My 50 Greatest Albums In 50 Years - Year By Year

Unlike my other blog post on music albums, My Top 68 Albums Of All Time, this one lists what I think is the best album of the year for 50 years, from 1960 to 2010. I stopped at 2010 to allow albums made after that year the room to breathe and secure a bit more longevity - but also for personal reasons on the grounds of not having listened to anything like us much musical variety in the past 7 years. Here's my list, and as you (hopefully) enjoy some of my favourites, and (hopefully) recall some of your own, I hope it evokes some nice memories for you, as it did for me:

 

1960 - Let No Man Write My Epitaph - Ella Fitzgerald

1961 - Genius + Soul = Jazz - Ray Charles

1962 - Burnin' - John Lee Hooker

1963 - A Christmas Gift For You - Phil Spector

1964 - A Hard Day's Night - The Beatles

1965 - Highway 61 Revisited - Bob Dylan   

1966 - Pet Sounds - The Beach Boys   

1967 - Sgt Pepper's Lonely Hearts Club Band - The Beatles  

1968 - Astral Weeks - Van Morrison

1969 - Abbey Road  -The Beatles

1970 - After the Gold Rush - Neil Young  

1971 - Blue - Joni Mitchell

1972 - Can't Buy A Thrill   Steely Dan  

1973 - Dark Side of the Moon - Pink Floyd 

1974 - Diamond Dogs - David Bowie  

1975 - Wish You Were Here - Pink Floyd  

1976 - Songs in the Key of Life - Stevie Wonder  

1977 - Rumours - Fleetwood Mac  

1978 - Parallel Lines - Blondie  

1979 - Rust Never Sleeps - Neil Young  

1980 - Scary Monsters and Supercreeps - David Bowie

1981 - Moving Pictures - Rush

1982 - The Dreaming - Kate Bush

1983 - Script for a Jester's Tear - Marillion

1984 - Hatful of Hollow - The Smiths  

1985 - Hounds of Love - Kate Bush  

1986 - The Queen is Dead   The Smiths  

1987 - Strangeways Here We Come - The Smiths  

1988 - Daydream Nation - Sonic Youth

1989 - The Stone Roses - The Stone Roses  

1990 - Heaven or Las Vegas - The Cocteau Twins

1991 - Screamadelica - Primal Scream

1992 - Automatic For The People - R.E.M

1993 - Suede - Suede

1994 - Dummy - Portishead  

1995 - The Bends - Radiohead  

1996 - If You're Feeling Sinister - Belle & Sebastian

1997 - OK Computer - Radiohead  

1998 - Adore - Smashing Pumpkins  

1999 - Ophelia - Natalie Merchant

2000 - Kid A - Radiohead

2001 - Let It Come Down - Spiritualized

2002 - No More Shall We Part - Nick Cave

2003 - Think Tank - Blur

2004 - Funeral - Arcade Fire

2005 - Z - My Morning Jacket

2006 - Back To Black - Amy Winehouse

2007 - In Rainbows - Radiohead

2008 - @#%&*! Smilers - Aimee Mann

2009 - XX - The XX

2010 - Plastic Beach - Gorrilaz

How We Educate Children Is Going To Radically Change

Education Secretary Justine Greening spent yesterday telling us how the English school system needs to support those who are struggling and not the privileged few. The desired outcome is correct, but her method for getting there is fraught, because the best way to improve the English school system is to drastically reduce the state's involvement in it. The problem with having the state running our education system is that it makes education far more expensive than it needs to be, and it diminishes the quality in doing so. So pupils get a less good but more expensive education than would be the case if more supply-side competition was introduced. 

I'm now going to tell you something that will startle you, or at least many of you. Without the meddling of the state in our education system, the majority of the pupils that go through the school system would get a similar kind of education to the quality that privately educated pupils get.

Let’s do some maths to illustrate this. Last time I checked, there were 9.7 million pupils in education, with approximately 630,000 attending private school. The government’s annual education spending is usually between £85-90 billion. Given that private schools have charitable status, so get no money from the state education budget, that equates to roughly 9 million state-educated pupils costing the government around £90 billion per year.

That works out at a cost of £10,000 per pupil per year. Now according to ISFA the average cost of private school fees is between £10-11,000 per year. It varies for reasons we needn’t go into here, but as you can see, the average cost to educate a pupil through the state system and the average cost to educate a pupil through the private system are very close. For roughly the same cost the government could send every pupil to the educational standard of private schools (excepting perhaps the very high fee-paying schools). That's even more alarming when you consider that currently only 7% of pupils go to private schools.  

Now I'm not denying that that is a deliberately overly-simplistic model of analysis - not least because even if all schools were of a higher quality nationwide there are going to be hundreds of pupils who through all kinds of background disadvantages and bad choices are not up to the standard of a decent education. But if nothing else, the arithmetic above gives a strong indication of how much the state education system fails to give so many of its pupils value for money (approximately 22% of school leavers in the state system leave with the reading, writing and numeracy skills of an 11 year old).

In the most comprehensive study ever conducted, spanning 25 years of international research comparing state-provided education versus market-competitive education Andrew J. Coulson showed in his paper Markets vs. Monopolies in Education just how far state schools fall behind the more highly competitive market-based schools. This is in no small part due to the fact that market-based education has the flexibility both to meet different needs and cater for diverse abilities of the pupils.

I know many in the UK are currently horrified with the idea of anyone but the state providing our education system, but that's mainly because most people are still relatively unapprised of quite how a market system would work. For ease, you have to remember that if you're paying for your child's education in a market-based system you get to keep more of your money, and the money you pay goes more directly in to benefit your child's education. In other words, more money reaches the school children, because under the current bureaucratic system there are more officials employed in the education sector than there are teachers, and in some schools there are more admin staff than there are teachers.

But what about the poorest people in society - isn't it important that the state provides them with an education?

No, it is important that the state provides them with the funds to acquire an education (vouchers sound like a good idea to me), not the education itself - that should be the parents' responsibility (where there are barriers to this happening then the law should become involved). Think of food - that is vitally important, more so than even education, but the state doesn't have a nationalised food policy, it subsidises hungry people with the cash to buy food.

