Tax Poetry

In response to the Budget, there was an interesting article from Philip Booth at City A.M on the fraught nature of inheritance tax. One paragraph though seems so obviously misjudged that I have to wonder if I'm misreading it, as Philip Booth is not someone who would normally do this. He says:

"Many countries that have retained an inheritance tax instead tax recipients on their lifetime gifts received rather than taxing people on their assets when they die. Indeed, it is more logical to tax the beneficiary of a gift rather than the donor."

Unless I'm not reading him aright here, this makes no sense to me. He says "It is more logical to tax the beneficiary of a gift rather than the donor", but in the case of inheritance tax it is the beneficiary who picks up the cost, as the donor has already died. So in both of the cases he mentioned, it is the beneficiary who is ultimately being taxed, either on his gift or on his inheritance - there is no distinction as Philip Booth claims.

Never mind, I just wrote my own version of the Tax The Land poem - a sort of remake for the modern age:

Tax his work, tax his pay

Tax him on his holiday.
Tax his shares, tax his stocks,
Tax his pants and tax his socks.
Tax his savings, tax his debt,
Tax him on every cigarette.
Tax his car, tax his home,
Tax his lawn and his garden gnome.
Tax his exercise, tax his rests,
Tax his pay rise and all he invests.
Tax his food, tax his drink,
Tax everything but the kitchen sink.
Tax his mother, tax his wife,
Tax him all throughout his life.
Tax him until he's ninety five,
Tax him until he's no longer alive.
Now he's buried, though, don't yet relax,
You can tax his kids through inheritance tax.

Teach it to your kids - they might be future libertarianism's best hope! :-)

One..two..three..four...

Climate Change Debate Part III: Looking At The Science of Climate Change

Next week, in the final part of the series, I will undertake a full a cost-benefit analysis, looking at whether our long term problems are serious or not, and whether as our increased scientific, market and technological innovations continue they will render this whole climate change business a mere temporary red herring.

But before I do this, it is worth asking whether the green's interpretation of climate change science suffers from biases or intellectual skews. The indicators are that it does, and even that there are some pretty squalid distortions taking place. Greenpeace tell us that:

"The impacts of climate change are already being felt. Average global temperatures have risen every decade since the 1970s, and the 10 warmest years on record have all occurred since 1997".

This is true, but not necessarily compelling. Temperatures come in ups and downs. Measuring a few years since the 1970s just won't do. Below is a much more comprehensive set of data - it's 

If you Google graphs of global temperatures going back a few hundred years all the way back to 500 million years you'll see something interesting - we may be in a warm period, and quite a long one at that, but we are not in unprecedented territory - the planet has had similar peaks in the past. As you can see from the first graph, even the current warm period began several thousand years before the Industrial Revolution (the prior cooling period was down to an ice age). Given the foregoing observations, it's going to take quite a bit more than simply stating "We are in a current warm period" to show that this warm period is uniquely different to the others to the extent that we are the primary causers of a global catastrophe that needs mitigating by the green's preventative actions. The graphs show us that future scientific predictions should be done with humility. But even if scientists can confidently make forecasts about future global temperatures (it is thought that in the next 100 years global temperatures should increase from somewhere between 2-5%), such forecasts should come with some caveats.

Some scientists argue that climate modelling should be trusted because it is specific and can point to physical laws that are currently observable and constant. Alas, this is only half-true - but even if it were wholly true, that still does not justify such confidence that the green policies are the right ones. Just because a model relies on physical laws doesn't mean it has far teaching predictability. The weather relies on physical laws, but it does not have far reaching predictability. The predictions are relatively short-term; and in issues surrounding the perturbations of the environment short-term predictions are not very reliable antecedents for long-term outcomes.

Every day up until now 25 year old Julie has had eyesight good enough that she does not need glasses. She may justifiably predict that she won't in all likelihood need glasses in the next few days, nor weeks, nor maybe even months. But if she used those extrapolations to predict that she won't need glasses by the time she is 70, we would say that her short-term indicators are bad indicators for the future 45 years henceforward. Short-term climate change science suffers from the same problem. Trying to rely on long term predictions by extrapolating current patterns would be a bit like a man from another planet visiting earth for the first time in January and measuring the temperature in Trafalgar Square every day from January 1st through to August the 1st (increasing over the months from freezing up to 28°), and hypothesising that by December the temperature in Trafalgar Square will be 40°. 

Furthermore, merely focusing on the physics is not helping the green’s cause. No one disputes that the underlying physics behind any putative climate changes gives us empirical objects of study - and few deny that changes will occur. But the issue has never been about that - it has always been about how humans will respond to those changes.

Greens seem to have this faux-idealism that when it comes to temperature the world has some kind of objective optimality. It does not - some places benefit from higher temperatures, some from lower - but more than that - temperatures change over the centuries, and humans adapt to them - there is no optimal design for us. If there is no optimal design then this green metric of idealism that they use as a stick with which to beat us is misjudged. We cannot be castigated for contributing to the wrong kinds of temperature if there is no right temperature.

Yes it may be true that climate change is in some parts anthropogenic, but most of what we’ve done industrially and technologically has been to the huge benefit of the human race, not least in the way in which the industrial revolution and consequent progression-explosion of the past 200 years has increased life expectancy, prosperity, well-being, knowledge, and the many other qualities that benefit the human race. Don’t forget that our global emissions in the past century have been part of the very same scientific and industrial advancements that have facilitated this human progression. To criticise our innovations as being environmentally detrimental is a bit like criticising a vegetable patch for ruining perfectly good soil, or criticising medicine for ruining perfectly good plants.

 

For part one of this series - Climate Change Debate Part I: Confusion Between Risk & Uncertainty click here -

For part two of this series - Climate Change Debate Part II: Why We Don't Owe Future Generations As Much As We Think click here.

 

 

 





Tony Benn's Best Legacy

It's March 14th, which means it is one year to the day that Tony Benn died. Unfortunately, despite an abundance of honesty and integrity in Tony Benn, there are numerous silly quotes for which he has notoriety. Here's one of my favourites, and one of the most well known:

"Every time I see a homeless person living in a cardboard box in London, I see that person as a victim of market forces."

To see how foolish that statement is, consider an alternative statement I made up which makes the same kind of error:

"Every time I see a car accident, I see that person as a victim of good driving".

