Oh my, how amusing

Paul Sagar used to be a commentator around here at this blog. He then blogged a bit, now he’s teaching:

Paul Sagar is a lecturer in political theory in the Department of Political Economy, King’s College London.

OK.

Not sure he took quite the right message from reading here though:

Neoliberals often invoke Smith’s name, believing him to be an early champion of private capitalist endeavour, and a founder of the movement that seeks (as Thatcher hoped) to ‘roll back the frontiers of the state’ so as to allow the market to flourish. The fact that there is a prominent Right-wing British think tank called the Adam Smith Institute – which since the 1970s has aggressively pushed for market-led reforms, and in 2016 officially rebranded itself a ‘neoliberal’ organisation – is just one example of this tendency.

It is certainly true that there are similarities between what Smith called ‘the system of natural liberty’, and more recent calls for the state to make way for the free market. But if we dig below the surface, what emerges most strikingly are the differences between Smith’s subtle, skeptical view of the role of markets in a free society, and more recent caricatures of him as a free-market fundamentalist avant-la-lettre. For while Smith might be publicly lauded by those who put their faith in private capitalist enterprise, and who decry the state as the chief threat to liberty and prosperity, the real Adam Smith painted a rather different picture. According to Smith, the most pressing dangers came not from the state acting alone, but the state when captured by merchant elites.

The ASI being one of the prominent groups and places which make exactly this point, no?

And I’m sure he must have misunderstood this:

Indeed, Smith’s single most famous idea – that of ‘the invisible hand’ as a metaphor for uncoordinated market allocation – was invoked in precisely the context of his blistering attack on the merchant elites.

The only WoN mention of invisible hand is about domestic versus foreign investment. Really, nothing at all to do with the later use of the metaphor.

Tax incidence, tax incidence

Ministers will be urged to reform stamp duty to make it a seller’s tax rather than a buyer’s tax to kick-start the housing market and give a boost to first time buyers.

John Stevenson, a Tory MP, will make the case for reform in a Westminster Hall debate, to which the Government will have to respond.

It would help hundreds of thousands of first time buyers who pay an average of £3,500 stamp duty on their first property or around £10,000 in London where properties are more expensive.

Entirely possible that there are cash flow issues here but who bears the burden, rather than who writes the cheque, won’t change at all.

Oxfam on Venezuela

Hugo Chavez, Venezuela’s President, has plenty of critics, who often focus on his style (not least his interminable unscripted chat show, Alo Presidente), and in many ways he does fit into the tradition of the Latin American caudillo (the ‘strong man on horseback’). But Venezuela certainly seems to be getting something right on inequality. According to the highly reputable UN Economic Commission for Latin America and the Caribbean, it now has the most equal distribution of income in the region, and has improved rapidly since 1990.

Equality of income is just so important, isn’t it?

Hedonic adjustments

Britain’s productivity could be better than thought because officials may have underestimated the size of the telecoms industry. Advances in broadband and digital technology may not have been shown in GDP numbers by the Office for National Statistics, analysis suggests.

The work, instigated by the ONS after a review of economic data in 2016, found that inflation in telecommunications services may have been overstated by 90 per cent from 2010 to 2015.

The problem is that we want to adjust for quality/performance as well as just price. For that’s the true measure of inflation. It’s also a difficult thing to do.

The general US agreement is that they overstate inflation by 1 to 2.5% a year. Doesn’t sound like much but over the decades it sure as hell mounts up. I’d expect the UK overstatement to be less than that (amazingly, I think ONS better than Census etc over there) but still to exist. It’s also the explanation for “real wages static for 50 years” and the obvious evidence of reality that real incomes have risen.

My real reading of this would be something which I think comes from Feynman. When a number of clearly wrong no one does come out and prove that it should be radically different. Rather, we get a shuffle away from the wrong closer to the right, it taking a number of shuffles to get to reality.

Dreadful foolishness

And yet work is not working, for ever more people, in ever more ways. We resist acknowledging these as more than isolated problems – such is work’s centrality to our belief systems – but the evidence of its failures is all around us.