 

That is what would happen in a market-based school system - the parents that cannot afford to pay for their children's education would receive the funds to pay for their children's education (and any help they needed), but the schools would be run privately, without the layers of state bureaucracy, meaning the money spent on education more directly benefits the children.

 

Furthermore, the price and quality of education improves significantly thanks to the forces of competition and increased choice on the part of the parents, and increased accountability on the part of the teachers. And remember, in my low tax, small state, market-driven financially autonomous society parents are going to have a lot more disposable income with which to make economic decisions.

 

Don't forget too that by and large a proper education is limited only to those who voraciously seek knowledge - the rest are just children herded like sheep into a classroom and narrowly shaped to fit into the agendas of the rent-seekers that govern us. One thing is for sure, just like the UK health system, the UK education system simply cannot be sustained with the current model. So, to finish, I'm going to make a twofold prediction about the future of our education system.

A prediction

In the first place, give it a few decades henceforth (maybe six or seven, possibly sooner) and there won't be any state-funded schools at all. There will be a market-based school system where parents shop for education like they shop for everything else, with the people who cannot afford to shop being given the funds with which to choose school places for their children.

In the second place, as the efficiencies of the market-based education system become more and more apparent, the inefficiencies of school buildings - such as the cost of maintaining the buildings and concomitant taxes, time lost travelling to and from school, changing classes during the day, registration and other administrative hold-ups, the sub-optimal class sizes and the numerous other interruptions to learning - will be weeded out by the gradual transition towards more widespread home-schooling.

Once you add to that the prodigious technological capacity we'll have at our disposal in the future, I predict home tutoring in small neighbourhood coalitions of about 4 or 5 families will be the standard way that children are taught (this will ensure social skills are not omitted). In fact, thanks to the advances of future technology, education will probably be so cheap to provide that the poorest people in society will all be able to be educated at a relative price of next to nothing.

And while you're pondering that, and possibly harbouring concerns about how the poor might be helped along under a more market-led system, just look across at how these young people are doing now under a state-run system, and in the case of those who are worst off, think that it couldn't really be much worse for them than it is now. Literally thousands of young people are leaving school lacking the basic skills and requirements necessary to carve out a career for themselves, in a society in which, thanks to political interference, education is not coterminous with the jobs available, and vice-versa. A more market-driven, technologically innovative system cannot do any worse for these young men and women that the current system - quite the opposite.

Think about it, even by today's relatively unevolved standards (relative to 100 years henceforward I mean) even most poor children have their own device with which to access the Internet, which means they literally have access to the entirety of the whole world's knowledge. Imagine how much more sophisticated learning can be in the future with even better technology and better systems to organise it.

These home school coalitions will benefit the pupils no end: they will be less prone to picking up bad behaviour from other children and less susceptible to bullying or scholastic isolation. For all sorts of reasons related to time, money and resources, home schooling is a remarkably proficient method of teaching children - not just with facts to learn but in shaping them with the wisdom of 'how' to think.

There will also be much more diversity in the ranges of learning available, with specialised learning for pupils with particular types of mental and physical abilities, specific types of interests, nuanced barriers to learning, and the multitude of other ways that a localised, consumer choice-driven, trial and error-based system enriches society.

The effect of state-enforced taxation, in most sectors, not just education, is that it reinforces the monopoly of politicians and diminishes the ability of consumers to spend their own money more autonomously. As we continue to evolve and more people begin to understand that most of society's achievements and advances come from the bottom up not the top down, we will begin to redress the problem, diminishing the state's control on our finances and strengthening our own.

Porkies, Damn Porkies, And Statistics

The Guardian will dolefully report that the bottom 20% of households receives less than 5% of UK income, but that those in top 5% receive a whopping 40% - and they are pretty competent at making it sound like we live in a nation of gross injustices.

The problem is, as is often the case with these statistics, they speak only as though people are statically rooted to the present, and only analsyable by their financial income. Such a narrow consideration of people is bound to distort the truth. The reality shows a quite different picture.

For example, many people who show up in those stats as being in the poorer quintiles are pensioners who are retired from work and living quite comfortably in a property they paid off years ago, and with numerous state benefits on top. Another group often classed as poor will be students, whose investment in their future careers makes them appear on the radar as uncomfortably off, but who are, in fact, going to be some of the UK's higher earners.

Trying to capture people's financial situation with an off-the-peg statistical analysis doesn't take into account the temporality of their situation. Perhaps they have just started a business that will go on to do well, or perhaps they are part-time workers whose partners earn well above the median income. Perhaps they are having a bad year and next year will be better. Equally, perhaps some of the higher earners are having a good year, and next year will be worse.

Suppose you go into a poor neighbourhood and talk to someone called Tom. Tom tells you he did better last year than this. You might conclude that Tom is getting poorer. Suppose you then talk to Gerry in that same neighbourhood, and he tells you that he did better this year than last. A random sample across the UK of lots of Toms would give you a perceived narrative that the poor are getting poorer. A random sample across the UK of lots of Gerrys would give you a perceived narrative that things are looking up for the poor.

All that I've said here should hopefully be enough to get you to think carefully in the future when you see these 'grossly unjust' statistics being bandied about - they very rarely tell the whole story. And if you're still wrestling with the notion that assertions about inequality are quite often misleading, I have tons of blog posts on the subject.

 

What Is The Greatest Thing Economics Does?

Economics enlightens us all on several very important considerations about human behaviour. It teaches us to see that pretty much everything is a trade off. That is, if you want more of x you often have to have less of y and go without z. If you buy the £500 washing machine you like, you might not get to buy the £500 painting you also like. If you want a law enforced, the state is going to have to deny you a freedom you once had. If you want more reading time, you might have to have less writing time. Coupled with that is the wisdom that everything has costs and benefits, and that not everything in life is immediately tangible.

Economics teaches us to be attuned to the technique of a full consideration of the four-way dictum of tangible benefits, intangible benefits, tangible costs and intangible costs. This is what life is like: most things impose benefits and costs, and it's up to us how we want to trade them off. Being married comes with all the benefits of being a husband, but it means giving up some of the freedoms of being a single man. Cycling saves on petrol and increases fitness, but it trades off the speed, convenience and luxury of a car.

