causes bigger than the crime deterrents (including even death). In other words, many terrorists are perfectly willing to die for their cause, believing that in doing so they are offering a noble service to Allah, meaning in most cases there is no deterrent to flatten down the demand curve for terrorism.

If terrorists have no care for the consequences in terms of punishment for the crime, and if Islamic State continues with the same momentum in recruiting willing participants to fight for their cause, then terrorism is going to continue to be a problem, and immigration only changes where the incidences of terrorism take place - be it Britain, France, Germany, Holland or Belgium.

Regarding the aims of Islamic terrorism, and the fact that those aims even seem able to subvert the moral compass of the perpetrators, I see no signs of incidences of terrorism decreasing. The wide scope of this evil regime is that Islamic State leader Abu Bakr al-Baghdadi wants to establish the Caliphate of all Caliphates, unleashing terror everywhere he can, and ruling Islamic State nations under the thrall of their terror-inducing domination.

There is, though, perhaps one fly in the ointment - if only he was a bit more familiar with the works of Plato and Aristotle, or even a bit more cognisant of historical antecedents, he and his fellow Jihadi thugs would see that their aspirations are probably unrealistic in the longer run.

Here's why. A general pattern throughout the history of military or political coups is that even when they are brutal and catastrophic for the citizens, they soon reach a point of relative stability, not least because it's nigh-on impossible to rule a country under continual internal strife. In other words, good conquerors, even Caliphs, totalitarian as they were, still allowed at least a semblance of autonomy and harassment-free administration of people. That's why, even though it is likely that these horrible terrorist incidents will continue to occur, and Islamic thuggery will continue to pop up, the idea of ruling nations consistent with the backward, brutalised, oppressive, freedom denying methods of Islamic State is wholly unrealistic in the long run.

Could A Basic Income Work?

Recently Tim Harford, in an article in the Financial Times, talked about the idea of a 'basic income' - a much vaunted idea in some circles and a much deprecated idea in others. It's not even an idea that's more popularly left or right - figures as far to the right as Friedrich Hayek and Milton Friedman, and groups as far to the left as the Green Party have both come out in support of it, although as you'd expect they differ on the nuts and bolts of the mechanism.

But can it work? Obviously, as most people would concur, it's ridiculous and absurd to offer a basic income universally, because lots of middle and high earners don't need it. However, a basic income given to people who have no work-based earnings or low earnings from work would be okay, as long as it tapers out according to a certain threshold of earnings, but in a way that doesn't disincentivise work either.

Whether there is a basic income system that could get the balance right between managing the varying and complex needs of a whole range of people and not being too expensive and bureaucratic, I'm not sure. I'm even less sure about whether our politicians are intelligent enough to devise such a system.  

If such a thing were to work then off the top of my head I could envision it being along these lines. The government could set a basic income of x per year by using a cut-off point of y per year, and a withdrawal rate of 50%. That means that a basic supplement to a person's income would be equal to 50% of the difference between annual income and the y cut-off point. So a person out of work would get the basic income of x, and a person who earned an amount lower than y would get a supplementary income, and this keeps narrowing as earnings increase up until y.

So, picking a figure for simplicity's sake (a proper study would need to be done by people with all the facts to hand to find the optimal figure), if y = £17,000, and the basic income is £8,000, someone earning nothing gets a basic income of £8,000, someone earning £11,000 per year gets a £3,000 supplement (half the difference between his or her earnings and y), and someone on £15,000 per year gets a £1,500 supplement, and so on, and then when y is reached (£17,000) there is no supplementary income, and y is the point at which every pound earned thereafter is taxed. There are still serious issues about how any basic income would be paid for - because simply raising taxes to cover the costs only adds to some of the problems the government would be looking to solve.

Whether it's with a basic income, or other kinds of change, something needs to be done to revise our welfare system - it is anachronistic and has evolved far beyond the original scope of its intention, in a country that's very different from the one at the time of its inception in the late 1940s. The method of tackling a diverse range of welfare needs in a one-size-fits-all fashion is now entirely unworkable, as is the perverse conflict between whether a claimant is better off working or on benefits. Basic income or no basic income, the UK has for a long while now needed a new Beveridge Report for the 21st century.

Can You Think Of A Victimless, Rational, Morally Good Crime?