As a source of subsistence, let alone prosperity, work is now insufficient for whole social classes. In the UK, almost two-thirds of those in poverty – around 8 million people – are in working households.

That definition of poverty is relative – less than 60% of median household income. That’s not something that has any relationship with subsistence, is it?

As a source of social mobility and self-worth, work increasingly fails even the most educated people – supposedly the system’s winners. In 2017, half of recent UK graduates were officially classified as “working in a non-graduate role”.

Maybe sending 50% of the age group to university isn’t a good idea then?

Whether you look at a screen all day, or sell other underpaid people goods they can’t afford, more and more work feels pointless or even socially damaging – what the American anthropologist David Graeber called “bullshit jobs” in a famous 2013 article. Among others, Graeber condemned “private equity CEOs, lobbyists, PR researchers … telemarketers, bailiffs”, and the “ancillary industries (dog-washers, all-night pizza delivery) that only exist because everyone is spending so much of their time working”.

Yeah, the division and specialisation of labour is such a silly concept, isn’t it?

The argument seemed subjective and crude, but economic data increasingly supports it. The growth of productivity, or the value of what is produced per hour worked, is slowing across the rich world – despite the constant measurement of employee performance and intensification of work routines that makes more and more jobs barely tolerable.

Productivity is value of output divided by hours worked. Much output these days is valuable in human utility but has no market value – all that free stuff from the digital economy. As Hal Varian points out, GDP doesn’t deal well with free. And GDP is where we get out output number from….

And away from our unpredictable, all-consuming workplaces, vital human activities are increasingly neglected. Workers lack the time or energy to raise children attentively, or to look after elderly relations. “The crisis of work is also a crisis of home,” declared the social theorists Helen Hester and Nick Srnicek in a paper last year. This neglect will only get worse as the population grows and ages.

Looking after children or relatives is work. Unpaid, household, work to be sure, but it’s still work. And anyone analysing work without knowing that is being an idiot.

But not quite all. The idea of a world freed from work, wholly or in part, has been intermittently expressed – and mocked and suppressed – for as long as modern capitalism has existed. Repeatedly, the promise of less work has been prominent in visions of the future. In 1845, Karl Marx wrote that in a communist society workers would be freed from the monotony of a single draining job to “hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner”. In 1884, the socialist William Morris proposed that in “beautiful” factories of the future, surrounded by gardens for relaxation, employees should work only “four hours a day”.

In 1930, the economist John Maynard Keynes predicted that, by the early 21st century, advances in technology would lead to an “age of leisure and abundance”, in which people might work 15 hours a week.

Quite so, you twat. And it has happened, too. For it is those household, unpaid, hours which have shrunk. See what I mean about not ,being able to get it right if you don’t note those household hours?

The emergence of the modern work ethic from this chain of phenomena was “an accident of history,” Hunnicutt says. Before then, “All cultures thought of work as a means to an end, not an end in itself.” From urban ancient Greece to agrarian societies, work was either something to be outsourced to others – often slaves – or something to be done as quickly as possible so that the rest of life could happen.

Even once the new work ethic was established, working patterns continued to shift and be challenged. Between 1800 and 1900, the average working week in the west shrank from about 80 hours to about 60 hours. From 1900 to the 1970s, it shrank steadily further: to roughly 40 hours in the US and the UK. Trade union pressure, technological change, enlightened employers, and government legislation all progressively eroded the dominance of work.

If you don’t include household hours you’re never going to get it right.

Creating a more benign post-work world will be more difficult now than it would have been in the 70s. In today’s lower-wage economy, suggesting people do less work for less pay is a hard sell.

Seriously? Claiming that wages are lower today than they were in the 1970s?

Sigh.

Now isn’t this a surprise?

York’s decision to refuse Uber a licence to operate in December was based mostly on complaints by local taxi companies, the Telegraph can disclose.