Habitually most people think too much in terms of tangible benefits, with scant regard for tangible costs, let alone intangible ones. It is always easy to observe tangible benefits. A minimum wage law gives tangible benefits to low-earners, but it also brings all kinds of tangible and intangible costs (job losses, lack of job creation, higher prices) that are hardly ever factored in. The same is true of just about any policy or idea you can think of.

Given the foregoing, I think the answer to the question - What is the greatest thing economics does? - is this: The greatest thing economics does is make the unseen seen. That statement sums up all the considerations above of ensuring all costs and benefits are factored into the equation, and that if you are a politician who is going to make a decision that affects others you need to assess all the unseen factors to your behaviour to understand the consequences of your actions.

It was the great economist Frederic Bastiat who brought the 'seen and unseen' to prominence in a seminal essay called That Which is Seen, and That Which is Not Seen. In that essay he introduced what many will have heard of as the Broken Window Fallacy. It is utterly simple and compelling, yet the fundamental mistake it teaches people to avert is made repeatedly by pretty much every politician in office (past and present), and the vast majority of social commentators too. It is a sickness that seems to afflict all human beings, yet only a tiny minority ever take the medicine of economic analysis to cure it.

In Bastiat's parable of the broken window, a boy breaks a pane of glass, meaning his father will have to pay to have it fixed. The onlookers declare that the boy has actually done the community a good deed because in having to pay the glazier to replace the broken pane the father is helping to stimulate the economy and help the glazier live. By that logic, the economy would be better off is more boys broke windows.

The fallacy Bastiat exposes here is that as soon as you look at the unseen parts of the equation - that the money the victim of the broken window spent getting it fixed is money that he now doesn't have to spend on something he actually wants - the proposition is rightly seen as foolish. The broken window helps the glazier, but at the same time it robs the victim of a new pair of shoes or a coat on which he'd prefer to spend the money, which at the same time robs the shoe and clothing industry of a customer.

The thing is, intuitively most people get this point every day of their lives. They do not think that a tree landing on your house is good for your household economy because it will keep you busy in the evenings when you get home from work. They don't believe that a pandemic is good for the country because it keeps those in the medical services busy; or that a mass rise in unemployment is good for the economy because it keeps the job centres fully staffed; or that a rise in crime is good for the country because it keeps the police busy in work.

Yet, alas, it is common for the public to routinely focus only on the 'seen' part of a policy or idea and overlook or disregard the 'unseen' parts. That is to say, our society is full of people who, when the example in question is less obvious than Bastiat's broken window, wantonly try to tell us that the economy is better off because a young boy has broken someone's window and the glazier will now thankfully be employed to fix it. Whether it's price-fixing, state-sponsored subsidies, bail outs, trade restrictions or numerous public services that could be run more efficiently by the market, society is full of powerful people who habitually fall foul of the broken window fallacy and inflict it on the people they are paid to represent.

If Tom is the chap that had his window broken, and Dick is the glazier that fixed it, Harry is the shoe salesman that misses out on a transaction with Tom. The economy does not even break even with Dick's gain being equal to Tom's loss, because Harry is down on a sale, and Tom paid for something he'd prefer he didn't have to. The economy is full of Toms, Dicks and Harries, and most people tendentiously overlook the Toms and are widely oblivious to the existence of the Harries at all.

Every time people hear a student demand the scrapping of tuition fees, every time a theatre production is subsidised by the taxpayer, and every time a failing business is bailed out by the government under the pretext of 'protecting jobs', they see the Dicks every time - that is, the happy students, the happy theatre company, and the happy business owner that now stays afloat for a while longer.

But people scarcely think of all the Toms that feel the direct costs of these policies, and they hardy ever realise all the Harries that feel the indirect costs even exist at all. The Toms and Harries are the people that feel the costs of university places not being aligned to market signals of supply and demand, and the other members of the arts whose productions now don't go ahead because of the subsidy, and the multitude of businesses that don't get to compete with the ones backed by taxpayers against their will.

Society is full of countless other Dicks and Harries - they are scattered about all over the place, visible only to the enlightened few who understand the wisdom of the 'seen and unseen'. They are the people that never get to live in cities they want to because of special interest environmental groups; they are the young men and women who have been priced out of the job market by a state-mandated price floor; they are high levels of inflation that have occurred because the state controls the money supply; they are the measured increases in what you pay for goods and services in industries that are too heavily taxed - I could go on.

Moreover, Bastiat's 'unseen' identifies the valuable things that don't happen at all because of an unwise policy - like the sale that never happens because of a regulation, or the jobs that never get created because of a wasteful expenditure, the things that never get made because the material resources are being consumed elsewhere, or the consumer and producer surpluses that never materialise because the government taxed the transaction out of existence. 

Suffice to say, all these aforementioned things in the previous two paragraphs are the opportunity costs that rob society of the value it loses by not exhibiting a proper reflection of people's real preferences and what lies behind supply and demand curves - that is, what they would spend their money on if they got to choose how to spend their own money and not have so much of their expenditure dictated to them by politicians.

Once you master the 'seen and unseen' your whole world opens up, as critical observations you once didn't make now come into your vision and expand your understanding of all the effects of a policy, an idea or a belief system. Given that a proper understanding of the 'seen and unseen' is what underpins every subset of economics - costs and benefits, supply and demand, revealed preferences, you name it - I think the enlightening of people to this principle is the greatest thing that economics does.

The Price Of Everything, But The Value Of Nothing

A fellow on BBC Parliament last night was moaning that the price of diesel going down is bad for the planet. That depends, of course. If he understood price elasticity he wouldn’t have said such a thing. Basically, if a price is inelastic, then a change in that price will likely cause little change in demand, whereas if it’s elastic, it will*.

For example, if petrol and cigarettes increase in price, it won’t change consumers’ buying habits all that much because people need petrol for their cars and cigarettes for their addictions. This is price inelasticity. However, if goods like certain tinned foods, chocolate bars and cars go up in price, this can easily cause quite a change in demand, as consumers will likely switch to different tinned products, chocolate bars and cars. This is price elasticity.

