December 2008

Timmy Elsewhere

At CiF.

Yes, of course we should freeze the minimum wage.

The piece got cut a bit so here\’s the full version.



We\’ve been asked, should we freeze the national minimum wage? (NMW) Given that, sadly, we\’re not going to abolish it any time soon the answer is yes, of course. For three different reasons.


The first is a technical point. It\’s one of my favourite truisms about economics that we don\’t actually have solutions, we only have tradeoffs. Yes, we can make some things better but it will be at the cost of making some other things worse: or at least different. Whether we think that the overall bargain is worth it is often a matter of personal choice, of course, but we do need to look at all of the effects before making such. And, contrary to what many say, the minimum wage does have deleterious effects. As far back as 2005 the Low Pay Commission was reporting that the rather lower NMW of those times was having some undesirable effects:


In particular, appendix 3, which starts on page 213 of this pdf. It contains a survey of employers who were affected by the rise in the minimum wage in 2003. It shows that: 37 per cent of them cut staffing levels, whilst only 4 per cent raised them; 31 per cent cut basic hours worked whilst 3 per cent raised them; 28 per cent cut overtime hours; 81 per cent said their profits fell; and 63 per cent said they raised prices.


It really shouldn\’t come as a surprise that if you raise the price of something then people will purchase less of it and yes, this applies to labour just as much as anything else. The effects are small at the current level of the minimum wage but every rise makes them bigger. A recession will also make such effects larger than they would be in better times. In a time when we expect there to be 3 million (anyone want to bid higher?) unemployed, we really might not want to adopt a policy which we know is going to increase that number further.


The second is a moral point. Things in markets are worth what the markets say they are worth. This applies to labour just as much as to apples or iPods. It\’s also true that we often don\’t like the values that markets come up with so we intervene to change them. The Common Agricultural Policy does so for many foodstuffs, tariffs do so for certain foreign goods and the NMW does so for the value of low skilled labour. Now I reject all these of those interventions but that isn\’t quite my point here. Rather, it is that if we as an entire society (or that majority of it necessary to pass a law) decide that a certain price is immoral, one that should be changed, then it\’s incumbent upon us as that entire society to do the paying for that price to change. As you can see from the numbers above, the burden of the NMW falls on three groups. Those who employ low skilled labour, their profits shrink. Those who purchase goods made with said labour, the prices they pay rise. And of course those unskilled workers who lose their jobs (or have their hours reduced) as a result of the economising being done on the employment of low skilled labour. But if we really think that wages of below £5.73 an hour are immoral then it is all of us who should be dipping into our pockets to increase market wages to that sum. That means that we all get taxed and the money redistributed.


To insist that wages should rise but that those people over there should pay, no, not me, is I think an immoral thing to do in itself.


However, the third reason I think we should freeze the NMW is that it has already achieved what it set out to do. The aim was always that someone who worked full time would not be mired in poverty. This idea that a fair day\’s (or a fair year\’s in these figures) work should lead to a fair day\’s pay and that such fairness could and should be defined as not being in poverty. So what should that definition of poverty be then? I\’m very much taken with the number that came from the Jospeh Rowntree report in the summer.


A single person in Britain needs to earn at least £13,400 a year before tax for a minimum standard of living, the Joseph Rowntree Foundation (JRF) says.


There\’s something very Adam Smith about the way that the number was calculated. Smith did, after all, point out that a linen shirt was not a necessity for any man. Yet if a man lived in a society which regarded the inability to acquire a linen shirt as a sign of poverty then if he couldn\’t get said linen shirt then he was, by the standards of that society, poor. This is just what the Rowntree report did. It asked a number of focus groups what was the minimum set of possessions, the minimum ability to take part in leisure (yes, including drinks and the occasional meal out) activities which would mean that someone was not poor in our society. The advantage of this approach is that it neatly sidesteps all that cant about “relative poverty” which is a measure of inequality rather than poverty itself.


But I say that the NMW has already achieved this while those with calculators will note that a 40 hour week all year long on the NMW brings in just shy of £12,000 a year, something quite short of the £13,400 required. Note, however, that that latter number is a pre-tax number.


