Quelle surprise

Nutella riots show that even the French can go nuts over a bargain

Well, yes. It’s one of the core observations of economics. Human beings like to get more for less.

From which we can derive two fairly important results.

1) Economic systems which do not have this observation as a core part of the structure aren’t going to work very well. Trying to insist that people will get less for more won’t work. We should pay farmers more for food because farmers doesn’t, for example. Quadruple (an actual demand being made) the wages in those garment sheds in Bangladesh and everyone will be happy to pay the resultant price increase in Zara doesn’t.

2) Economic systems which do cater to this human desire seem to work rather well. One thing we can absolutely say about this capitalism/free market mix is that it makes things cheap. It caters to this handing over less to gain more.

Well done.

Yes, this applies even to the French, concerns about their relationship with homo sapiens sapiens notwithstanding.

Anne Pettifor calls herself an economist, does she?

Everyone – from the government, to housing charities, to housebuilders – has bought into the conventional wisdom that the dysfunction that racks our housing market is a matter of demand and supply. We’re not building enough houses, so house prices have been sent rocketing, taking home-ownership out of reach for growing numbers of young people. But in reality, our housing problems are not a simple feature of supply and demand. Rather, our housing market has a bitcoin problem.

What has bitcoin mania got in common with house prices, especially in the capital? For starters, both are speculative bubbles. Vast sums of money have been poured into finite supplies of bitcoins and London property. Both have consequently exploded in value, albeit over different time periods. And so both have become financialised assets that deliver capital gains far in excess of people’s ability to earn income from work, or from investment in the real economy. And as with bitcoin, so with London property: speculators are convinced that prices will continue to rise for ever.

Yes. So, if we expand the supply what happens to the price?

What’s more amusing is that, as the property industry itself is pointing out, prices are falling in London. You know, exactly that thing which Ms. Pettifor tells us cannot happen?

This will lower house prices

More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”.

The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home.

The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

It doesn’t matter that these are “luxury” not “affordable.” There are still 3,000 more units and that will lower the price, fractionally of course, of every other property on the market. Because this supply and demand stuff really does work.

Wouldn’t surprise me at all if one or more of the developers, or perhaps developments, goes bust which would be an interesting time for a housing association to pick up some cheap stock, no?

Sorry, the IMF has fallen for the delusion

Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF’s annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, the eurozone and Japan – are doing better.

“I don’t think that we’ve completed the job,” said Lagarde, who fears that the growing economic inequality in many countries is creating “fractures”.

“Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated,” said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.

Still thinking, or perhaps newly thinking, that there is some lever to be pulled to “allocate” growth.

It’s as much of a delusion as thinking that there’s some lever to pull to create growth. That’s one we’ve tested to destruction and shown to be untrue. But then those whose job is to mull over how to run the world economy aren’t going to be happy with the likely correct answer. We can’t. Growth is emergent from economic freedom, just as the allocation of that growth is.

Sure, we can vary the tax system a bit, fiddle with benefits, but that’s about it. We’ve no lever long enough, nor a fulcrum for it, to be able to create nor allocate the growth itself. Something as chaotic as an economy isn’t malleable enough to be managed. We’ve irrefutable proof that an economy can be mismanaged, there’re enough examples of fuck ups for that, but management to good ends appears to mean doing only what must be done (that peace, easy taxes and tolerable justice) and then leaving the fuck alone.

But then if you were an international bureaucrat tasked with economic management you wouldn’t like that answer, would you?

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.


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?


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

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.