Elasticity and inelasticity are observable factors of life: if your water provider tells you your bill is going up then you can’t really tell them you’re switching to something else other than water instead. Whereas if Cadbury’s put up their chocolate bars by 30% then you could simply switch to Nestle bars.

Once you grasp this basic econ 101 stuff it’s a lot easier to understand human behaviour in the market, and a lot easier to understand and predict how people will respond to incentives. When there are shortages, most people assume it is because there is a scarcity of supply. Sometimes there is, but to generalise here is an amateur mistake, because most shortages are caused by there being less of something than we want, which is not so much conditioned by its supply but by its price (think of Adam Smith's well known diamonds and water example - diamonds are in relatively short supply yet there is not a shortage of diamonds in the marketplace, and yet over 70% of the earth is water yet there are often water shortages).

So a shortage means that the price is lower than the point at which supply and demand are in equilibrium. This is sometimes caused by suppliers not adjusting prices quickly enough, but for the most part it is caused by governments, through regulation, taxes, subsidies or price controls.

I know so many people just take it for granted that when governments interfere in market prices it is for the good of the nation. But a rational, informed thinker understands that the price linked to supply and demand curves is what equals value, not because price is determined by value, but because quantity determines price, and amount consumed is the determiner of value. Equally, for the supplier, price equals cost, not because price is determined by cost, but because price determines quantity, which determines cost. The intersection of supply and demand curves is what gives us prices, and it tells us what people value.

But it's more than that, because this is not to be considered in isolation, it is linked in to every other transaction too. That is to say, every price directly affects every other price because the price of, say, apples, may well affect one's demand curve for, say, oranges or bananas, which may affect one's demand curve for, say, chocolate, coffee or bread - all of which affects sellers' prices and quantities (amount produced) too.

It's not unusual to see people forgetting this in relation to jobs, but indeed the same applies in the labour market too. The price of an input is equal to its marginal cost of production and its marginal revenue product, which is the resultant change in revenue for the employer as a result of the addition of one extra unit when all other factors are kept equal.

The quantity of the input sold is the quantity whereby the marginal cost of production is equal to the marginal revenue product (marginal cost = price = marginal value). In less formal terms that's just a fancy way of saying that if I own, say, a doughnut making business, and want to consider taking you on as an employee, I'll only do so if your wages equal the value of the additional doughnuts you produce. You should be able to imagine now, if you couldn't before, just how much harm price-fixing does here, not just to the job market, but to consumers that help create those jobs too.

One of the main ways that politicians fail the people they represent is by being blind or dismissive of all those things I mentioned above. By controlling the money supply, by increasing the nation's debt with irresponsible borrowing, by increasing the cost of living for the most struggling families, by dis-aligning supply and demand price signals, by overseeing wasteful misallocation of vital resources, and by making otherwise affordable things unaffordable, they press society's billions of revealed preferences under the thumb of their own nest-feathering, and in doing so, make society a place that is wholly unrecognisable from what it would look like if people got to spend their money exactly how they wished.

* As a formal rule, the elasticity of a supply curve at a particular price is measured by the extent to which quantity increases (as a percentage) divided by the increase in price. On this point, beware of politicians, who very often make polices with almost total disregard to how many supply and demand curves are elastic when there is an effect on price or quantity. 

On Two Types Of Fairness

Do you think women should always be paid the same as men for doing the same job, or can you think of any conditions under which one or the other should be paid more? Your answer to this question is based on how you perceive fairness? Let's explore this further.

There are usually two kinds of perception of fairness, which we'll call Fairness A and Fairness B. Fairness A says if workers are treated equally while at the same time benefiting from their endeavours then we should support a flat tax rate for all (say 25%). That means that Tom who earns £100,000 per year and Dick who earns £30,000 per year each pays the same rate of tax, but Tom pays more due to having higher earnings.

Fairness B says that it's fair to treat people unequally to try to bring about a fairer equalisation overall. That means that Tom who earns £100,000 a year and in absolute terms already pays more tax than Dick on £30,000 per year also pays a higher rate of tax than Dick, because it is seen as a good thing that high earners, although not often willing to help out voluntarily, do instead have the compassion to accept or embrace the kind of taxation that redistributes the top-end money to those with less.

Isn’t our tax system like that?

Yes, currently it is. Fairness A is often referred to as flat taxation and Fairness B is often referred to as progressive taxation. Those on the left tend to prefer progressive tax - but it is hard to be consistently progressive because people's ideas of fairness are inconsistent. That is to say, people are clumsy, and they tend to cherry pick between Fairness A and Fairness B while believing they are sticking firmly to either A or B. If you asked them whether women should always be paid the same as men for doing the same job, they'd probably say yes. But then that can go against their progressive ethos, because there are conditions under which unequal pay for men and women could be progressive (and, in fact, this once was the case).

For example, a married man with a non-working wife and children would find it harder to live than a single, childless woman doing the same job. In fact, it used to be thought to be justified to pay a man more than a woman on those grounds. Given that once upon a time most men were working breadwinners and most women were stay-at-home-housewives, it was thought to make sense to pay men more, as that extra money also benefitted the wife and children. Whether you think that's good depends on how you view the situation of a single, childless woman getting paid the same as a married man with a non-working wife and children. Most people now are proponents of the “equal pay for equal work” maxim, whereas one hundred years ago those people would have been in the minority.

The question, then, for proponents of Fairness B is why they'd support richer people paying a greater rate of tax but not support the same method of equalisation when it comes to single women being better off than their male colleague who's married with three children?

One good response might be that although we’ve been selectively a la carte over the years, we’ve done so for good reason, because it’s important to adapt to changing landscapes. Now that more women are working women, the ‘equal pay for equal work’ maxim makes the previous male-dominated sensibility seem rather outmoded. 

Another good response is that tax policies are largely based on buying votes. Creating a tax system that hits the minority hardest and benefits the majority at their cost is seen as a good way to buy votes, which is what governments base their tax systems on. Here's a simple illustration. Imagine you are governor of an island with a population of 150, and you want to obtain votes for re-election in a democracy. Out of the population, 100 of those 150 earn £25,000 per year and the other 50 earn £100,000 per year. Your rival governor candidate wants everyone to be free to spend their own money, and you want all the money to be pooled into a state pot and shared out evenly among the 150 people.