One of the entirely vile things about the UK\’s current taxation system is that it reaches so far down the income scale. It\’s possible to be working part time on that NMW and be paying income tax. Indeed, a full time worker who gets that pre-tax £13,400 will be paying around £1,500 a year in income tax to say nothing of further National Insurance deductions. The perceptive will have noted that £13,400 minus £1,500 is £11,900….which is just about that amount that a full time NMW worker will make before tax. So, if we weren\’t taxing the working poor then, by the measurement of the Joseph Rowntree Trust, they wouldn\’t in fact be poor, for they would have a post tax income sufficient for them, by the standards of this society, not to be living in poverty.


Which is, I think, the thing that we all actually desire? And it\’s certainly been one of the major justifications for the NMW itself, that this should be so. That a full year\’s work does indeed attract a full year\’s pay, it being fair and just that such a full year\’s pay not leave the worker in poverty.


It\’s precisely this sort of analysis that leads ghastly neo-liberals like myself (neo-liberal should, in the way it is used around CiF, be spat out with a certain venom I feel) and the Adam Smith Institute, with which I am associated, to recommend that the personal allowance should be raised to £12,000.


Yes, this will mean that there is less to go around for the government to spend on other things but to reiterate my second point, if we really do believe as a society that market wages are insufficient for reasons of justice or fairness then it is incumbent upon us as a society as a whole to pay for that not to be so. We\’ll just have to put up with fewer of the goodies that government can shower upon us in order to pay for this thing which we value more highly, those incomes of the low skilled workers.


Or if you\’d prefer the whole thing in a nutshell, if we want to make the working poor better off then we should stop bloody taxing them.

Post WW II rationing: information bleg

A request from an academic who often helps me in my searches for bits and bobs.

Anyone know of a decent treatment of the economics of post WWII rationing in the UK?

OK, we now regard it all as pretty much foolish nonsense (or at least, I do) but is there anyone who has written about what they were trying to do, how they did it and what the effects of their doing so were?

Obviously, not a hagiography of how they controlled the commanding heights of the economy, but a real analysis of what was going on?

It\’s a terrible thing, this emancipation of women

"However, Hojatoleslam Ghasem Ebrahimipour, a sociologist, told Shabestan news agency that the trend was due to the availability of premarital sex, and feminism among educated women. "When a woman is educated and has an income, she does not want to accept masculine domination through marriage," he said."

You\’ve got your rise in the age of first marriage, your rise in the divorce rate, all explained right there.

All this piffle about "valuing marriage", about minor  tax breaks here and there, about the perniciousness of no fault divorce, about mandatory counselling, even about children being better off with married parents. All tinkering, all pissing in the ocean.

Once women are economically independent (and let us all praise that particular development, the vaguely liberal capitalist economies of the past 40 years or so being the first ever to provide such opportunity) or even potentially so then marriage as an institution or activity becomes a choice, not a necessity.

And as ever with choices fewer people will make them than took that path of action when they had to.

That "fractured family" is, I\’m afraid, simply a by blow of the increase in freedom and liberty of the post WWII period.


I know, I know, we\’re used to all that trope about how some want to ban Christmas. But I have to admit I\’d not known that it was actually compulsory.

Three young girls were found home alone and apparently abandoned on Christmas Eve, it emerged yesterday. The youngsters had been left with no presents to open and no tree to cheer them up.

While police officers tracked down and arrested their mother on suspicion of neglect, their colleagues organised a whip-round and dashed to the shops before they closed for Christmas to buy some last minute gifts for the girls.

The incident happened in Gorton – the tough district of South Manchester which originally formed the backdrop of the Channel 4 comedy series Shameless.

Yesterday, after the sisters – all aged under ten – were placed into care, the police support staff spoke of their heartbreak at learning the girls had faced missing out on Christmas.


I wonder?

What with all this monitoring of the internet, all this recording of emails:

A missionary couple from Britain have been sentenced to a year’s hard labour in an African prison for calling the Gambian President a madman.

David Fulton, a former army major, and his wife, Fiona, were convicted of sedition after sending critical e-mails about Yahya Jammeh, who seized power in the predominantly Muslim country in a bloodless coup in 1994.

We\’ve already had the reintroduction of sedition (more accurately, "thought crimes") into English law as a result of the European Arrest Warrant.

Is it going to be insult politicians now for you\’ll forever have to keep your peace?

Sad that this is necessary to say.

I don\’t know any of the Steven Gerrard alleged assault details. He is innocent until proved otherwise, but I know how anyone can be stretched beyond normal endurance.

