Economics

Money Can Buy Happiness

The report does not specify how much happiness a pound will buy in the current market or whether, with the weak state of the dollar, it would be more cost-efficient to buy your happiness in the US. Concerns that the UK happiness market will be flooded by cheaply-made overseas contentment imports have so far proved unfounded.

Owning a Pub

Having seen this trade close up and from the inside this makes sense to me:

It is Friday night in the village of Cookham Dean, Berkshire and, even though it is bitingly cold outside, the Jolly Farmer pub is full of people. The landlords, David and Laura Kelsey, are busy cooking in the kitchen, while the bar staff are pouring pints as if their lives depended on it. The people at the bar are chatting and laughing away. Everyone seems to know each other. "There\’s another pub in the village but we all come here," says one local. "The pub is owned by the village, so we have a vested interest in supporting it."

Twenty years ago, 60 villagers bought the Jolly Farmer, and they have owned it ever since. The village leases the pub to a landlord, who runs it day-to-day, and the result is a popular local that caters to what the villagers want. "There are certain requirements," says David Kelsey. "I can\’t play background music, and I can\’t have any gambling machines. I have to serve a variety of beers, and no one wants high-concept food. It\’s fine with me, though, because I knew this before I took it over.

"This pub was on the verge of being closed down," he continues. "No one came in here. It was really suffering. Now, that is true of many of the other local pubs round here."

That\’s all lovely, the community spirit thing, but I wager that the real reason this works is a great deal more simple.

Capital.

As the article mentions, the average pub now costs £400,000. If you\’re a brewery that owns it, you want a rent on that. If you\’re an individual proprietor, then again, you want  a rent on that. However, if the villagers put up the money, say £6 k each, then while they are indeed shareholders, they\’re likely to think that having a well functioning pub is reward enough, perhaps not looking for a financial return on that cost.

And thus some, what, £30k to £60k is magicked out of the cost base of the pub. And given pub margins, that\’s one hell of a benefit: prices can be lower etc.

Some will say that this shows what a rip off capitalism itself is: but note that we haven\’t in fact got rid of the need for capital at all. All we\’ve done is shift the reward to those who provide it. From a financial return to the more direct one of having a decent place to have a pint.

If it\’s worth £6k to you to have that then go for it. If you can persuade enough of your fellows to make it work then good luck to you.

For rather than ours beiong a capitalist society we\’re much more importantly a free(ish) market one and we have a market in forms of ownership just as much as we do in anything else.

Brewery ownership? Sole proprietor? Customer co-ops? Workers\’ co-ops?

Hey, have fun and let us know how you get on.

Oh Dear George, Oh Dear.

Monbiot is fascinating today. He (rightly) looks at the claims of various investments, plans, schemes and so on as to their job creation.

He finds that such claims are wildly overblown.

But he manages to miss the main point, the important one.

Such job creation claims should be counted as a cost of such schemes, not a benefit. So it is possible to reject the logical basis of the arguments, rather than having to do the detailed research that he had carried out for him.

For example:

The 93 stores the forum studied were responsible for the net loss of 25,685 employees: every time a large supermarket opened, 276 people lost their job. This is hardly surprising. The New Economics Foundation has calculated that every £50,000 spent in small local shops creates one job. You must spend £250,000 in superstores for the same result.

Which of course means that supermarkets are five times more efficient in their use of human labour than small local shops are. For every £250 k spent in supermarkets rather than local shops four people are freed to go and do something else: wipe babies\’ bottoms, invent a cure for AIDS or become a human diversity coordinator. As a society we are richer by having those four more things, those four other things other than supplying us with retail goods, done.

Why is this such a tough concept for people to grasp?

Creating Jobs is a Cost not a Benefit

I\’ve been muttering this to all and sundry for some time now. Of course, I find that someone said it before me, and said it better too:

A certain amount of public spending is necessary to perform essential government functions. A certain amount of public works — of streets and roads and bridges and tunnels, of armories and navy yards, of buildings to house legislatures, police and fire departments—is necessary to supply essential public services. With such public works, necessary for their own sake, and defended on that ground alone, I am not here concerned. I am here concerned with public works considered as a means of “providing employment” or of adding wealth to the community that it would not otherwise have had.

A bridge is built. Ifit is built to meet an insistent public demand, if it solves a traffic problem or a transportation problem otherwise insoluble, if, in short, it is even more necessary to the taxpayers collectively than the things for which they would have individually spent their money had it had not been taxed away from them, there can be no objection. But a bridge built primarily “to provide employment” is a different kind of bridge. When providing employment becomes the end, need becomes a subordinate consideration. “Projects” have to be invented. Instead of thinking only of where bridges must be built the government spenders begin to ask themselves where bridges can be built. Can they think of plausible reasons why an additional bridge should connect Easton and Weston? It soon becomes absolutely essential. Those who doubt the necessity are dismissed as obstructionists and reactionaries.