Under your opponent's system two thirds get to spend £25,000 and one third gets to spend £100,000. Under your rule those £25,000 earners who make up the two thirds get to have a share of the £100,000 earned by the minority group. Under your system everyone in the two thirds group is £25,000 better off and everyone in the one third group is £50,000 worse off (for those still counting, each of the population has £50,000 to spend). My prediction is that on Election Day your opponent will obtain one third of the votes and you'll obtain two thirds.

Before universal suffrage, the primary voters were men who earned money, so it was best for the government to adopt a flat rate tax policy. When universal suffrage came in, things changed, because now there were a lot more votes to buy, so it made sense to appeal to the majority (the low and medium earners) against the minority (the high earners) . A political party that promised to tax the wealthiest people at a higher rate and distribute it to the poorer people would gain plenty of support, so their policies were tactical. 

This is what we find in the modern age in the UK. In the UK the median income is lower than the average income, meaning most people earn less than the UK’s average wage. This presents a tactical no-brainer for political parties; endorse progressive taxation because then if you tax the wealthiest more than the poorest you bestow gifts on the majority of the people – which, for most people, basically amounts to voting for your own gifts.

This all sounds nice; surely voting for things that you like is a positive thing, and surely a nation in which the majority benefits from the government’s beneficence is a good thing too, right?

It depends how you look at it. If you like efficiency then no, it’s not great, because it is a recipe for profligacy. The reason being; if you buy something that’s worth less than it costs, you’ll find lots of wasteful spending. And if you spend other people’s money you’ll spend it less wisely than if you spend your own. Free markets are efficient because the product or service price from a supplier won’t usually be less than its production costs, and it won’t usually be more than the consumer is willing to pay for it.

In progressive tax systems things change. Most people reading this Blog will contribute far less than what would be their average share of a government’s spending policy, which means their incentive to see prudence and efficiency is diminished. Consider this illustration: Imagine you and I are at a large banquet with 98 other people, where the richest few are going to pick up the vast majority of the bill, and what’s left will be split between the rest of us. If everyone decides to have an extra bottle of wine per person and a supplementary box of chocolates, the proportion of the wine and chocolates costs with regards the overall bill will be less for you and I than the value of the wine and chocolates.

So even if we’d ordinarily not be willing to pay for the extra wine and chocolates, we won’t mind having it because the cost for us will be significantly less. What’s worse, there are bound to be lots of stuffed diners who didn’t really want the wine and chocolates who would not care too much because the majority of the expense is being taken care of by the richest few. This is what’s happening in real life with our politics.

Fantasy Stories About Tax

Here we have another characteristically dodgy article from Duncan Weldon in The Guardian, who foolishly believes that the way to sort out the public sector crises of unaffordability is to throw more and more money at them (I argued here that that is the precise opposite of what we need). Like giving more chips and ice cream to a morbidly obese child, pouring more money into crisis-ridden services is only going to conceal the deeper rooted problems, and will consequently make things worse in the end. This is a point that has been made on here repeatedly in recent times.

What I haven't mentioned quite so recently is the other big problem seen throughout articles like the one above - a misunderstanding of who tax actually affects and in what way. Take, for example, the call for higher corporation tax on the basis that by taxing big corporations more there will be more to redistribute to struggling families. It's a simple idea, but like many simple ideas, it is simply wrong.

The main problem is that the definition is factually inaccurate, because corporations don't actually pay tax - only individuals pay tax. The cost of corporation tax is primarily borne by customers (with increased prices of goods or services) or employees (with decreased wages) to avoid being borne by shareholders (through lower dividends). Corporations pay tax only in the sense that the cheque or debit is written in the name of the company. If the cost of taxes ultimately falls on individuals in the form of higher prices of consumption and lower wages (or in some cases increased unemployment) then a tax policy that tries to hurt corporations is simply a tax policy that harms the people the lefties are trying to help.

Abolishing corporation tax and taxing at the level of shareholder dividends and high-end consumption at an increased rate, coupled with a reduction in the top rate of income tax, would do more to boost the UK economy than any of the flimsy policies most MPs proffer. But because the abolition of corporation tax and top rate reductions are about as attractive as a fart in a space suit to most of the electorate, no political party is brave enough to implement them.

Another thing not often realised is that the cost of tax to an individual is greater than the sum of money paid to the IRS in 1s and 0s. To see why, suppose that the demand for highly skilled workers like doctors, surgeons, IT directors and financial advisers is very inelastic. If taxes on high skilled jobs are high, it will reduce numbers of doctors, surgeons, IT directors and financial advisers, which will mean that consumers pay the price through higher fees for those services.

Where the demand is inelastic, high taxes on such workers reduce the number of suitable people willing to train for those jobs, with the result being that customers in need of their services bid up their wages at a cost to their own pocket. In other words, the cost of the tax is a transfer from those that pay the tax to those that consume the services of those in the high skilled industry.

A similar issue arises with the minimum wage, where the state-enforced increased cost to employers is a cost that is passed on to consumers with higher prices or fewer jobs. Further, PAYE taxes (that's income tax and national insurance) are a tax on labour, which of course means that you get less than the optimum amount of it. Whether PAYE taxes are paid by the employer (before he pays wages) or by the employee (when he receives wages) doesn't matter much - they are essentially the same tax on labour.

The place where the ultimate burden of tax falls is largely contingent on supply and demand's elasticity. If the supply of labour is elastic then that means prospective employees won't be particularly sensitive to wage levels, thereby placing the burden on employees. If on the other hand employers have to increase wages to hire good workers then the tax burden falls on the consumers of what those workers produce.

Income taxes interfere in the market of trade by diminishing value in society too. This happens because income tax means there are fewer transactions, as exchanges that would otherwise benefit both parties now do not take place. Suppose I am willing to pay no more than £11 per hour to have some work done, and I have some workmen who are willing to do the work for £10 per hour. That being the case the transaction should take place and both buyer and seller will be happy with a £10 an hour hourly rate.