Of course he\’s innocent until proved otherwise. Everyone is. *


* Except for those offences where the bastards** have reversed the burden of proof, like ownership of assets etc.

** Yes, The Government.

Grr, Grr

There are also honours for the comic fantasy novelist Terry Pratchett, who is knighted, Led Zeppelin singer Robert Plant is given the CBE.

Very happy about the CBE, but you\’re "appointed" a CBE.

Sir Terry Pratchett

Hurrah! Hurrah!

I know, I know, his Discworld novels are pap for sad geeks, still hungering after Dungeons and Dragons (err, like me, although I never did do D&D).

And certainly, some of them are on the very light side of comic fantasy. However, there are some of them that climb very much higher on the totem pole to what I would consider the literary form (although I\’ve never quite worked out what it is that makes something a literary novel. Is it that the publisher\’s assistant will have a name like Jocasta? Or that it doesn\’t sell many copies? Or that it\’s about adultery in Hampstead? Dunno).

This one, The Truth, for any who have not tried one of other of his novels, is what I think is the best of them all. A delicious satire of the press. With some really rather wonderful economic insights (for example, the dwarves work out how to turn lead into gold. Yes, you guessed it, by making printing type.). Plus a lot of very good jokes.

If you\’ve not read any of them then I thoroughly recommend that one specifically. Not so much as part of the series but as a simply great piece of comic writing (and I see no reason why comic writing cannot be literature).


It\’s just occured to me


But Tim comes from a very different part of the political and, might I say it, social spectrum.

Social spectrum? What\’s that all about then? Is he calling me an oik or something?

A little weird to be sure.

Murphy\’s degree was Economics and Accounting. So was Tim Worstall\’s.

OK, so I wasn\’t an accountant:

In parallel with his practice career Richard has been chairman, chief executive or finance director of more than ten SMEs.

Or here:

Richard is a serial entrepreneur, having directed more than 10 SMEs in sectors as diverse as IT, the toy industry and environmental auditing in both the UK and overseas. 

Tim Worstall is a serial entrepreneur, having founded and run companies in sectors as diverse as business to business marketing, offshore computer programming, games development, import/export, newspaper distribution, rare metals and even the filing of EU documentation in both the UK and overseas. Some were successful, some were not, some still thrive, some do not.

So what is it with this oik thing (if that is indeed what he\’s accusing me of)?

Richard has written widely on taxation and accounting, including for the Observer. He has appeared in BBC radio and television documentaries on taxation issues.

Tim has written widely on economics and the environment for outlets as diverse as the Daily Telegraph, The Times, The Guardian\’s CiF, Takimag, The Independent, TCS Daily, The Register, The Philadelphia Inquirer, San Francisco Chronicle and innumerable online outlets and blogs. Even Accountancy Age.

So what is this social spectrum thing? Is it that I went to the LSE where they actually teach economics or something?

Or are we being rather more archly English here and talking about class?

The evil that Tim Worstall does

There is, however, another reason for not engaging further. I note some of the rather offensive comments on Tim’s blog. I am quite sure neither Dennis or I would allow such ad hominem attacks, all unfounded. But Tim comes from a very different part of the political and, might I say it, social spectrum. Tim is a clever chap, I will not dispute it. There is, however, something very unpleasant about his methods. He tries to engage as a reasonable person on this blog, and then goes back to his own blog, hurls abuse and waits for his sycophants to come back with ad hominem, crude and sometimes blatantly inappropriate comments, all of which, I am sure, fuel his ego, but more sinisterly, fit into a pattern of political behaviour most commonly associated with the far right. The BNP work in this way, for example. I’m not suggesting Tim has anything to do with them, or their racist opinion, but Nick Griffin also seeks to appear reasonable in public debate, but relies upon working his audience of thugs behind-the-scenes and in his own domain to secure his support.

The object of the aggression ( and it is much worse on some other sites whose authors have chosen to comment here in the past) is simple. It is to frighten people away from the debate to secure the space for the far right. This is the work of extremists.

I seek to work in the mainstream. No one in the mainstream would allow the type of comment, attack, or abuse that Tim Worstall allows onto his blog. As a result I am satisfied that he is an extremist working outside the mainstream of UK politics, but who has intention to undermine it.