Sounds silly, right? It is, but it's no sillier than Tony Benn's comment. Car accidents usually occur when there is an absence of good driving in that particular situation, not because someone is a victim of good driving. You can only be a victim of bad driving not good driving. Driving is a good thing, with lots of benefits - it is when driving goes wrong that there are aberrations that are felt by those involved in accidents.

Similarly, market forces are an overall good thing because they create prices based on people's desire for goods and services. A homeless person has not been the victim of market forces - he or she has more likely been the victim of a lack of opportunity to play an active role in the free market.

But even that might not tell the full story. I've met lots of homeless people who clearly are where they are for all sorts of drastic reasons - nothing at all to do with the free market. Many are homeless because of bad decisions in their personal lives, or mental health issues, or adverse life situations - all sorts of reasons - some beyond their control, some not. It goes without saying that we should do all we can to help people who've fallen on hard times, and show them love and kindness too - but to ascribe homelessness to 'market forces' is to say something outrageously facile, which will ultimately help no one.

I disagreed with just about all of Tony Benn's politics, but he did leave us with at least one good legacy. One of the shrewd observations he made was in metaphorically dividing politicians into weathercocks and signposts.

Weathercocks will assess the political climate, gauge public opinion, dip their feet in the political waters and test the temperature before deciding which position to adopt. They are panderers - reflecting the weather rather than going for any metrological change.

Signposts on the other hand are people able to change the direction of politics - they point in the direction they think people should go and they stick more firmly to their principles. They are not always right - Tony Benn, for example, was pointing his in the wrong direction - but the metaphor is not about efficacy of policy, it is about personality, character and integrity, and Tony Benn had it in abundance even if his medicine was poison.

Sadly, most politicians are weathercocks - they are chameleon-like - fading into the colours of those whose vote they want to win and whose party to which they want to be wedded. You will see them crank up their weather-cockery even more so in the coming weeks leading up to the election.

Climate Change Debate Part II: Why We Don't Owe Future Generations As Much As We Think



This is a series in which I explore a 'back of the envelope'-type cost-benefit analysis of the human causes of, and responses to, climate change. For simplicity, I've used the descriptive term 'greens' in the forthcoming series, not to refer specifically to any organisation or political party, but as a term denoting people who believe that human beings are facing a serious global disaster if urgent measures are not undertaken to address our impact on the climate.

As a preamble to this series, last time out I explained how when it comes to climate change we are talking about uncertainties where no one understands the probability far more than we are talking about risk. Now I want to look at how mindful we should be of future generations, and what we owe them.

The usual rhetoric from the greens, often summarised with the sentiments seen in the photo above, is that failure to acknowledge the science of climate change, and failure to take responsibility for the human impact on the planet, is to take a wholly irresponsible decision to not support their cause for the good of humanity. If they can impugn you on your inability to start off the debate as a responsible citizen then they allow themselves no credible reason to listen to you much further.

But that's not the case with me; I am actually willing to accept much of the validity of the science of climate change (although as you'll see later in the series, there are grounds to be cautious), and I am perfectly willing to agree that we should take responsibility for the human impact on the planet in the shape of carbon taxes and similar such measures. Yet in spite of this, I will still show what I think the greens have got wrong in all this.

 

Green issues really boil down to two big fundamental trade-offs:

 

1) A trade-off between the present life lived by a proportion of the world’s population today against the present life lived by another proportion of the world’s population today.

 

2) A trade-off between the present life lived by people of today against the future lives lived by people who are going to be our descendants.

 

Let us first focus on number 2 - the present effects this generation is having on future generations – and let us consider what kind of sacrifices we should make for the benefit of our unborn descendants.

The key question is one which, unfortunately, is never even asked by most greens let alone answered: how much should we be mindful of the unborn? Greens never ask this question because they automatically assume that we should spend a lot of time, energy and resources being mindful of our future generations. Of course, in making this presumption they often wouldn’t even use language like 'mindful', they take it further with talk of us owing future generations, by which they mean it is our moral duty to make sacrifices to leave the world a better place for them. I'll address both. If we can show that the considerations of future generations should be vanishingly small, then the whole cost-benefit analysis boils down to costs and benefits in the present and immediate future.

How mindful should we be of future generations?

On the issue of our being mindful of future generations - it is difficult for anyone to justify it when they are indicted by a fundamental inconsistency in the present. Consider that most Brits, including many greens, are less mindful of foreigners than they are Brits. They care more about British votes, so they care more about British people than the needs of people dying through lack of fresh drinking water (that's a separate blog in itself). If they find it expedient to be more mindful of people (potential voters) inside their geographical borders to people outside them, what's wrong with finding it expedient to be more mindful of people alive today than people not yet born? In other words, if they are allowed to discriminate against people who happen to be in the wrong geographical region, why aren't we allowed to discriminate against people who happen to be born in the wrong decade or century? Let's make a fair guess - they have no idea how to answer that question. For me, the answer to how mindful we should be of future generations depends largely on what duty we have towards them, and how much we owe them. To elucidate on this, let's now talk about the real fallacy - all this talk of owing future generations.

How much do we owe future generations?

When a family hires a rowing boat for a lake trip, one of the adults should get on first and help the children climb on, with the second adult boarding last. Climbing aboard ahead of your children is not an act of selfishness - it is a sensible action that guards against putting the young ones at risk by placing them on the boat unaccompanied. Parents that let their children on first because they thought it made them look noble would be confusing responsibility with exhibitionism. It's far nobler to get one of the adults on the boat first to ensure the children's safety.

While it is quite rare in parenting, this kind of mistake is quite common on the political left - particularly by the green lobbyists who tell us that it is our moral duty to be very green-conscious because we owe it to our grandchildren, their children, and so on. This would be all very well if being green-conscious came for free. But, alas, it doesn't - there are huge costs - and nothing with huge costs should be considered without a proper cost-benefit analysis. Just like a father securing a stable position on the boat to enable him to help his family board safely, we too must climb ahead of our descendents and secure a stable economic position for them in the present day by doing all we can to help the world's neediest become prosperous.

I find the argument that we are somehow indebted to our future generations quite absurd. Yes, of course we ought to be responsible citizens, and always be the least wasteful we can be, but the way greens talk about owing lots to future generations and that we have a moral duty to live as carefully as we can for their sake strikes me as a strange position to take.