After reading the recent news bulletin about how in Italy it may now be legal in the eyes of the courts to steal food if you're poor and hungry, I was reminded of a debate I had a few years ago. On a cafe forum for debating I once posed the following question; Can anyone think of a victimless crime, where 'victimless crime' means a crime committed whereby in the general sense there is realistically no possibility of anyone other than the agent in question being a victim or coming to harm?

Just to be clear; you can’t say something like “I could make a call on my mobile phone whilst driving (which is illegal), and then hang up with no one harmed” – because although in the specific instance no one was harmed, in the general sense someone could easily be harmed (if you lost control and had a crash).

Despite lots of evidently faulty suggestions (see below), one that came close was “smoking weed on your own in your own house”. I felt compelled to add the caveat; if you are growing the drugs yourself, then fine, that's a candidate for a victimless crime. But if you are buying the drugs from a drug dealer, then there are costs (you are aiding someone else in committing a crime).

But even the growing of the drugs yourself and smoking them on your own still does not really qualify for there being "realistically no possibility of anyone other than the agent in question being a victim or coming to harm", because if the effects of weed smoking in excess are true, then eventually for some people there will be negative externalities - if, for example, you end up imposing an excessive burden on the health service, or addicted to harder drugs, or becoming dangerously paranoid and volatile. If any or all of those things happen then others will feel the effects of your drug-taking. Here are some of the other suggestions I got (with my comments included):

1) Downloading music or films from pirate internet sites

My Comment: No, the victims are the artists/companies that are losing money through loss of revenue. Of course, there's no guarantee that they always incur a loss, if, for example, sales increase due to dissemination of information - but some will.

2) Jaywalking

My Comment: No, this has every potential to cause harm to others. One car swerves to avoid the jaywalker, hits another, and *biff*.

3) Suicide

My Comment: What a bizarre choice, as this manifestly doesn’t qualify. Suicide destroys entire families left behind.

4) Speeding on an empty highway

My Comment: I think that's stretching it a bit, and I don't think I can allow it, because the crime is 'speeding', which won't generally qualify as "a crime committed whereby in the general sense there is *realistically no possibility* of anyone other than the agent in question being a victim or coming to harm". Moreover, I don't think we can grant omniscience to a driver and give him or her any kind of certainty that the highway is empty.

5) Bigamy

My Comment: Again, no, bigamy potentially imposes costs on one of the wives, and one other prospective husband.

6) Polygamy

My Comment: No, polygamy imposes costs on other men and other women. Some people asked the question; what if all people involved in bigamy or polygamy are aware of the costs and the arrangement is entirely mutual between all parties? Even then it is not enough because the cost is still incurred on those whose chances of finding a partner are minimised by the practice. Technically that is true of marriage as well - when John marries the girl you love he imposes a cost on you because your sweetheart is no longer free to marry you. But in marriage the social benefits outweigh the social costs, which is why we don't opt for a world full of unmarried people, which would then reverse the cost-benefit situation.

7) Walking nude in the street

My Comment: No, that's not an argument with much economic utility - a practice becomes prudent if the social benefits outweigh the social costs. Evidently, the costs of allowing public nudity far outweigh the benefits as it imposes costs on anyone that doesn't want to see nude people walking around the streets.

As you can see, it proved very difficult to find a suggestion for a crime committed whereby in the general sense there is realistically no possibility of anyone other than the agent in question being a victim or coming to harm. 

The only good one was, ironically, related to marriage. One contributor proposed the following; “A victimless crime is finding a way to gain the legal benefits of being married to a person of the same sex in a place where same sex marriages are illegal”. That's a good one; there I can see no reasonable grounds to call anyone else a victim. Cleary, as well, I think it is also ironic that the one valid suggestion put forward is one that most pressingly involves the need for a law change. This shows that laws are predominantly about protecting potential victims as well as potential felons.

(Note: If you have any other suggestions to proffer, you're quite welcome to email me)

Now we’ve considered that, I want to consider three corollary questions in terms of economic analysis; one, concerning a crime with an unaware victim; two, concerning whether there is such a thing as a rational crime; and three, whether there such a thing as a morally good crime. 

What about a crime situation whereby the victim has no awareness that a crime has taken place?

