May 2010

Not a bad thing to hope for

Not a bad thing to strive for either:

\”You will die for this and it will all have been for nothing,\” said Willy Pueschel, the Gestapo inspector who interrogated him three times.

\”Not for nothing,\” replied Otto, \”I didn\’t become one of you.\”

Here comes the bollocks again

Tough measures to tackle drink-related crime, antisocial behaviour and illness – including a politically controversial minimum price for alcohol – will be recommended by government advisers this week.

The message to ministers from the National Institute for Health and Clinical Excellence (Nice) will reopen the debate on alcohol policy.


Minimum pricing is illegal under EU rules. EU law trumps UK law.

This is thus illegal.

A group of experts convened by the organisation – its programme development group – has spent almost two years studying how best to reduce alcohol-related disorders, which between them cost an estimated £27bn a year.

That figure covers the cost of healthcare, crime, disorder and lack of productivity attributable to alcohol, including the £2.7n the NHS spends treating the chronic and acute effects of drinking.

The direct costs are more than offset by the £8.4 billion HMRC gets in booze duty.

The indirect costs have to be offset by the joy and glory that people get from consuming alcohol. Estimating this is not simple but we can indeed put a lower bound to it. As people voluntarily hand over their cash for the buzz from having drunk the alcohol, this joy and glory must be worth at least what is paid for the alcohol which produces the joy and glory. That\’s somewhere north of £50 billion a year.

The benefits are therefore larger than the costs: we do not have a problem here.

Action is needed because one in four people drink dangerously high levels of alcohol that can damage physical and mental health, Nice believes.

That level which does start do do damage….well, let\’s define damage actually. If you drink no alcohol then there is some level of nastiness that can happen to you. As you start to imbibe, those nastinesses decrease. We only get back up to teetotal levels of nastiness in the 50-60 units a week range.

No, NICE is not stating that 25% of the population drink at those levels. They are using some other numbers which were randomly pulled out of someone\’s arse a couple of decades back.

So, they\’re lying, we don\’t actually have a problem and their proposed solution is illegal.

Didn\’t we just change governments so that we didn\’t have to deal with this sort of thing any more?


Mr Alexander, who was appointed on Saturday after the resignation of fellow Liberal Democrat David Laws, designated the property as his second home for the purpose of claiming parliamentary expenses but described it to HM Revenue and Customs as his main home.

Last night Mr Alexander admitted that he took advantage of a loophole to legally avoid paying CGT on the sale of the south London property for £300,000 in June 2007.

It just keeps on getting better, doesn\’t it?

On the subject of Mr. Iain Dale

Not quite I think:

I went through most of my 20s not acknowledging my own sexuality to anyone but myself, let alone my own family.

I have this small strange feeling that perhaps the occasional lover might have been let in on that secret you know.

On the continuing power of the aristocracy

For no matter how traditional this country might appear in some respects, with the Queen and her coachmen still accessorising progressive agendas for change – there can be no question, nowadays, of a lord or a duke being put in charge of something as important as BP simply because he is a lord or a duke. Although, as the collapse of Northern Rock once demonstrated, there is no actual law against this.

Tsk: As any fule kno, Northern Rock was not important enough to have an actual Lord in charge.

For a provincial building society, the heir to one is quite sufficient.

Oh dear Mr. Cohen

Nick Cohen has done one of the rather predictable little rants about working conditions in China.

The suicides at the vast Foxconn plant in Shenzhen ought to shake outsiders. They ought to make them wonder about the human cost to the 420,000 workers who make those nifty iPhones and iPads which so delight savvy westerners. Workers sleep in corporate dormitories, where an ever-shifting population of migrants makes it hard to form friendships, let alone relationships. The basic pay is $130 a month and overtime is essential. Most work 12 hours a day under the eyes of a fanatical management. One man killed himself after supervisors allegedly tore into him for losing a prototype iPhone.

No, I\’m not about to try and claim that I\’d be happy to work for that sort of sum: no, I\’m not about to try and claim that everything is just hunky dory and that manufacturing workers in China have it easy.

However, I do want to make a slightly different point. That things are indeed getting better.