York, who in December became the third UK city to refuse the ride-hailing company a licence, had cited concerns about customer complaints as well as the 2016 data breach which affected 2.7m British users and drivers.

However, a freedom of information request has revealed that of the 155 complaints the Council received about the company since January, 83.2% were made by “York taxi businesses”.

Incumbents protect their position…..

A little test for the historian Cormac Shine

Today, as we grapple with the challenges posed by AI, automation, climate change, and a changing geopolitical landscape, we look as much to philosophers and technologists for guidance as to economists. But historians have a role too. They are uniquely placed to help debate and define the contours of society as these challenges reshape our world, providing much-needed perspective and nuance.

Historians are skilled in building and interpreting varied narratives dealing with change over time. Yet still too many are reluctant to attempt comparison of any kind between past phenomena and contemporary concerns. Far from being irreconcilable opposites, the past and future should be viewed as two sides of the same coin.

OK, great, historians should be included. Super, who would disagree?

Certainly not any economists. At which point a little challenge for Cormac Shine. Or any historian at all. What’s the one great economic fact we’ve got to explain? What, where, is the one piece of historical experience that we’ve got to work out the causes – and if you like the effects – of? Once we’re sure that we’ve got a historian or two who grasps that most essential then sure, why not bring them into the conversation of what to do next about matters economic?

This is a Ritchie level of economics

With the second loan, the IMF exerted sustained pressure on Tunisia, and more specifically on the Tunisian Central Bank, to stop intervening in the currency markets to defend the value of the Tunisian dinar. The result of the dinar’s (imposed) depreciation has been to increase imports at a time when the main exports (phosphates and tourism) are in crisis and cannot offset these new costs.

Why would imports increase with depreciation? Get more expensive, yes, which will reduce them…..

Drivel, drivel

The most viable pathway would be for Africa’s elite to look within the vast political and ideological resources on which successful civilisations (the Zulu, the Igbo, the Malian dynasties of Timbuktu, the Oyo empire, etc) were built. In most Igbo states, for instance, there was an egalitarian system where an older member of a clan represented his people in the elders’ council. There were no kings or presidents. Perhaps there could be a way to adapt this unique political structure to replace the western one which has so far failed.

We need to look into these systems and extract coherent policies that can help form workable and uniquely African social and political systems. This is the only viable path to preventing the continent from fully becoming western Africa – and the only way to ending the continent’s long-term political decay.

Political, social organisation? Hey, run with whatever you want. That is rather the point of democracy, no?

Celebrations of Africa on the international scene mostly involve dancing, music, traditional fashion and other cultural artefacts – hardly ever showcasing African-originated economic ideas, social ideologies or intellectual theories.

And part of that is drivel. Economics is, just as are physics or chemistry. Things like comparative advantage, division and specialisation of labour, rising productivity etc, they just are. There’s no new to be had.

Sure, much of macroeconomics is bunkum but micro ……

Falling life expectancy

People in post-industrial towns and isolated rural areas are dying younger while longevity is rising in London and parts of the southeast, according to the first detailed analysis of national data.

Economic stagnation and cuts to services such as social care are among theories suggested for consistent falls in life expectancy over half a decade in dozens of local authority areas.

Other factors that may play a role include rising rates of obesity, a greater effect of smoking and drinking in poor areas, and loneliness or lack of care when children move away from their parents. An increase in flu deaths in recent winters has also been suggested as a contributor.

Migration. No, internal migration, the fit and young leaving depressed areas.

Is it the right or total answer? Possibly, probably not the total one. But until that is studied and the effect detailed we’re not going to get anywhere close to working out why it’s happening.

Here’s how it works George

Two hospitals, both urgently needed, that Carillion was supposed to be constructing, the Midland Metropolitan and the Royal Liverpool, are left in half-built limbo, awaiting state intervention. Another 450 contracts between Carillion and the state must be untangled, resolved and perhaps rescued by the government.