But once the government imposes 20% income tax, things change, because now the most the workmen can earn from me in net pay is £8 per hour, which means they'd be unwilling to do the job for me. In order to satisfy the workmen's earning needs, the 20% income tax means that the workmen have to charge me £12.50 an hour to clear £10 an hour. What then transpires is that either the work doesn't get done because I'd rather not spend that much money, or else I end up doing it myself and making a much less good job of it.

The upshot of all this is that tax is not some kind of magic money tree that can be obtained without negative consequences. People who wish to tax us out of crises usually miss three vitally important things:

1) Tax something and you usually get less of that thing, which in many cases means the nation is worse off by the reduction.

2) Tax something to bestow benefits to one group of people and you usually find that what you give to them in one hand you take it out of their other hand a short time after.

3) Tax something and you also end up hurting other groups you have usually totally forgotten about.

Don't Campaign Against Tax Havens: They Are Good For Us

My favourite blog posts are the ones where I take a common viewpoint held by the majority of people and explain why it is a myth. Today it is the turn of tax havens. Thanks to faulty headline-grabbing propaganda, like the latest offering from The Guardian's Richard Murphy (he's the guy behind Corbynomics), most people think tax havens are outrageous places in which tens of billions of pounds are being stored offshore, denying UK citizens valuable tax revenue that could be used on public services like schools, health care and roads. Nice idea. But like many nice ideas, it veers far from the truth.

First off, so what of the complaint that if the money stays in the private sector in tax havens then UK citizens are being robbed of vital tax revenue? To answer this, consider if the money stays in the private sector in a tax haven, who else benefits from that apart from the person with the money? In the first place, the money is invested, which generates plenty of jobs and lots of economic growth. And in the second place, what is less obviously true is that if a UK Billionaire keeps £500 million in a tax haven then all the time he's not spending it he makes everyone else in the UK better off in terms of more resources and lower prices. This is because money earned but not spent is like conferring a gift to the UK taxpayers.

Moreover, it's important to remember that the primary contribution high earners make to society is not in the taxes they pay, it is in the goods and services they produce. Most of these big corporations make small profit margins on each unit sold - they just sell lots of units, which means they are creating an awful lot of value to consumers.

When it comes to tax havens, what is also being missed by a lot of people is that tax havens actually make us better off in another way, in that they provide vital competition to tax rates in the UK. A popular view from the left is that because of tax havens governments have to increase our taxes to make up for all the tax they are not getting from money stored in places like the Cayman Islands. In actual fact, the opposite is true - tax havens keep our UK taxes lower not higher.

To see why, suppose there is just one quite expensive Bakery in town (call it Bakery A). Along comes another Bakery in competition (Bakery B), offering townsfolk lower prices for bread. The very worst thing that Bakery A could do in response would be to raise its prices even more. Their best response would be to try to out-compete Bakery B for custom. This is the nature of competition, and how it lowers prices and improves efficiency.

Similarly, tax havens are like Bakery B - their more competitive tax rates place competitive pressures on governments that might be tempted to tax us highly. Competition for prices occurs with tax just as it does with bread, laptops and cars. Governments must be competitive with their tax rates, otherwise more and more money will be stored in places with lower tax rates. Tax competition is a key driver of economic growth in the world, as this incentivises politicians to keep taxes on savings and investments low. When tax rates are excessive, there is less economic growth. Tax havens provide the necessary competition to militate against this happening - they are not the bogey that many will have you believe.

Instead of calling for politicians to tackle the grave injustices of tax havens, campaigners should be calling for a more fruitful tax systems here, based on lower rates, reduced complexity and bureaucracy and increased market freedom.

When Jack Thinks He Knows Jill Better Than Jill

In 1998, inspired by watching a baseball game, the economist Don Boudreaux wrote a short essay entitled Much More Than Meets the Eye. It's a neat essay and well worth sharing (I've reprinted the whole thing below) for the way Boudreaux uses a sporting analogy to illustrate the widespread presumption of over-simplicity in the economy.

That is, just as the skill and dexterity combined with lots of practice goes into the prowess of playing baseball, similarly society and the economy appear to be a lot simpler and easier to organise than they really are. Because of this, third party politicians operate under the delusion that they know people's wants and needs better than the individuals themselves, and can govern their lives better than they can.

I have to admit, ever since being a young lad and first getting into those academic subjects like economics that would titillate and enhance the mind ever since, our sluggishness in evolving beyond this state of stultifying dependency has struck me as strange. While I understand the human need to help others, I remain perturbed by how, in a Jack and Jill scenario, we let so many Jacks dictate to us Jills what our preferences are and how much we should value things.

It remains utterly peculiar to me how almost everyone loves the idea that Jack knows enough to forcibly prohibit Jill from selling her labour for lower than the rate that Jack (with only a tiny fraction of all the facts) establishes is best for Jill. It remains utterly peculiar to me how almost everyone loves the idea that Jack knows Jill's perceived trade off in the pleasure of eating chocolate versus the prospect of being a few grams heavier as a result.

The same applies to Jill's wine, beer, cigarettes, number of hours she can work, whether she is allowed to charge the market rate for renting out her apartment in London, and the extent to which supply, demand and consumer choice ought to be factored in to getting a train, obtaining a university degree, and so forth (there are still many people who support nationalisation of railways and the scrapping of tuition fees).

I do sense that market-friendly thinking is on the rise, and with the mass-sharing of ideas thanks to the global online connectivity, and with hopefully enough people wanting to reap the benefits of critical thinking, it would be nice to see this trend continuing. For now though, there's still quite a way to go. 

Here's the short essay…

Much More Than Meets the Eye

Last October I watched a few telecasts of the Major League baseball playoffs. I noticed the Atlanta Braves’s all-star pitcher Greg Maddux and asked myself: “What makes this guy so special?”

I studied his pitching motion. “It looks like something I could do with a bit of practice. Why am I not making millions of dollars pitching in the Major Leagues?”