Such a myopic way of seeing the situation is down to the greens obsessing about the bad legacies we may (stress may) pass on, and failing to consider the enormous riches that the unborn will inherit from us. Look at the blood, sweat, toil, imagination and innovation that came from our ancestors to give us the kind of life we have today. As we keep exponentiating our skills and our ingenuity we bestow ever-greater riches for future generations.

Suppose I have a baby girl in a year's time, and I still live in Norwich (a relatively small city compared to the world's metropolises). Think what that child will inherit on the day of her birth: she enters a world in which she already has rich pickings of food, drinking water, roads, planes, and the luxury of plenty of leisure time. She also has a stable government, property rights, career opportunities, hospitals, entertainment, and thanks to the Internet, she has access to just about every fact that human beings have ever discovered, and to a vast proportion of other minds who she would otherwise have little chance of meeting.

Most importantly, though, she enters a world in which she'll be wealthier than any generation that has ever lived, a world in which she has the lowest chance of being involved in war, and a world in which science and technology will give her potential qualities of life that would have been unimaginable 250, 100, or even 50 years ago. All this she has inherited from this current generation and everybody's contributions that preceded them. So before people lazily wed themselves to what seems to be the default green position that we are going to burden future generations with a partially ruined planet and legacies from our own unmindfulness, let's have a reality check and remember how the rich scientific and economic pageant of our past and present is a pageant from which future generations will benefit without having had to do any of the groundwork. When we express it in those terms, all this talk of our owing future generations is shown to be, at best, an exaggeration, and at worst, a laughable misjudgement. 

Notice this irony too. The greens are always going on about redistributing wealth from the rich to the poor when considering people who are alive. Why, then, do they adopt the opposite approach to the unborn – people who are going to be much richer than us? When it comes to wealth, prosperity and well-being, just as being born in 2014 is much more of a blessing than being born in 1914 - being born in 2064 or 2114 will (in all likelihood) be much more of a blessing than being born in 2014. Making sacrifices now for the unborn future generations is to transfer wealth from the presently alive poorer group to the unborn richer group - the very opposite of what the greens support when the groups in question are alive in the present day.

I talked about what a great life my new daughter would be born into if she lived in my home city. I'm aware, of course, that these luxuries are not enjoyed throughout many parts of the world. If she was born in Ethiopia or Somalia the same couldn’t be said of her blessings. But ironically, the answer to this issue is the answer that shows why our consideration of future generations should be discontinued in favour of people suffering in the here and now. If, as seems obvious, global warming is presently worse for people in Ethiopia or Somalia than in Britain and America, then many efforts and costs expended for future people not yet born are efforts and costs that are taken away from Ethiopians or Somalis now. Unless you think that Ethiopians and Somalis of a few decades time are going to be worse off then present day Ethiopians and Somalis (and if you do you're almost certainly wrong) then deferring future considerations in favour of present day crises is both the right and most logical thing to do.

Because future generations are going to be more prosperous than us, and because it is both unethical and unwise to prioritise unborn prosperous people over present day plighted people, the trade-off between focusing on the present life lived by people of today against the future lives lived by people who are going to be our descendents comes down heavily in favour of focusing on the present life lived by people of today.

After the first post in the series, explaining that our foresights into the future are mostly beset by uncertainty, and after this post which frames the present (not the future) as being the primary consideration for the debate, what we must do next is undertake a cost benefit analysis about whether green policies in the here and now are good or bad in net terms. And that is what we'll do next time.

 

* Photo courtesy of m.santablanta.com

 ** To read Part One click on the link - Climate Change Debate Part I: Confusion Between Risk & Uncertainty

 

Climate Change Debate Part I: Confusion Between Risk & Uncertainty

This is a preamble to my forthcoming series on climate change and green polices. I only want to make one key point here - that despite what the vast majority of people involved in these debates will tell you to the contrary - any future discussions about climate change polices are not primarily discussions about risk, they are primarily discussions about uncertainty. I'll explain.

Some in the green contingent say they are fairly certain of the negative effects on the climate in the forthcoming decades, which, according to them, justifies radical climate change policies in the here and now. Others say there is real uncertainty about how bad things are going to get in the future, which, also according to them, justifies climate change policies in the here and now. They can't have it both ways: they can't use both near-certainty and near-uncertainty to argue for a policy. Professor Lord Stern falls in the latter camp, holding the absurd idea that uncertainty should generate extra radicalisation in the present - an idea he promulgated when he was adviser to the UK Government on climate change: "Uncertainty of impacts strengthens the argument for mitigation", he (in)famously said.

Professor Stern is wrong; uncertainty of the impact of climate change strengthens the argument for non-mitigation, not mitigation. This rule doesn't apply in every sense, of course - sometimes uncertainty should engender extra caution. If I can't remember if I locked the front door, it is a good idea to go back and check. If I have increased knowledge that burglars are on the prowl that day then that should increase my urgency to go back and check the door is locked. But unlike the situation with the front door, where I know that a locked door is more desirable than an unlocked door, I don't know if the costly and economically-inefficient climate change policies are more desirable than undesirable, because we lack the information to calculate the risks.

To not understand in the way that professor Stern is not understanding this is to mistake risk and uncertainty. Risk is assessing the potential costs with known probability. Uncertainty, on the other hand, is not knowing the probability, which means an inability to calculate a risk. If I have to draw a Jack, Queen or King card from a 52 card deck to win £1,000,000 or else die, that is a ‘risk’ because I can calculate the probability (12 in 52). On the other hand, if I have to draw a Jack, Queen or King card from an unspecified pile of cards, and I don't know how many are missing from the pack, then I have ‘uncertainty’. I cannot calculate the probability of drawing a picture card because I don't know if any picture cards have been removed.

Let me make it even clearer with an illustration. Suppose there is a pile of 99 cards - all of which are either a Jack, a Queen or a King, and all three cards are represented. You know that 33 of the cards are Jacks, but you don't know the ratio of Queens and Kings in the remaining 66 cards. You can choose from two scenarios:

Scenario 1: You win £1,000,000 if you draw a Jack, and nothing if you draw a Queen or King.  

Scenario 2: You win £1,000,000 if you draw a Queen, and nothing if you draw a Jack or King.