It is why I have decided to ignore his comments from now on. It is why the mainstream needs to eliminate this type of attack, which also seeks to suppress debate on sites such as the Guardian’s comment is free, if only by overwhelmingly out-posting these people, and it is why we need to name the likes of Tim Worstall for the extremists they are.

No doubt Tim will have a lot of fun abusing this. I can live with that. Someone has to name him (and his like) as a threat to democratic debate. I do.

There we have it, right from the horse\’s mouth. Tim Worstall is a threat to democratic debate.

And all because Obnoxio has a potty mouth.

Excuse me while I go and write that piece that The Guardian\’s Comment is Free has just commissioned from me.

Can we do this to MPs and Ministers please?

A council has begun legal action to recover more than £750,000 from its former chief executive.

Christine Laird, 50, spent 18 of the 36 months that she was employed by Cheltenham borough council as its £75,000-a-year managing director off work suffering from stress. Her employment with the council was terminated in August 2005.

The council is now claiming costs from its former employee totalling £754,392.47 in the High Court. The result is expected to be a landmark ruling as, for the first time, a local authority is bringing action under the Local Government Act 1999.

The council claims that Mrs Laird “misrepresented and misstated” her fitness for employment on an application form. The case against Mrs Laird, scheduled to last 38 days, is due to begin on January 26.

You know, claim back the money they cost us from their incompetence?

Lovely line

I was a Boots girl, myself. We rather fancied ourselves because we got 10 per cent off our Rimmel make-up and felt that put us above the supermarket lot in some obscure way. We\’ve recently had a Waitrose employee in the family who got frightfully grand. "Ah," she said, on seeing the John Lewis chairman on the news. "My partner."


It was breath-taking and depressing to observe the transformation of New Labour after 1997, from the party of open government, human rights and civil liberties into an increasingly paranoid group of power-hogging and repressive political control freaks, who have done more damage to fundamental human rights in the past 11 years than any other (sequence of)  government(s)  in any comparable-length stretch of time since the Glorious Revolution.

More Ritchie

Don\’t know whether this comment will get through, given that "The debate is over".

"But the policy is based on the simple model that the market rules, that there is a stable equilibrium, that the gifts of nature are free (and should be free) and that profit maximising (or ‘greed is good’) is what business is all about."

Only one out of four there correct Richard.

1 "The market rules"…..except when it doesn\’t. Any and every economist accepts, even insists, that markets do not provide the optimal outcome in all cases. As I\’ve pointed out above this is true for public goods: even the most viciously right wing (or "neo-liberal" if you prefer) would include defence, the criminal justice system and almost all (Larry Lessig perhaps excluded) would accept copyright and patents as at least one valid way to correct what would be a pure free market and non-optimal outcome (others like Dean Baker have different ideas of how to do this but almost all agree that the pure free market outcome is non-optimal).

The argument is not that all markets all the time produces an optimal outcome. It is not over whether interventions can improve upon market outcomes. It is only over *when* do interventions improve upon market outcomes. Again, as I mention above, the existence of externalities leads to "neo-liberals" not only accepting but actually campaigning for certain interventions: as with the London Congestion Charge.

2) "Stable equlibrium". No, we do not argue that there is a stable equilibrium. Technology changes, desires change, thus there is not and will not be a stable equilibrium.

3) "Gifts of nature are free (and should be free)". No, we do not argue so. See above. Certainly, when demand for a gift of nature is below the sustainable supply we argue that there is no problem with it being treated as free. But we are the very people who argue that a price has to be put on those gifts when demand exceeds sustainable supply. Again, see above.

4) "Profit maximising is what business is all about". Yes, this is the one you\’ve got correct. But there are provisos of course. For example, only profit maximising where one is indeed taking account of externalities (again, see above). For a business maximises profit in the long term by servicing the desires of consumers. And that is what it really is all about, how best to organise the various resources available to as to maximally (to the extent which is possible at current levels of technology) satisfy the desires of, to maximise the utility of, the population.

Good Lord!

Now this is a bit of a surprise.