Two arguments are put forward for the bridge, one of which is mainly heard before it is built, the other of which is mainly heard after it has been completed. The first argument is that it will provide employment. It will provide, say, 500 jobs for a year. The implication is that these are jobs that would not otherwise have come into existence.

This is what is immediately seen. But if we have trained ourselves to look beyond immediate to secondary consequences, and beyond those who are directly benefited by a government project to others who are indirectly affected, a different picture presents itself. It is true that a particular group of bridgeworkers may receive more employment than otherwise. But the bridge has to be paid for out of taxes. For every dollar that is spent on the bridge a dollar will be taken away from taxpayers. If the bridge costs $10 million the taxpayers will lose $10 million. They will have that much taken away from them which they would otherwise have spent on the things they needed most.

Therefore, for every public job created by the bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. The employment argument of the government spenders becomes vivid, and probably for most people convincing. But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened, at best, is that there has been a diversion of jobs because of the project. More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.

But then we come to the second argument. The bridge exists. It is, let us suppose, a beautiful and not an ugly bridge. It has come into being through the magic of government spending. Where would it have been if the obstructionists and the reactionaries had had their way? There would have been no bridge. The country would have been just that much poorer. Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes. They can see the bridge. But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence. They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have. We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every working day. What has happened is merely that one thing has been created instead of others.

Dean Baker on Drugs

I\’ve been deperately trying to get my head around Dean Baker\’s proposals for reducing the costs of pharmaceuticals.

Essentially, as I understand it, do not allow patents on drugs. Instead, pay development costs directly from tax revenue and thus the drugs will be sold at marginal cost, rather than having to bear the costs of their development as well.

This would of course require that the bureaucrats allocating the tax money were wise enough (and unbribable enough) to only fund the good drugs. And central planning has worked so well, hasn\’t it?

But it all becomes clear in this comment he made to one of my questions:

We can also radically reduce the amount of research wasted developing copycat drugs, since there is much less incentive for this research, absent the opportunities to gain patent rents.

So we will reduce the number of copycat drugs. So those drug firms with a successful product will in fact face less competition.

And this is going to reduce the costs of drugs?

Genius, pure genius!

More Phillip Blond

Oh dear, this Phillip Blond really doesn\’t know what he\’s talking about, does he?

But the real story of neo-liberal success is not the extension of assets to all, but the huge and disproportionate share of wealth attained by the very rich. In the United States, between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent. That\’s a wealth transfer from the large majority to a tiny minority of some $664 billion.

Confusing wealth, a stock, with income, a flow, like that is a very naughty thing to do. Or, if you prefer, a sign of ignorance.

Further, there has been no such transfer. Wealth has increased over the period and yes, it\’s true that those already wealthy have been getting the lion\’s share of that increased wealth. But that isn\’t a transfer of pre-existent wealth. That\’s an unequal allocation of newly created wealth.

Both Left and Right seem incapable of challenging monopoly capitalism.

Tee Hee.

 

 

Phillip Blond

Dear Lord, please, what have we done to deserve drivel like this in the national newspapers? Phillip Blond manages not only to make highly questionable statements, he can\’t even parse the logic of his own factoids.

Contrary to received opinion, free markets – unless subject to civil regulation, asset distribution and persistent intervention – always tend to monopoly.

They do?

I\’ll agree that some markets tend towards monopoly: where there are network effects being the most obvious (possibly even the only) example. But always, everywhere?

Tosh.

But this is the real beauty:

The New Economics Foundation has shown that global growth has not aided the poor. In the 1980s, for every $100 of world growth, the poorest 20 per cent received $2.20; by 2001, they received only 60 cents. Clearly neo-liberal growth disproportionately benefits the rich and further impoverishes the poor.

So that poorest 20% gets a 60 cent pay rise. This is not aiding the poor? This isdriving them further into impoverishment?

Leave aside whether we\’d like that distribution to that bottom 20% to be greater than it is (we would) and concentrateon precisely what he\’s saying.

A rise in incomes is further impoverishment.

What heinous sins have we committed to deserve this sort of nonsense?

BTW, you might not be all that surprised to find that Richard Murphy likes this piece. Sigh.

One for the Equality Lovers

Is this a good or a bad thing?

In a New York Times article this morning, Robert Pear summarizes recent research showing that the gap in life expectancy between high-income/better educated people and low-income/less-educated people is expanding substantially.