Which scenario would you prefer? Due to scarcity of information there really is no way to know which scenario is preferable because you don't know the ratio of Queens and Kings - you only know there are 33 Jacks. If you choose Scenario 1 you know you have a 1 in 3 chance of £1,000,000. If you choose Scenario 2 you don't know what chance you have because you don't know how many of the remaining 66 cards are Queens - there could be as few as 1 or as many as 65. Scenario 1 offers you a risk; Scenario 2 offers you uncertainty.

The climate change assessments are generally more like Scenario 2 than Scenario 1 - they involve uncertainties where drastically little is understood about the probability. It was important to mention that before we got under way with the series. In the next part I will look at how mindful we should be of future generations, and what we owe them.

 

* Photo courtesy of datagenetics.com

On Interventionist Foreign Policy

Interventionist Foreign Policy does throw up some interesting situations, where ‘interesting’ sadly often means ‘bloody awful’. The West has contempt for Assad's government in Syria, where initially any insurgency against him was thought by many politicians to be the lesser of two evils. Similarly in 2003 Blair and Bush thought they were making Iraq a better place by removing Saddam, but over a decade later the country is now overrun with Islamic fanatics who make Saddam’s Ba’athist regime seem like the lesser of two evils.

Islamic State was, of course, one of the insurgency groups against Assad’s regime in Syria. Now they’ve seized lots of Iraqi territory, and regularly slaughter innocent people in front of cameras. And if you want to go further back you may also recall that our enemies in Afghanistan were once our allies against the Soviet Union.

The wisdom of all this is that our foreign policy has to be based not just on the present but on our past legacies and on future forecasts too. It’s not too difficult these days to consider military intervention against a government or group that was once our ally against some other government or group we disliked. Equally it’s not too difficult these days to consider military intervention against a government or group that will one day be our allies, just as we regularly consider that current allies may well be enemies in the future.

Consequently, in order for our foreign policy to be prudent, politicians must correctly ascertain which governments or groups are going to be our enemies and which are going to be our allies henceforward, otherwise they may get into wars trying to defend Iraq (Japan) from Iran (China), and soon find out that Iran (China) are very useful allies against ISIS (the Soviet Union).

 

Favourite Screen Characters Blog Hop

I've been tagged by the very good writer Kris Holt to participate in the Favourite Screen Characters blog hop. It’s a simple, fun hop in which you name your ten favourite TV or Movie characters, and then nominate some people with a Blog to do the same! Here are mine, in no particular order:

Lisbeth Salander from The Girl With The Dragon Tattoo

An absolutely mesmerising, scene-stealing character who you just can't take your eyes off. She's introverted, anti-social, vengeful, vulnerable and dreadfully damaged, but is also a brilliant computer hacker with an eidetic memory, who never fails to surprise all who stereotype or dismiss her.

Fitz from Cracker

In arguably the best British drama of them all, the acutely perceptive but hopelessly flawed and undependable criminal psychologist Edward "Fitz" Fitzgerald is the pivot around which all the police investigations and domestic commotions revolve. This is the role Robbie Coltrane was born to play.

 

Sir Humphrey from Yes Minister

The pompous, arrogant yet loveable Oxford-grad wordsmith makes a hugely funny and erudite Permanent Secretary to his less well informed Minister Jim Hacker - frequently using his superior command of language and more comprehensive grasp of the political system to obtain the results he requires. Possibly British sitcom's best ever character.

 

George Costanza from Seinfeld
Seinfeld is probably the best sitcom ever made, and perhaps with the best characters of all. George is a litany of qualities and traits - full of clever observations, but always held back by his neuroses and self-deprecation, which comes from the fact that he is, at heart, a self-serving arse who never quite works out how to rescue himself from the parochialism of his plight. The interactions between Jerry, George, Elaine and Kramer are pure comedy gold, and, for me, have yet to be matched anywhere.

 

Celine from Before Sunset
There's something invigorating about two people meeting on a train and having the spontaneity and adventure of heart to spend the day together in an unfamiliar city, leaving themselves open to what develops. Celine is an attractive person with whom one could have a string of interesting conversations - and in the last quarter of Before Sunset (filmed in real time) we see the whole gamut of emotions that sum up what the vulnerabilities of love do to a person.

 

Hannibal Lector from Silence Of The Lambs

 Yes it's true, there's a slight fault with this character in that he's a murdering cannibal. But behind those staring eyes there lies a sophisticated, classically educated polymath with a towering intellect, and without whom the world would be a less interesting place (this is observed far more acutely in the books than the films). Naturally, given his cannibalistic proclivities, the viewer is somewhat torn regarding the desired trajectory of Dr Lector.
 

Larry from Curb Your Enthusiasm
The creator of Seinfeld plays himself in this terrific sitcom, based on Larry David's worldview. Due to Larry's moniker as 'The social assassin', each episode is littered with punchy perceptions about people and social situations that you've felt all along are accurate, but have always been too courteous or reticent to say out loud.  Larry says what most of us are thinking, and what most of us would say if ordinary social protocols were suspended for a time.

 

Penny Carroll from Swing Time

Oh how I love the Fred Astaire & Ginger Rogers musicals of the 1930s - they are the most wonderful kind of escapism, and perhaps the most apt movies about which one can say "They don't make 'em like that anymore". Penny Carroll, like many of Ginger's characters, was smart, self-assured, beautiful, artistic, and more than a match for any male that tried to pursue her. These are classic boy meets girl, boy nearly gets girl, boy loses girl, boy ends up winning girl's heart movies - and you're always rooting for Fred Astaire's character because Ginger Roger's characters are so alluringly winsome.



Jimmy Porter from Look Back In Anger

 A superb play by John Osborne, and in Jimmy Porter we have a great leading character for whom the frustrations of other people's unwillingness to think, engage and explore the depths of their cognition perpetually angers and frustrates. Often he's unmercifully harsh, but like most harsh intellects, what lies in the subterranea of their personality is an agglomeration of frustrations and disaffections towards mediocrity and a failure to maximise potential.
 

Sheldon Cooper from The Big Bang Theory

 Whether it's with his rigidly logical put-downs and intellectual prowess at the expense of others, or his near inability to get to grips with the socio-personal need for empathy, thoughtfulness and reading between the lines, this genius of a theoretical physicist has become The Big Bang Theory's biggest draw, despite being surrounded by a whole host of other excellent characters. Perhaps the best praise I have for the character is that I can't ever remember a dull moment when Sheldon has been on screen. He's even starting to get to grips with sarcasm, bless him.
 