When you examine the claims made for the efficiency of the private sector, you soon discover that they boil down to the transfer of risk. Value for money hangs on the idea that companies shoulder risks the state would otherwise carry. But in cases like this, even when the company takes the first hit, the risk ultimately returns to the government. In these situations, the very notion of risk transfer is questionable.

Project goes wrong, there’s a set of losses. Direct government work means that first set fall on taxpayers. Outsourcing means the private sector loses first. Government might then pick up the remaining tab, true, but there has been risk transfer, no?

Interesting Guardian defintion

Glossary
Austerity The belief that by cutting spending and raising taxes you can eliminate government borrowing

Crowding out The belief that the public sector sucks up finances and workers that could otherwise go to businesses

Debt The total sum of all the borrowing taken by the state over the years

Deficit The overspend racked up by the government when it spends more than it receives in taxes

All of those being true of course.

Amazon’s workers getting food stamps

Re a previous post talking about 10% of Amazon’s workers in Ohio getting SNAP – the same as the incidence of SNAP among the general workforce in Ohio.

This isn’t a subsidy to Amazon. Benefits which are paid whether you are working or not are not subsidies to employers. Quite the opposite in fact, they raise the reservation wage.

Think it through. I work not at all, I get some money/food/shelter. Therefore going to work must pay me more than the value of the things I already get. In the entire absence of any welfare state some would work for $1 an hour (hmm, mebbe). Employers must pay me more than what I get without working therefore.

Welfare that I get *only* because I am working might be such a subsidy to the employer. So, working tax credits (EITC to Americans) could be an employer subsidy. As it happens we think they’re about 30% a subsidy to employers, 70% to the workers. Which is fine actually, as working tax credits are meant to be a subsidy to the employment of low skill workers.

But food stamps, Section 8 and so on are not. Because you can indeed get them without working at all. In fact, you get more of them without work (the rules for single able bodied no dependents adults are stricter). Thus they raise wages that must be paid, not lower them.

Or, as the thoroughly left wing Arindrajit Dube (himself a researcher into the minimum wage) puts it:

A final line of argument is that these public assistance programs have become de-facto subsidies for low-wage employers. For a program to be a subsidy for an employer, it needs to lower wages. Is this plausible for the public assistance programs considered? I think it is for the EITC, but not for other programs. Depending on where one is on the EITC schedule, that policy can increase work incentives. And there is a lot of empirical evidence showing EITC encourages labor force participation. An unintended consequence of that labor supply response, however, is that employers capture some of the tax subsidies. This can happen in a simple supply and demand framework, where an increased labor supply to the market drive wages down. This can also happen in a bargaining context where the size of the bilateral surplus expands from lower taxes, and employers capture some of this increased surplus. Work by UC Berkeley’s Jesse Rothstein suggests that for every $1 of transfer to workers using the EITC, post-tax income rises only by $0.73 because of employer capture.

But what about other programs like food stamps or housing assistance? These means tested public assistance programs are not tied to work, and we should not expect them to lower wages. Let’s take food stamps, which are available to eligible families whether or not a family member works or not. Indeed, when people are not working, they are more likely to be eligible for food stamps since their family incomes will be lower. Therefore, SNAP is likely to raise, and not lower a worker’s reservation wages—the fallback position if she loses her job. This will tend to contract labor supply (or improve a worker’s bargaining position), putting an upward pressure on the wage.

Peter Leeson is often fun

I’m not entirely convinced that he’s always right though:

Their appearance was all the more strange because between 900 and 1400 the Christian authorities had refused to acknowledge that witches existed, let alone try someone for the crime of being one. This was despite the fact that belief in witches was common in medieval Europe, and in 1258 Pope Alexander IV had to issue a canon to prevent prosecutions.

But by 1550 Christian authorities had reversed their position, leading to a witch-hunt across Christendom. Many explanations have been advanced for what drove the phenomenon. Now new research suggests there is an economic explanation, one that has relevance to the modern day.

Economists Peter Leeson and Jacob Russ of George Mason University in Virginia argue that the trials reflected “non-price competition between the Catholic and Protestant churches for religious market share”.