Of course, I know that I could never hurl a ball with Maddux’s combination of speed and accuracy—even if I could mimic very accurately the outward manifestations of his expert pitching style. Every single pitch delivered by Maddux is the result of countless precise muscle movements, only a tiny fraction of which are visible. In short, it is impossible really to observe how Greg Maddux pitches. All we can observe are a few rough external movements—how high he raises his leg, how far back he cocks his throwing arm, and so on. If skilled pitching indeed involved mastery of nothing more than the external movements every fan sees, then the world would be so awash with skilled pitchers that Greg Maddux would have to work two jobs to earn enough money to feed his family.

Maddux’s unusual expertise is invisible. This expertise is his rare knowledge of how to coordinate the tens of thousands of sequential minute muscle movements necessary to get the ball over the plate at lightning speed. Not only can no observer ever see the complex coordination of indescribably exact muscle movements in Maddux’s feet, legs, back, shoulders, arms, hands, and fingers, but Maddux himself could never hope to articulate to even the most perceptive listener just what he does.

In fact, we can never really see, or learn by words, how any pitcher pitches. We see only the surface phenomena—the tip of the iceberg. To watch a big-league pitcher pitch is to risk being misled into thinking that we see how to pitch. The actual pitching process is vastly more complicated than anything that can be observed, measured, recorded, communicated, or mimicked.

In this way, the market is like adroit pitching: everyone observes the surface phenomena but no one ever sees the underlying mechanism—invisible in its entirety—that gets the job done. Not even the most astute economist, entrepreneur, or financial analyst ever sees more than a sliver of the vast and intricate invisible workings of the market process that daily transforms raw materials and human creativity into billions of consumer goods and services.

Leonard Read explained what he called the “white magic” of the market process in his justly praised article “I, Pencil.” No one knows how to make an ordinary pencil; no one can ever know how to make a pencil. And yet pencils are produced in such huge quantities that they are virtually free for the taking. We have pencils not because some one person planned from the beginning the cutting of cedar trees, the mining of graphite, alumina, and bauxite, the extraction of petroleum and clay, or the organization of transportation to get supplies to pencil factories and pencils to retailers. When you contemplate the enormousness of all the tasks that are required to make a single pencil, you understand that no one can know how to do more than a tiny fraction of these tasks.

We have pencils (along with indoor plumbing, electric lighting, microprocessors, disposable diapers, camcorders, concert halls, . . . ) only because for each of the countless tasks required for the production and distribution of each good there are a few people who specialize in knowing how to perform these tasks. But no one knows—or can know—how to perform all of the tasks required to produce even the most commonplace of goods. The free market works as well as it does because, when property rights are respected and fully transferrable, the resulting prices tell each of the producers at the innumerable different production “sites” just what (and how much) to produce and with what particular combination of resources.

For example, if the supply of crude oil falls, the resulting higher price will prompt manufacturers of paint to produce less petroleum-based paints and more linseed-oil or water-based paint. The resulting higher price of petroleum-based paints will prompt pencil manufacturers to paint fewer of their pencils with petroleum-based paints and more of their pencils with paints made of substances other than petroleum. As F. A. Hayek taught, the pencil manufacturer need never know why the price of petroleum-based paint rose; all that is required for this manufacturer to act appropriately is for him to conserve on his use of petroleum-based paint. The higher price of such paint achieves this goal.

Every hour of every day millions upon millions of specialists around the world adjust their plans based upon prevailing prices in light of their own unique knowledge of their specialties. Each of these adjustments, in turn, spawns further price changes that cause yet others to adjust their plans. This great web of mutual and continual adjustments allows the free market to deliver the goods (both literally and figuratively).

But this web, though we know it exists, is invisible. We see only its surface phenomena—goods on supermarket shelves, physicians’ offices filled with magnificent diagnostic equipment, beer trucks making their daily rounds. No one ever sees the immense expanse of human cooperation across space and time—or the vision and gumption of entrepreneurs, or the highly specialized skills of workers—all of which are necessary if we are to enjoy even the most mundane of modern goods and services.

People who would plan an economy, or even regulate an industry, commit the cardinal sin against sound economics: believing that they can consciously improve that which they cannot hope to know. Just as it is utterly ridiculous for me to imagine that I can learn to pitch merely by studying videotapes of Greg Maddux, it is equally ridiculous for politicians or bureaucrats to imagine that they can improve upon the free market with knowledge only of the tiny part they are able to observe. Such conceit is toxic for a free society.

Donald J. Boudreaux

Brexit Ought To Mean Leaving The Customs Union

In case you’ve forgotten, I wrote an article back in December explaining why Brexit must involve leaving the customs union. More recently Ryan Bourne at CapX adds weight to this by alluding to the shocking 12,651 different taxes associated with Common External Tariff (CET), and how the EU is internally trade liberating but outwardly protectionist, as UK businesses outside the EU could face two-way tariffs if they import and export simultaneously.

As we all know, after leaving the EU, the UK will be able to set its own trade deals in keeping with WTO rules. Given that the pain of tariffs is entirely self-inflicted – rather like ramming a broom handle through the spokes of your bike as you’re riding it – the sensible post-Brexit policy for Philip Hammond and Theresa May will be to abolish tariffs altogether and allow manufacturing industries to import more cheaply from anywhere in the world. For as Ryan Bourne points out in the article – a fact that is utterly pain-inducing:

“The CET, coupled with non-tariff barriers imposed by the EU, has resulted in agricultural and manufactured goods prices being around 20 per cent above world prices.”

This should tell you two things. Firstly, as I’ve often remarked on here - that people in the agricultural industry in the developing world are being screwed over here, unable to compete with the EU’s protectionist racket. And secondly, we consumers are being screwed over too because we are paying more than the market value for our goods. Because in case you’ve forgotten, consumption is the primary benefit of trade.

Remember, it’s not Steve’s Steel that pays the tariffs to export, it’s the customers of Steve’s Steel that pay when it is imported. Apparently the EU buys 44% of our exports, whereas we buy just 7% of theirs, which means they tax themselves a lot more than we tax ourselves. The alternatives to exporting to the EU are exporting to non-EU countries or not exporting at all and increasing our home-grown consumption – both of which are more sensible than taxing ourselves - and the EU countries would be wise to adopt the same approach. The outcome – tariff-free trade for both parties, and mutual benefits for both importers and exporters. It’s a no-brainer really. 