Suppose Frank sees that Jack has a wallet full of money. Feeling confident that Jack won't notice a missing £40, Frank steals it while Jack is asleep, spends £39 on junk food, and then bets the last £1 on a 40/1 winning horse, enabling him to surreptitiously return Jack's £40 before he wakes up. Being completely unaware of any crime, it could be argued that it's hard to call Jack a victim of crime. In fact, suppose that with the last £1 Frank bets on a 60/1 winning horse and returns all the money to Jack's wallet while he sleeps. Here we have a crime in which both Frank and Jack have benefitted (Frank with free food and Jack with an extra £20). Yet even then I wouldn't feel happy with the events that took place because theft is theft. That's a good example of a situation in which everyone benefits yet still there are things of which we disapprove.

Or suppose an admin clerk in a large Pension fund organisation with 1 million clients hacks into the computer system and takes one penny from each account, and then donates the £10,000 to charity - is that a victimless crime, or is it a crime with one million victims that did not notice they'd been the victims of an astronomically small theft? Technically I suppose the latter is true - and either way, it still doesn't make stealing right, even if the net gains surely exceeded the net costs.

Is there such a thing as rational crime? 

From an economic perspective, yes. A man who illegally parks on a single yellow line might find benefits of the crime over the year outweigh the annual costs. Suppose Bob works 250 days per year, and the only car-park within walking distance charges £4 per day - that's £1000 per year. If the road on which Bob parks illegally only generates a £30 parking fine every 4 weeks due to a feckless traffic warden, then it could be argued that Bob is committing a rational crime, as his total fine expenditure throughout the year amounts to £390 (13 x 4 weeks x £30) leaving him £610 ahead against the annual car-parking expenditure of £1000. That’s not to say that we should endorse a crime even if it is rational, but it is rational by any standard definition in economics (see Gary Becker’s Rational Choice Theory* for more on this).  

Is there such a thing as a morally good crime?

It depends on your perspective, but at an individual ‘singular’ level, quite possibly. If you, like many of us, place a higher premium on helping the people most in need in the world (people desperate for drinking water and food) over the people with not such urgent needs (like having smoother tarmac on the road, or searching for alien life) then it could be argued that any singular crime that involved you withholding income tax money from the government and giving it to much more desperate people in Africa is actually a morally good crime. I say ‘singular crime’ because clearly if everyone in the country tried this then many of the nation’s vital services would be severely impaired. 

But the man who is fed up with the government's profligacy in relation to injudicious foreign policies, expenses scandals and excessive wage bill, and decides that he will take it upon himself to give the money directly to those for whom it will do the most good, must in some way be more mindful than most.  Here is a situation in which the law is being put up against a man's conscience, with the conscience coming out victorious.  Although we may be right to disapprove, it should be said that in terms of net good, the man's act is positive and has improved the well-being of the planet overall. 

As you may have noticed, the underlying commonality that runs through the above considerations is that irrespective of whether there is a victim (or victims) in those scenarios the agent committing any bad acts or having bad intentions is the one that bears the costs of the outrage on his or her conscience.

Which leads us full circle back to the person who steals food legally because he (or she) is poor and hungry. Intrinsically the theft may well be rational - at least in that it is rational to steal food and risk punishment rather than risk starvation. But where there is not even any punishment, there is a great incentive for many to steal who are not all that poor in the hope that they can get away with it on grounds that they are poor. In other words, what the lifting of this law does is create an incentive of increased theft, which passes the main bulk of the costs/risks onto shopkeepers, and will therefore probably have more negative unintended consequences than is ideally desired.

* Gary Becker's famous rational crime theory involved weighing up the costs and benefits of crime, and trying to ascertain whether some instances of criminal behaviour are rational. For example, Becker considered whether parking in an illegal but convenient spot was a rational thing to do once the probability of getting caught is measured against the benefits of a convenient parking spot. Becker famously spoke of goals in the sense of our being rational actors engaged in a diligent cost-benefit analysis of whether crime pays. Some criminal activities involve reasonable goals if the benefit from the act is perceived to be greater than the probability adjusted weight of being caught and paying a penalty. Developing this David Friedman has argued that "The amount of the punishment should equal the damage done by the crime". The point being, that if crimes are committed when the value to the criminal is greater than the societal harm, only efficient crimes will be committed.