Firstly, please have a look at this Paul Krugman essay, Ricardo\’s Difficult Idea. Aside from being one of the prime examples of what makes him (on those increasingly rare occasions when he is not being simply a shill for whatever the Democratic Party wishes to do) one of the very finest writers upon economics, he explains beautifully what it is that determines wages:

Wages are determined in a national labor market: The basic Ricardian model envisages a single factor, labor, which can move freely between industries. When one tries to talk about trade with laymen, however, one at least sometimes realizes that they do not think about things that way at all. They think about steelworkers, textile workers, and so on; there is no such thing as a national labor market. It does not occur to them that the wages earned in one industry are largely determined by the wages similar workers are earning in other industries. This has several consequences. First, unless it is carefully explained, the standard demonstration of the gains from trade in a Ricardian model — workers can earn more by moving into the industries in which you have a comparative advantage — simply fails to register with lay intellectuals. Their picture is of aircraft workers gaining and textile workers losing, and the idea that it is useful even for the sake of argument to imagine that workers can move from one industry to the other is foreign to them. Second, the link between productivity and wages is thoroughly misunderstood. Non-economists typically think that wages should reflect productivity at the level of the individual company. So if Xerox manages to increase its productivity 20 percent, it should raise the wages it pays by the same amount; if overall manufacturing productivity has risen 30 percent, the real wages of manufacturing workers should have risen 30 percent, even if service productivity has been stagnant; if this doesn\’t happen, it is a sign that something has gone wrong. In other words, my criticism of Michael Lind would baffle many non-economists.

Associated with this problem is the misunderstanding of what international trade should do to wage rates. It is a fact that some Bangladeshi apparel factories manage to achieve labor productivity close to half those of comparable installations in the United States, although overall Bangladeshi manufacturing productivity is probably only about 5 percent of the US level. Non-economists find it extremely disturbing and puzzling that wages in those productive factories are only 10 percent of US standards.

Finally, and most importantly, it is not obvious to non-economists that wages are endogenous. Someone like Goldsmith looks at Vietnam and asks, \”what would happen if people who work for such low wages manage to achieve Western productivity?\” The economist\’s answer is, \”if they achieve Western productivity, they will be paid Western wages\” — as has in fact happened in Japan. But to the non-economist this conclusion is neither natural nor plausible. (And he is likely to offer those Bangladeshi factories as a counterexample, missing the distinction between factory-level and national-level productivity).

Wages are not set by the productivity of what a worker is doing. They are set by the productivity of what the worker could be doing if he wasn\’t doing what he is doing. It\’s that old opportunity cost thing again. The price of something is what you give up to get it: in the case of labour it\’s not what the labourer is producing, it\’s what the labourer could be producing elsewhere that determines the cost.

As an example, the barber in Manhattan is using pretty much the same technology as the barber in Mumbai: scissors and a comb to cut someone\’s hair. They process roughly the same number of heads per hour and or day. Their productivity is roughly equal: yet the barber in Manhattan gets a multiple of the wages of the one in Mumbai.


Because the barber in Manhattan has a near endless number of other jobs which pay high wages as a result of the generally high productivity of labour in Manhattan: the barber in Mumbai has a near endless choice of low paid jobs to move to as a result of the generally low productivity of labour in Mumbai . The wages of each are set not by their productivity, not by what they themselves produce, but by the possible wages and productivity of alternate uses of their labour.

Now let\’s look at what is happening in China:

Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage.

As American workers struggle with near double-digit unemployment, unskilled factory workers here in China’s industrial heartland are being offered signing bonuses.

Factory wages have risen as much as 20 percent in recent months.

Or a couple of years back:

For years, Yongjin Group has earned a decent profit selling lamps and furniture to the likes of Wal-Mart (WMT ), Home Depot (HD ), Target (TGT ), and Pottery Barn. But lately the company has seen its margins shrink to 5% — half what Yongjin made when it opened its factory in the steamy southern Chinese city of Dongguan 14 years ago. Why? Labor shortages are forcing the company to boost wages. Last year salaries surged 40%, to an average of $160 a month, and Yongjin still can\’t find enough workers. \”This business needs a lot of labor,\” says President Sam Lin. \”This is a very tough challenge.\”

My apologies that I cannot actually source this but I have seen a report which says that Chinese manufacturing wages have been rising 14%, year on year, for well over a decade. They are now four times higher, after inflation, than they were.

The general productivity of labour in China is rising and therefore so are the wages paid to said labour.

Cohen points out that labour unions are near useless in China: that the government is the same old Communist Party that has been screwing the workers for the past two generations. Neither are, of course, desirable. And yet the conditions, the pay, of the workers continues to improve, get better at a rate not seen in this country for many a generation. This might count as an interesting lesson for those here at home really: it ain\’t the unions or the government which make the working class better off. It\’s competition among capitalists for the profits that the working class can make them which does.

Or, in short, economics trumps politics, each and every time. Which is why this is so absurd:

Like good consumers, we obey too. Not that we should. It would be heartening if people could shake themselves and say that the iPad is just another computer, which we do not need and will not buy unless Apple persuades its suppliers to improve workers\’ conditions. Until we do, the hypocrisy of the Chinese communists is our hypocrisy as well.