 

 



 



 



 

 

 



 



 

 

 

 

We Must Defend People's Right To Demonstrate Free Of Charge

Libertarians generally subscribe to several maxims. Here are two:

1} That everyone has the right to express their views, providing their expressions are within the orbit of the law.

2} That it’s a good thing when people feel the effects of the social costs they impose on others.

A recent debate on Radio 2 - about street demonstrators possibly having to pay to protest after police look to refuse to close roads for them to demonstrate – pits these two maxims against each other. However misjudged we find the views of groups like "The Campaign Against Climate Change", "The People’s Assembly Against Austerity", "Global Justice Now", and "Friends of the Earth", there is clearly a case here of the immovable object of people's freedom to protest coming smack bang against the irresistible force of valuable resources being exhausted by the presence of these demonstrators on our streets, in this case in the shape of exhausted police resources, blocked roads, temporary traffic regulations and potential disturbances of the peace.

On the one hand we wouldn’t want a situation where people’s right and ability to protest was predicated on their ability to pay. But on the other hand we want protesters to feel the costs of their actions. So while we are all for defending people's prerogative in being able to demonstrate against actions they dislike - when those actions come at a social cost to others, some are arguing that it is not particularly unreasonable that they should pick up the bill for these negative externalities imposed on others.

It may not be unreasonable, but I don't think it should be desired either. The state chooses to have a police presence at a demonstration (it is compulsory to notify the police for any planned demonstration), not the demonstrators. A very risk-averse state apparatus operates under the ethos that modern life is safe but expensive. Any restrictions of this kind on the ability of people to protest legally is bound to retard freedom of expression, and at the same time increase the likelihood of people protesting illegally - and that is not likely to make organised demonstrations any cheaper or safer.

Do We Already Have Too Many Books In The World?

And by books, I mean works of fiction - there is always going to be the need for new works of non-fiction (for obvious reasons). Whichever conclusion you reach, I think you're going to find the question interesting.

In a recent Blog post I explained an interesting way that we could justify the contention that top sports stars could be argued to be overpaid. If we hold the view that sports stars are overpaid because wages have escalated beyond their reasonable level of utility, we can extend that kind of consideration into books too, because the writers' market is a noteworthy one for this kind of thought experiment. Consider how many books of fiction you think you'll get to read in your lifetime. You'll soon realise that when you compare the average reading time most of us afford ourselves in a lifetime against the time it would take to read all the excellent books ever written, it's clear that there are many more excellent works of fiction in the world than you'll ever get a chance to read. In other words, there are enough books in the world already to keep every one of us replete with good reading material, which in market terms could suggest the world doesn't need any more books written.

Now don't misunderstand, as we'll see in a moment, I am in favour of more books being written, and I'm glad that book writing doesn't come to a halt - but if there are enough high quality books of fiction in the world already, this suggests that every new book of fiction written imposes a social cost on the world.

You may protest that if, say, Donna Tarrt produces a new novel, and you buy it and really enjoy it, then that novel has brought about a social benefit to your life (and doubtless many others), not a social cost. To see what's wrong with that protestation, let me first briefly explain how markets give exhibition to social costs.

The writers' market is one of those oft-called winner-takes-all markets* (much like sport, movies and music industries) where those at the top-end of the profession earn very large sums of money and the rest comparably very little. But yet it is the allure of those very large sums of money (and the social kudos) for which many entrants still try to break into the writing market - which amounts to each new entrant lowering the probability for every other person in the writers' pool. Because of this, new entrants into the market have a very low probability of success - such low probability, in fact, that many of them would confer more societal value if they tried their hand at something else instead.

Because of the efficiency of a supply and demand market, price signals direct extraneous resources to their most valuable and effectual uses. When there is a surfeit of a resource there is supplier gain in re-direction. Or put more simply; in a world with too many apples, the market says Bob the greengrocer would be wise to buy more oranges and bananas. Consequently, then, in a world with enough books already, the market says a great many budding authors would contribute more value to society if they did something else.

Your willingness to purchase a Donna Tartt book for £10 is not just about conferring £10 (or more) worth of value to you, nor is it about the money that goes to the Tartt estate - it is about the total societal gain measured against the societal costs. To make things clearer, imagine it's just Donna Tarrt and you in the transaction, and multiply the ratios for a wider audience. Donna Tartt figures that with £7 worth of effort she can produce a book for which you will willingly pay £12. By selling it at the retail price of £10, Donna Tartt induces you to buy her book instead of buying a book from the list of superb books already written. In buying her book, the societal gain for you is £2 pleasure (because you paid £10, and valued the book at £12) + the reading, and for her it is £3 (because she expended £7 worth of effort and sold the product for £10), making a total societal gain of £5**.

The point being, to say that every new book contributes little societal value overall is not to say they are not good books - it's to say that there are hidden deadweight costs, not just in the already superb books not being purchased, but in the fact that in writing these new books society is being robbed of whatever else Donna Tartt would contribute to that society if she weren't writing novels. Whatever she would have done as an alternative to writing - a mobile hairdresser, a psychologist, a baker, a jewellery maker, or whatever the market dictates - is what is missing from the world due to her being a writer. So we have to factor in not just the £5 societal value from a Donna Tartt book, we must include the hairdressing she never undertook, or the psychotherapy she never practiced, or the bread or jewellery she never made, as well as counting the cost to the estates of the aforementioned past excellent authors in the list of books that make up all the books we need, and of which we already have enough.

Notice this is the same conclusion we reached with the top paid sports stars in the last Blog. Just like Donna Tarrt, it is the societal value lost by choosing sport instead of whatever else they would have done. If this kind of thinking seems strange to you, it's probably because you're not used to paying attention to those deadweight costs that hide behind the more palpable benefits that grab the attention first. Conversely, though, it's worth noting that many writers enjoy writing to the extent that even if they remained unpublished the projects would still be intrinsically rewarding enough to confer net benefits on the writer - and that must be offset against those deadweight costs.