As competing Catholic and Protestant churches vied to win over or retain their followers, they needed to make an impact – and witch trials were the battleground they chose. Or, as the two academics put it in their paper, to be published in the new edition of the Economic Journal: “Leveraging popular belief in witchcraft, witch-prosecutors advertised their confessional brands’ commitment and power to protect citizens from worldly manifestations of Satan’s evil.”

The paper itself is here.

Idiot is idiot

The leader of Canada’s most populous province has lashed out at prominent business owners who clawed back employee benefits and paid breaks in order to offset the costs of a minimum wage increase, describing the move as the “act of a bully”.

Kathleen Wynne, the premier of Ontario, announced last year that the province would raise its minimum wage to C$15 ($12) an hour by 2019. The first phase went into effect this week, hiking the minimum wage for workers from C$11.40 an hour to C$14.00.

Days into the wage hike, it emerged that employees at two locations of Tim Hortons – Canada’s emblematic coffee chain that claims to pour eight of every 10 cups of coffee sold in the country – would no longer be paid for breaks and would have to cover at least half the costs of their health and dental benefits.

The owners of the two stores, Ron Joyce Jr and his wife, Jeri Horton-Joyce – who are the son and daughter of the chain’s co-founders – said in a letter to employees that the changes were due to the increased minimum wage.

Labour compensation is labour compensation, labour wages are labour wages. When a politician, by fiat, changes labour wages we might well expect to see a change in non-wage labour costs in order to keep labour compensation around and about static.

You know? Canute and the tide, prices in a market economy?

Well, yes, obviously

Labour’s plan to hike the minimum wage to £10 per hour could put increasing numbers of workers at risk of losing their jobs to robots, an economic think tank has suggested.

Well, yes. But that’s going to happen anyway. All that will change is the speed at which it will happen.

Much more important is that a high minimum wage will stop some to much of the experimentation needed to produce jobs once the robots are taking some of them.

This is the most pernicious effect I’m afraid. It increases the costs of trying to do new things with that newly abundant – but still expensive – labour.

Err, how? What?

What laws that is:

The government, he writes, must enact laws that require manufacturing’s share of the GDP to rise from its current 12.5 percent to something closer to the norm for OECD nations—somewhere between 17 percent and 19 percent.

How in buggery do you do that? Let alone why would you want to.

Such a changeover, Uchitelle acknowledges, would require the enactment of steep tariffs, of domestic content standards far stricter than any now on the books, and perhaps a trade war with China and other nations. It would require treating manufacturing as we’ve treated agriculture since the 1930s. “The political maneuvering involved in authorizing the annual farm subsidy once drew headlines and controversy, but now rarely does.” (Of course, that’s partly because the handful of agribusiness giants can lobby behind closed doors.) “We accept that farming is a federally subsidized market activity,” he continues. “Manufacturing must proceed along a similar path.”

Umm, right. Agriculture’s share of GDP has continued to decline though, hasn’t it?

It’s fun how people get rich, isn’t it?

The brothers’ intense personal rivalry has loomed large over India’s business scene since 2002, when the death of their father Dhirubhai Ambani, founder of the Reliance Industries group, led to a rift over strategy.

The dispute eventually led to the break-up of Reliance Industries when, in a 2005 peace deal brokered by their mother, Mukesh retained the highly profitable oil and gas business and Anil walked away with telecoms and power.

Both men continued to operate under the Reliance brand, although it was Mukesh whose fortunes prospered. The elder brother is now India’s richest man, with an estimated net worth of $41 billion,

Sure, he started out rich which helps. But the surge in fortune has come from launching free and heavily discounted mobile telecoms services. The same thing which has severely diminished his brother’s fortune.

Who are the people who really benefit from this? Well, sure, he’s a nice stash now, hasn’t he. But what about those hundreds of millions of Indians who have received free and heavily discounted mobile telecoms services? The cumulative gain there is rather larger than his increase in the stash. Very much larger in fact.

Which is why the system works. As William Nordhaus pointed out.