Yet as the respected New York Venture Capitalist, Fred Wilson writes on his blog, whilst the downturn is the main cause of many of the recent business failures, something more fundamental is happening:

“Clearly the economic downturn is the direct cause of most of these failures but I believe it is the straw that broke the camel’s back in most cases. The internet, now closing in on 15 years old in its mainstream incarnation as the world wide web, is in many cases the underlying cause of these business failures. Bits of information flowing over a wire (or through the air) are just more efficient than physical infrastructure”

People stopped buying records and video games in Woolies years ago. Gone went the Kodak instamatic cameras at affordable prices. News is read online. Globalised manufacturing ensured that the household appliances they used to source more efficiently than their competitors, stopped being the cheapest; undermined by the ability for anyone to send an email to a sales representative of a shipping firm in China.

Globalisation in a connected world did for Woolies. When my son is a teenager, his friends will arrange to meet online and share their music tastes before pressing the ‘buy’ button. They’ll discover the world from their shared trust in favourite web sites.

We are entering an era of profound and irreversible change to the way people choose to live their lives and organise the world around them.

And there isn’t a politician on the planet who is going to stop this.

That\’s Tom Watson that is. Bit of a shocker to find that we have a Schumpeterian in the Government isn\’t it?

To describe it he borrowed the phrase "creative destruction," and made it famous by using it to describe a process in which the old ways of doing things are endogenously destroyed and replaced by new ways.

Wonder if we might manage to infect him with other obviously true parts of Austrian Theory? Like, perhaps, meddling governments are the problem, not the solution? Or perhaps other related parts of economic theory. Christina Romer\’s point that the tax multiplier is rather larger than the spending one, meaning that tax cuts not increased spending are the appropriate method of delivering a fiscal boost? James Buchanan\’s that politicians and bureaucrats do what is good for politicians and bureaucrats, not what is good for anyone else?

No, perhaps not, such obvious truths simply wouldn\’t fit with the worldview of a modern and proactive politician now, would they? So I guess we\’ll just have to put this collision between his economic views and reality down to the stopped clock syndrome.

When Labour were elected in 1997 there was 0% broadband connectivity in the home. Last time I checked it was sixty odd per cent and three out of four people say they’ve used the Net.

Yes, I think so. For there he is apparently claiming that an unstoppable technological change is the result of politicians. Sigh.

It\’s not as if countries not ruled by Labour have had a rise in home broadband connections, is it?

Maddie and Darwin

Maddie dear, I really think that this is stretching things a tad.

An attempt to do just that will be in one of the most important of the new crop of Darwin books: Darwin\’s Sacred Cause, by Adrian Desmond and James Moore, published next month. They argue that Darwin was driven by a moral impulse – abolitionism. He set out to prove that all human beings, regardless of skin colour, were essentially the same, all descended within a few thousand generations from shared parentage. It was Darwin\’s refutation of the scientific racism of his day used to justify slavery.

Darwin published in 1859. The slave trade was abolished by the British in 1807. Slavery itself outlawed in the British Empire in 1833. Even the Americans banned the importation of slaves in 1808 and, well:

Between 1808 and 1860, the British West Africa Squadron seized approximately 1,600 slave ships and freed 150,000 Africans who were aboard.[65] Action was also taken against African leaders who refused to agree to British treaties to outlaw the trade, for example against "the usurping King of Lagos", deposed in 1851. Anti-slavery treaties were signed with over 50 African rulers.

Darwin may well have been writing about, campaigning for, other things than simply his revelations about evolution and natural selection (that latter being really his point) but I really don\’t think that trying to change public attitudes to slavery was one of them.

A decent outline of the problem with the left

OK, perhaps a decent outline of the problem that I have with the left.

This year the British left has a particular reason to mourn, for three substantial writers have gone – Harold Pinter, Adrian Mitchell and Bernard Crick. All reached out far beyond the world of politics – to theatre lovers, children, literary addicts and general readers – but each regarded life as inescapably political.

To moderate this even further, the problem that I have with certain manifestations of the left. I don\’t regard life as inescapably political. I regard those who do as at best dunderheads with little understanding of the joys that life offers and at worst thieves of such joys from others. For they would use the political system to insist that others do as they wish, not as those others themselves would wish.

Politics is all very well in its place, that place being very much on the periphery of life. Yes, we need a system of choosing those who we decide should be responsible for the scut work in our society. We also need a system to collectively decide what is that scut work which needs to be done collectively and with the monopoly of legitimate violence which we accord the State.

To regard life as inescapably political is to extend that place well beyond what is reasonable or even rational. As the wise man said, politics is the art of gaining power without merit and that\’s hardly a basis upon which to found a life well lived, is it?