As well as that, and despite the question "Do We Already Have Too Many Books In The World?" being an interesting one" (and despite evident social costs with every new book), I will now say why I still want to see new books being written so freely. The assumption that enough superb books have already been written to satiate us for a lifetime is possibly a precipitous and ill-conceived one - because who is to say that future writers won't take literary writing to a whole new level beyond our current expectations?  Just as some people in Roman times thought every invention that could ever be invented had been invented already, so too might the people brought up on Homer, Herodotus and Sophocles have hastily thought that this is the best literature can ever be.  How wrong they'd have been. Just as the Greeks and Romans couldn't forecast what was to come with the likes of Dante, Shakespeare and Flaubert, so too might we be ill-equipped to foresee what kind of literary quality might lie ahead in the future. Therefore we might be missing out if we assume everything that has already been written is enough.

And as well as saying that we really have no idea what future writers will produce to confound our expectations, and that they may well take literary writing to a whole new level beyond our current anticipations - the other important thing to say is this. Let's say on that basis of market superfluity we stopped producing works of fiction from this point on. There is another caveat that must be brought to bear - namely, for how long would we keep this up? Because humankind would eventually reach a point at which all books were so old that there would be nothing in the fiction market to which those with a contemporary backdrop could relate.

In conclusion, then, even though in terms of time and reading potential there are actually already enough books in the world already to keep every one of us replete with good reading material, and that in a winner-takes-all market each new entrant into the market lowers the probability for every other person in the writers' pool, I think we should prefer that books of fiction do actually carry on being written - the deadweight costs are probably compensated for by the treasures thrown up. One thing though - while you continue to enjoy the fresh and current material, always try to find time for the classic works of literature if possible. You won't be sorry!

 

* This notion was first popularly posited in Robert Frank's well known tome - "The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us", and has now become standard fare in most popular economics textbooks.

 

** Now, of course, writing a book takes more than £7 worth of effort, but obviously the marginal value scales up per item where the book only has to be written once, and sales can keep increasing while the net effort costs do not increase.

Are Top Sports Stars Actually Overpaid Or Not?

This is one of the longer Blog posts I've written (at just under 3500 words) - but if you are the sort of person who a) reads my stuff regularly, or b) is interested in this particular subject, then you hopefully won't mind its lengthier nature.

I've just read that Sky and BT Sport have paid a record £ 5.1 billion for live Premier League TV rights, which amounts to a 70% increase on the current £3 billion deal. It's a good time, then, to ask the question: Are top sports stars like the highest earning footballers overpaid? I think they are, but not for the reason you might imagine. In actual fact, the standard reason given for why the top footballers are said to be overpaid is, I think, misjudged. The usual argument is that it is obscene to reward footballers with the same money in a week that a heart surgeon gets in a year, or a soldier defending his or her country gets in several years. The odds are some of you reading this now probably hold that view. Here's why that view needs redressing. What people earn is not an issue of moral probity, it is an outcome of market forces related to supply and demand. If a footballer or actor can generate millions of pounds per year more than a nurse or a soldier we are not seeing immorality, we are seeing what people are prepared to pay for a certain skill or service they value. Of course you'll respond by saying that we 'ought' to value a nurse or soldier more than a footballer, musician or actor, but market processes give clear demonstration that we do not.

Quite a few people can be nurses, but only one person can be Jim Carrey or Meryl Streep. And preferences are made up of a collection of the individuals in society, so there is no logical argument that says it's unethical if more people value multi-millionaire Meryl Streep than an individual nurse on £25,000 per year. There is no way to judge the 'fair' pay of a film star, a nurse, a bookmaker, a chemist, a taxi driver or a bouncer except by the demand for what they do and how much those skills and services can generate through market processes. It's not my fault that a soldier gets paid less than a top footballer, and nor is it yours, but it is ours, where 'ours' means everyone in society.

In a supermarket customers pay for the goods the supermarket produces because they value those products. The market rewards of Tesco and Sainsbury's depend, very directly, on the value that their products deliver to society as a whole. Similarly, football wages reflect the scarcity and skill of the players.

Hang on, I hear you object - this is true, but doesn't it miss one key point? The English Premier Football League contains many clubs that are paying players beyond their means, resulting in huge losses which are maintained by benevolent owners who subsidise the shortfalls with earnings from other investments. Doesn't this suggest not that they confer value to justify their earnings, but rather that some people (like Roman Abramovich) have so much money that they've lost touch with the marginal revenue productivity of wages?

I understand the objection, but it isn't a valid one - after all, unless you or I have never paid a little over the odds for something we really wanted, who are we to speak? If an owner wants to pay millions to see his or her team win silverware, that simply reflects their desire to spend their money as they wish.  It is no different from you or I paying over the odds for something we desperately want. Of course, I'd much rather Roman Abramovich gave millions to Water Aid instead of using it to buy egotistical prima donna footballers, but unless we want to live in a world in which people aren't free to spend their money as they wish, we have little to say in the matter.

Given the foregoing, how, then can I maintain that sports stars are, in fact overpaid, as the title of this blog suggests? I'll explain, but to do so it'd be good to start with a basic assessment of value. For many people this is thought to be an entirely subjective issue, contingent on the personal value you place on sport and its performers. But economics usually has a way of answering these questions – and this one is pretty standard textbook stuff.

Assessing value

How do you know if you are of value to your employer? Easy – your value can be measured by what’s called the marginal revenue productivity of wages, which is basically the benefits your employer earns from employing you. If your wages are more than your marginal revenue productivity then you earn more than the sum total of value you bring to your company. The question is, do footballers, tennis players and the like earn more than the sum total of value they bring to their sport or the person paying their wages?

If you tried to answer that question purely on grounds of marginal revenue productivity then it gets tricky, because some sports stars do have such a star status that they have a positive effect on their employer’s revenue. Research done by economists Jerry Hausman and Gregory Leonard showed that star players such as Michael Jordan, Magic Johnson and Larry Bird “raised television ratings by around 30%, in addition to their effect on paid attendance.”

Knowing a bit about English football, I know that some of the big-spending teams (like Chelsea and Manchester City) regularly make losses by spending over the odds on big name players. In most businesses such high sums would not be paid out when the result constitutes such a deficit on the marginal revenue productivity. But with clubs like Chelsea and Manchester City their owners are not too bothered – they see their clubs as hobbies, and they are willing to make financial losses to attain wins on the field.

In the case of the biggest sports stars, wages are often higher than the marginal revenue productivity of labour – but equally the supply of those extraordinarily talented players is very small, which leads to the spectacularly high wages they receive each week (to give an example: Gareth Bale – one of the world’s best footballers earns in one week what Prime Minister David Cameron earns in two years).