It is the very fact that billions of us are purchasing the products of Chinese labour which is improving the pay and conditions of that Chinese labour. For as we do so, the general level of productivity in the Chinese economy is rising, leading to that most desired of all outcomes,. as Paul Krugman points out:

\”if they achieve Western productivity, they will be paid Western wages\”

The more you want conditions to improve in China, the more you should be buying from there.

It\’s the way he tells \’em

Guess who?

Now I wonder why they looked at the USA when the proposal being made here is that CGT be changed so that it is paid at the taxpayers highest marginal income tax rate.

Nigel Lawson did that in 1988. As a result we have a case study on whether it worked or not reasdilty available.

The stats are here.

The yield rose by 68%.

Odd that the Adam Smith Institute didn’t spot that.

Do, please, look at those stats.

1) They are not inflation adjusted.

2) Anyone remember what else happened in 1988/89? No? How about the peak of the Lawson Boom?

Yes, how remarkable, CGT revenues rose in a boom.

Now, let us have a closer look. CGT revenues in 1987/8, the tax year before the rise in CGT rates, were £1,379 million. In 93/4 they were £710 million.

That may be many things (for example, the effects of booms and busts upon CGT revenues) but it most certainly ain\’t an example of a sustained rise in CGT yields from a rise in CGT rates.

This just in

From our favourite retired accountant.

The government has announced the first round of cuts in government spending. At just over £6bn they represent just 0.8% of total forecast state spending this year, and by themselves are insignificant to the economy as a whole.

Any government could make savings of this amount as part of regular spending reviews on an ongoing basis and they would not be noticed.

How excellent, eh?

We could cut 0.8% of GDP from the government bill on a regular basis….every 6 months or so….and no one would even notice. It\’s easy! Hurrah!

So, all we need is a decade of that, we\’ll slice 16% off the burden and have fructifying going on in pockets everywhere. Finally, a suggestion from Ritchie that I can really get behind!

This is more of the usual though:

This belief in so called ‘supply side\’ economics has been discredited worldwide: there is no evidence it works.

The evidence being that when places like Sweden *, New Zealand, Canada and so on faced towering debt burdens and sluggish growth, exactly these sorts of supply side policies, market liberalisations, are exactly what dragged them out of the cacky.

But there\’s none so blind who will not see and all that…..

*The welfare system that had been growing rapidly since the 1970s couldn\’t be sustained with a falling GDP, lower employment and larger welfare payments. In 1994 the government budget deficit exceeded 15% of GDP. The response of the government was to cut spending and institute a multitude of reforms to improve Sweden\’s competitiveness.

George Irvin has the solution to our woes

The inescapable political conclusion is quite dramatic. Bringing international financial markets under control is no longer a simple question of regulation, admirable though current EU thinking may be. Nor is it even about a special levy, a Tobin tax or whatever grit is needed both to slow the machine and to make it pay (principles I favour). Sooner or later, the banking system will need to be brought under public control; capital must be subordinated to labour. That involves two things. First, the main banks must be fully nationalised. Secondly, casino banking must not merely be regulated, but parts of it – starting with hedge funds – must be banned.

That economics course at SOAS might not be quite the best place to gain an ideologically neutral understanding of the universe then.


Britain is on the brink of losing its best scientific talent to foreign competition, the head of Britain’s best regarded science establishment has warned.

In an interview with The Times, Lord Rees of Ludlow, President of the Royal Society, said that the prospect of swingeing cuts to the science budget meant that universities would struggle to attract the best foreign researchers. British scientists were already being tempted by more generous grants available through stimulus packages in the United States, Canada and Germany.

The problem here is that science is a public good.

That is, the results, the output, is non-rivalrous and non-excludable. Having discovered something about the universe we inhabit you cannot stop other people either knowing or using that knowledge. This causes economic problems in that, if you can\’t make a buck out of having found something out we generally assume that not enough people will go off and find things out.

So, because science is a public good we sibsidise it: this is the same basic calculation done about all public goods.#


However, you cannot then go around claiming that it\’s important that the science must be done in the UK. For we\’ve already agreed that it is a public good, that it is non-rivalrous and non-excludable. Whether the finding things out stuff is done in Germany, the US, or Japan, makes no difference. Things still get found out and we can all use this new knowledge.

The very argument that leads to there being a subsidy in the first place is exactly what tells us that we don\’t need the science to be done in the UK…..thus arguing for subsidies to keep the science in the UK doesn\’t work.