How Numbers Can Easily Mislead

I see a lot of headline-grabbing warnings in the media about how activity x, y or z is a huge danger to a, b or c. They bandy figures around like if you do x you'll be 80% more likely to get this type of cancer, or y increases the risk of a heart attack in men by 70%, or z makes a more than 5 degree temperature more likely by 75%.

When stated like that, activities x, y and z can quite easily cause alarm - and they often do, whether it's how many cups of tea you drink a day, how often you have a fried breakfast, how many cars are on the road or whether you smoke in a house with children - someone has got something to say about it and some stats to throw at it.

But those figures mean very little unless you know the base probabilities to begin with. For example, suppose drinking an extra two cups of tea a day (from, say, 4 to 6 cups) increases the probability of your getting prostate cancer by 40%. On first inspection it may sound advisable to stick to the 4 cups of tea a day.

But suppose drinking 4 cups of tea a day only makes your chance of getting prostate cancer 15% - a 40% increase in probability from 4 cups a day to 6 cups a day only adds another 6% to your chance, which is still only a 21% chance. You may well feel that all those extra cups of tea over your lifetime is worth a 6% increase in probability. However, if you just saw the headline "2 extra cups of tea increases the chance of prostate cancer by a whopping 40%" then taken at face value it may put you off tea for life.

We routinely hear claims of the kind that eating two rashers of bacon a day raises the risk of bowel cancer by 18%. But without a base rate (how common is bowel cancer?) this information is not very useful. As it happens, in the UK, bowel cancer affects six out of 100 people; so a bacon-rich diet would cause one additional case of bowel cancer per 100 people.

Here's another example. Suppose 40 million of the UK population ticks a yes or no box to say whether they trust the media, and then the media tries to clean up its act. Next year there is a repeat poll and the results show an 18% increase in people who now trust the media. At first glance that sounds like it could be quite a lot of people changing their mind - after all, 18% of 40 million is 7.2 million people.

But, of course, that's totally the wrong way to think about it, because we need to know the base rate - that is, the number of people who trusted the media in the first year. Apparently the actual figure is that only 6 out of every 100 people say they trust the media, so an 18% increase the year after is only an extra 1 person in every 100 now trusting the media.

Numbers are misleading - they can shock in large quantities, but that often skews the real picture. When a few years ago Vince Cable projected that our joining the Euro would increase our GDP by a few billion pounds, lots of Liberal Democrats got excited, and many pressed for us to join.

What should have been obvious is that that GDP figure is spread over the entire population of Britain, and doesn't add up to much at an individual level (for example, 4 billion divided by 63 million works out at just over £60 each). Would you want to lose the pound sterling for an extra sixty quid in your pocket? (that was then, of course - now almost every Brit is glad we didn't touch the Euro with a barge pole).

Yet another example. Imagine that there is a new illness discovered, colloquially called 'MXDA', the symptoms of which are swollen hands and occasionally swollen feet (with neither causing the other, and either can occur independently of the other). With MXDA swollen hands occur in 99/100 people diagnosed with it. Swollen feet occur in only 1/100 people diagnosed with it. Consider this question: which of the two following statements is most probable:

A) George contracted MXDA and had swollen feet

B) George contracted MXDA and had swollen feet and swollen hands

The vast majority of people answer B, even though the answer is obviously A. It's fairly evident that even though George has swollen feet, there is still a 1 in 100 chance that he does not have swollen hands, and given that the two probabilities are independent, it is impossible that B is more probable than A. Belief to the contrary is known in philosophy as the 'conjunction fallacy'.

Understanding base rates, probabilities and logical thinking can help us in everyday life decisions too. Take insuring your household products (a subject I once blogged about here) Using similar logic to the above thinking, then in terms of probability when it comes to insurance of household products the cards are stacked in the favour of the insurer not the insured. It should be fairly evident why: insurers must cover the cost of pay outs and the administration costs to sell insurance, so insurance must be a winning hand for the insurer overall (ditto casino owners, bookmakers, amusement arcade owners, and so on - the fact that they are in business at their customers' expense tells us all we need to know).

Should someone who has spent £20,000 on a conservatory spend an additional £30 to insure against it being damaged by the weather? The obvious answer seems like yes, but it depends on the 'base rate' - the odds of the conservatory being damaged by the weather. If the odds of it being damaged are 1000/1 he'll be £10 down on the deal. Maybe it's still worth it, but what about £3,000 insurance against a 1000/1 chance that a £2 million conservatory will be damaged? It's the same as before in terms of odds and ratio, but our man may think an extra £3000 could be better spent elsewhere.

One final point, when it comes to perceived rationality things aren't always as they seem - sometimes it's important to think a bit further outside the box. For example, generally it is thought that people who understand probability won't buy a lottery ticket* because they know the vanishingly small chance of winning the jackpot pretty much makes any lottery ticket purchase tantamount to a waste of money.

That might be true if those gambling odds were all there is to the purchase, but there are other factors that might make a ticket purchase worthwhile, just as there are other reasons why going for a night out at the casino is not necessarily irrational despite the probability being in the casino owner's favour. In buying a lottery ticket you might also be buying the dream and the excitement, which may well be worth the value, particularly if you enjoy the whole TV show that goes with the lottery experience. And in case you're wondering, I don't buy a lottery ticket, I'm not an idiot! Haha! Just kidding!  

* I remember reading about the high number of lottery winners who squander their fortune, some of whom even go bankrupt within a few years. It could be that the paradox of lottery players is that if they are willing to spend a few pounds each week on lottery tickets in the first place they are not likely to be the kind of person who optimises their spending commensurate with their budget. Therefore, one would expect that a high number of lottery winners had proclivities for profligacy. "Proclivities for profligacy" - That's one hell of a statement.

On The Philosophy Of Art & Morality

In this paper, I will consider supposedly subjective things like taste and opinion and look to challenge long-standing views about their subjectivity - instead attempting to show why they can be thought of as being inextricably related to objectivity.

 

To read the full paper, click on this link.

 

Hope it's informative and in some way enjoyable too!