Or take Lionel Messi - perhaps the greatest player the game has ever seen. Messi has been blessed with an immense footballing talent, which is a combination of background, natural ability and hard work. The market system that sees Messi being paid millions of Euros per year to play for Barcelona FC and a Sainsbury's shelf stacker or the CEO of Sainsbury's being paid nothing to play for Barcelona FC is a market that's delivering a better outcome than if Messi was shelf-stacking and Joe the shelf-stacker was a striker for Barcelona FC, even if Messi is earning more than we'd like, and the shelf-stacker less.

But our desires aside, this is the epitome of a supply and demand market - its analogue occurs in price theory, which says that if a product is highly sought by hitting a target then its price will go up when it is in short supply. In football Lionel Messis are in short supply, and in supermarket retail CEOs are in shorter supply than shelf-stackers, with shelf stackers being in more regular supply than top footballers and chief executives. Despite much dissonance, no one should want it any other way, because if there was a mechanism that prevented popular products making inventors rich, and rare skills making CEOs and top footballers sought after, then not only would that be terribly bad for acquiring skills, it would be terribly bad for consumers too, because without consumer prices, suppliers cannot know how much value people place on things.

Adam Smith explained it famously by drawing our attention to a paradox:

"The things which have the greatest value in use have frequently little or no value in exchange; on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarcely anything; scarcely anything can be had in exchange for it. A diamond, on the contrary, has scarcely any use-value; but a very great quantity of other goods may frequently be had in exchange for it."

If I offered you a choice between a diamond ring and a glass of water you'd choose the diamond ring. The reason why is obvious; you can easily get a glass of water from the tap any time you like, but you'd have to work hard and save up to buy a diamond ring. But paradoxically if I said you have to give up one thing for the rest of your life - diamonds or water, you'd give up diamonds, because while you could live without diamonds, without water you'd die. That's a little like how it is with Lionel Messi (a diamond) and a shelf stacker (water). If you had to have one less shelf-stacker or one less Lionel Messi you'd choose to have one less shelf stacker, because Lionel Messis are much rarer and much more uniquely talented. But if you had to choose to live in a world with no shelf stackers or no footballers you'd probably prefer to keep shelf stackers, lest the food buying industry runs amok (replace shelf stackers in this equation with policemen or car mechanics and the point holds even more so)

So how is it that top sports stars are overpaid then?

I explained that wages are governed by supply and demand, but I hinted earlier that some people (sports stars etc) may actually be overpaid in a market that is pre-dominated by benefactors with big money (like Abramovich, etc). The key question is, how do we measure quantity to find what is excessive and what isn't?  The way we do it is by assigning value using an economic template.

In sport relatively small numbers of participants earn disproportionately vast sums of money compared to the majority of other participants with less talent. But are the differences in talent significant enough to justify the translation into such large differences in wages? I seriously doubt it, which is the best argument for their being overpaid. For example, in football the best premier league players can earn ten times more than the best players from the championship league below, but I doubt they are ten times better in ability. The difference in earnings between a top footballer and a second-tier footballer is not based just on marginal productivity but instead on the financial power of benefactors pumping money into the clubs and the economic power of the media. This applies in all sorts of areas too. People only allocate a limited amount of time to movie watching and cookery books, which means a Brad Pitt film and a Nigella Lawson cookbook each has a higher probability of big sales despite probably only being marginally better than competing films and books.

It's tempting to ask; if sport gives people great pleasure, and people wilfully follow it at some personal cost, who is anyone to say the money could be better spent elsewhere? But that is the wrong question.  The right question would be - if the vast sums of money associated with sport were diminished and put into more worthwhile uses, would the diminution that greatly compromises the quality of sport be worth it against the gains obtained from the increased resources in other uses?  Let's say the benefactors and businessmen behind sport and its media outlets got together and agreed to charitably take 50% of the crazy money out of sport and invest it in projects that helped the needy (Oxfam, Water-Aid, Save The Children, etc). You'd find that the quality of sport would decrease, but not by as much as you'd fear, and not by enough to drastically reduce your pleasure, because the enjoyment levels would soon equilibrate again. Whereas, on the other hand, thanks to the money given to the charities, the quality of life for those in need would increase greatly. 

That is the essential point - sport involves huge sums of money that generates rewards that would not be greatly diminished with much of the crazy money taken out. Good charities that invest their money well ensure that the recipients of that money greatly benefit from as much money as they can get. In the global sense, where we are measuring quality of life and well-being, sport (and many other things, of course) sucks up a lot of money and provides relatively little in return.

Once again, that is not a wild speculation - it is based on the economic principle that market economies quite naturally shape rewards, contribution and demands commensurably.  With a small degree of flexibility, the price of a bunch of bananas, or a mobile phone, or a lawnmower, or a scarf, or the fees of bricklayers, plumbers and removal men reflects the demand and willingness to pay a particular sum for those goods or services.  That is why (save for anomalies) the market generally isn't over-saturated or in great scarcity of the products consumers buy and the services people need. Sport doesn't have this Smithian 'invisible hand' to regulate its dispensations - it can extend globally and amount to a huge over investment which robs us of a great many resources and denies the more valuable and worthwhile alternative uses.  Because of this, irregularity in the market economy doesn't provide the optimum number of sports stars as it does goods, supplies, bricklayers, plumbers and removal men. 

I first came to this realisation while I was watching a Wimbledon tennis match a few years ago: the realisation that we could shave off the top 10% of quality tennis players and not significantly diminish the overall quality of tennis, retaining pretty much the same enjoyment or appreciation as before. That is to say, if the top 10% of tennis players suddenly disappeared, then once we'd adapted I think we’d still have more or less the same enjoyment of tennis with the remaining 90% (I would actually say the same for all sports - which is probably why I'm not very interested in sport generally). A friend of mine had the following objection:

"Ah but how would the world benefit by getting Andy Murray to do something else like play the harp? There's no evidence he would be any good and the net result would just be lower standard of tennis being played and no improvement in world harp playing standards."

That's true if he ends up doing something that he's no good at (like playing the harp). But he won't end up doing something he's no good at, because that won't be sufficient to pay his bills. If tennis suffers no major diminution by Murray's absence, then anything else he does will benefit the society as a whole, so long as what he does earns him a living. The main indication that someone is benefitting society in a vocation is if someone else is willing to pay them for what they're doing. If Murray had no aptitude for the harp then no one will pay him for it. If someone pays him to be a baker or a carpenter or a painter then society is the better for it.

Conversely, I think if the top 10% of contributors to popular music and literature suddenly disappeared I don’t think once we’d adapted we’d still have more or less the same enjoyment of music or literature with the remaining 90%. To paint a picture, and I know this is subjective, but in popular music you'd have to envisage that shaving off the top 10% would leave you with a world in which there were no Beatles, Stones, Dylan, Led Zeppelin, Pink Floyd, Bowie, Neil Young, Jimi Hendrix, and so on. In literature you'd have to envisage that shaving off the top 10% would leave you with a world absent of Dickens, Tolstoy, Austen, the Bronte sisters, Eliot, Dostoyevsky, Greene, Lawrence, Joyce, Woolf, Hardy, and so on.

This is part of a general piece of wisdom that says the world benefits on the whole when great talents go on to employ those talents. I want the future Einsteins to be studying physics at Oxford or Cambridge rather than bumming out and working at Tesco. I want the future Mozarts to be involved in music rather than working in factories or driving in cabs.

A novelist like Dan Brown or JK Rowling has rewards that are easy to demarcate – each book sold is a unit of income. But Roger Federer or Wayne Rooney do not have easily measurable units of income, because their pay cheques are based on relative performance not absolute performance. Tennis tournaments offer huge incentives for effort because under tournament conditions relative performance is primary over absolute achievement. All the winner has to do is play better than his opponents. In absolute terms he may play better the year after he won it and lose because his opponents played even better still. This, of course, is what motivates other players to improve – it is the allure of the big pay cheque, even though the ratio of winners to losers is miniscule. A similar logic applies to the marketplace in general. The salaries of the high earners above us aren’t just high to reflect the skill set of the Chief Exec – for as we know, often the performance of a company is down to factors outside of the Chief Exec’s control. But a higher salary for Chief Execs, managers, supervisors, etc doesn’t just motivate them, it motivates those underneath them. A workplace full of staff wanting to climb the ladder is going to be a stronger workforce than a workplace full of staff with no tangible aspirations, and that probably is one of the hidden benefits of paying your Chief Execs and managers high salaries.    

Another interesting difference between say literature and tennis (as per my examples above) is that if the top 10 % of tennis players weren't playing tennis for a living they'd be doing other things and making perhaps equally good contributions to society overall. Conversely, I think it may be argued that if the top 10% of literary contributors had not written novels but done something else instead their contributions to society overall would not be equally good. This is perhaps heightened by the fact that one only needs to write each book once, and its legacy can endure for any future time.

Do you add any value to tennis by becoming a tennis player?  A tiny bit, but negligible.  If you make bread (and make a living), the world has more bread.  If you become a plumber (and make a living) the world has someone else to fix people's plumbing.  If you become a tennis player or gymnast and win a medal then the world won't have one more winner, it will just have you instead of someone else. 

Follow that pattern.  So, if you reduce tennis players by 10% - the world will have n quality instead of n+1, but that's very slight, particularly when you are none the wiser about those 10% once they've gone.  So virtually no change in tennis. But as far as the world goes, those 10% are now free to do something else.  If they all become plumbers or builders or taxi drivers the world has more of these services, so it's a social gain.  In sport, top performers merely capture lots of income that would have gone elsewhere in the sport, so 10% reduction is not a social cost it's a transfer of wealth. Incidentally, a lawyer largely transfers wealth too - the defendant's gain is the plaintiff's loss (and vice-versa).  They do act as deterrents to unproductive behaviour, but also to productive behaviour and activity too.

Put it this way, if all other tennis players had spent their 15 years playing professional tennis, and Andy Murray had spent those 15 years baking bread, the world of tennis would be just about as good, and the world have 15 years' worth of additional bread. Of course a baker can replace another baker, but the key difference is that another baker can go and do something else, whereas a losing tennis player still spends 15 years playing tennis and losing in tournaments. If one tennis player is a baker instead of competing, the tennis tournaments are almost as exciting, and we would have 15 years' worth of baked goods. It' a valid question to ask how we know the value of the baker's output exceeds the value of say 100 million people's enjoyment of Andy Murray - but what they'd be missing is that those 100 million people would still be enjoying some other tennis player just as much.

The standards to enter the market are different too. A baker who performs 85% as well as the average baker can expect to receive about 85% of the average baker's income, whereas a tennis player who plays 85% as well as the average tennis player probably wouldn't even make it to professional status.

The market has produced good outcomes when it delivers rewards that match the social contribution of the participants. Most sport fails this standard*. The point is, when other inventions fail that standard they are weeded out because demand for them is too scarce to justify their existence. This doesn't happen in sport like it would, say, if Cadbury brought a new combination of flavours in a chocolate bar (called Bananpeach) that almost no one liked. The value of an activity socially is the aggregate of all benefits to everyone, where benefits amount to how much people are willing to pay. If no one is willing to buy the Bananpeach, it will not be manufactured for long. On the other hand, in sport people's willingness to pay is retained due to them not realising that the top earners don't add all that much to how much they'd enjoy the sport if they were absent. In other words, in the chocolate market, the superiority of the Twix, Kit-Kat, Dairy Milk and Mars Bar over Bananpeach makes the Bananpeach unable to compete any more, whereas the superiority of the semi-finalists at Wimbledon no longer makes the first round losers unable to compete anymore.

Does all this mean people should give up their love of sport?  Not necessarily - it gives them pleasure, and the crazy sums of money involved aren't going to change for the better anyway.  Compounding this is the fact that money isn't the same as wealth - money buys you the things you want and need, but it is the assets that money buys that gives quality of life.  You don't create wealth just by giving someone millions of pounds. You create wealth when you start a company that fulfils the demands of the consumer with the supply of a particular product that adds quality or well-being to people's lives. You create wealth when you streamline a company of its extraneous staff. You create wealth every time you close down an entity that sucks up more resources than it provides. You create wealth when you invent new things, or synthesise multiple concepts in innovation, or construct new theories that generate prosperity when actioned. That is why the crazy money in sport is doing much less good than that crazy money could do elsewhere.

*Obviously I'm only talking about professional sport. People who partake in sport in their leisure time are doing so for their own pleasure, so it's unlikely it will provide rewards below their contribution.