Well? Is the fact that the rich live longer than the poor, and the gap is widening, something which needs attention paid to it?

And does your position change when you find out more details of what is happening?

That is, life expectancy is increasing on average, but it is increasing much more rapidly at the top of the socio-economic distribution than at the bottom — and some research suggests that life expectancy at the bottom is not even rising.

I would argue that the sum total of human lifespans increasing is a good thing. But is there anyone prepared to argue that it is a bad thing in aggregate, because the inequality is widening?

It\’s a serious question too: for there definitely are those who argue that even while everyone is becoming better off economically this isn\’t in fact a good idea because economic inequality is increasing.

Observer Leader

Umm, gents?

Among Britain\’s three main political parties, there is near unanimity about how the economy should be run: markets should generally be free so that individuals have the right incentives to generate wealth. If the state intervenes, its touch should be light.

There is plenty of argument in Parliament, but little debate of ideas. That is because, in macroeconomic terms, the prevailing ideology has served Britain well.

Those are, of course, microeconomic matters, not macro. And the basic points are all Thatcher\’s. As Owen Barder put it, in one of his more perspicacious moments:

Thatcher and Lawson should be commended for persuading the chattering classes that increasing trend economic growth is primarily challenge for microeconomic policy (ie improving the supply side), whereas controlling inflation is primarily a challenge for macroeconomic policy. This seems obvious today but it was a total reversal of the then prevailing wisdom which saw macroeconomic policy targeting growth (demand management) and microeconomic policy controlling inflation (price controls, wage freezes, hire purchase controls etc).

The Heff.

Oh Dear.

There is no political system without flaws: however, some have more flaws than others. It has always struck me that capitalism is by far the best of the lot. It is the only way to allow personal freedom its most complete expression, and to build prosperity.

Capitalism isn\’t actually a political system. It\’s simply an arrangement about ownership of assets and property.

It has its strengths, to be sure, but to call it a political system is to sell the pass to the opponents of it.

If you look at our own situation, it isn\’t in fact "capitalist" anyway. It\’s largely a market based system (with the exception of those parts like health and education provided by the State) and within the market part of it we have some distinctly non-capitalist competitors. The famous example would be the workers co-operative that is the John Lewis Partnership but all those legal partnerships, in fact partnerships of any kind, would also be distinctly non-capitalist. Looked at this way we\’re in a distinclty non-capitalist economy: although we are largely in a market one and it\’s that latter which is much more important than the former.

Another way of putting it is that we have a market in forms of ownership, just as we do in other things: and we\’re all the better off for that reason.

And it is most certainly markets, not capitalism, that allow the expression of personal freedom. A system of capitalist monopolies would not allow much freedom, while one of workers\’ co-operatives competing in free markets would.

As, of course, the system of State monopolies in health and education does not allow much freedom.

Worth remembering this distinction, otherwise as and when it does come to trying to make a choice between two alternatives, markets or capitalism, we might make the wrong one.

A Very Good Description of the Gender Pay Gap

Surprisingly, it\’s in the New Statesman.

It\’s quite fun seeing the writer (Richard Reeves) pottering along and saying all the right things…the gender pay gap is indeed caused by the career breaks and the subsequent preference for part time working amongst women caused by child bearing and rearing. Firms are not acting irrationally when they downgrade the importance or status of part time jobs and so on.

But given that this is simply the interaction of peoples\’ choices which creates the pay gap, how can anyone be against the existence of it?

Markets are usually good at offering choice, but at present the labour market is failing the family. Companies are not generally acting on the basis of a rigorous business case against senior part-timers. They are exhibiting what psychologists call "path dependency": doing what they do because that\’s what they\’ve always done. A decisive legislative strike on the Dutch model could jolt them on to a fairer path. Rather than aiming at creating economy-friendly families, it is time to shape a family-friendly economy.

I would even buy that path dependence argument, if it weren\’t for this:

It is important to be clear what the problem is. Is it bad news that women want to spend time with their children? Surely not, given the evidence for the importance of parental engagement in the early years of a child\’s life. Are these women "forced" into part-time work, and now just grinning and bearing it? No – the overwhelming majority say they positively chose part-time work, and their job satisfaction is higher than that of mothers working full-time. Most men and women, according to the British Social Attitudes Survey, think that a conventional division of labour is the right one, with mothers taking on the bulk of responsibility for childcare.

And this:

Employers are reluctant to retain or hire senior part-timers. While 60 per cent of employers say they would allow a woman returning from maternity leave to switch to part-time status, of these only two-thirds would allow her to remain at the same level of seniority. So, less than half would permit a reduction in hours without loss of status. This may not just be the result of Jurassic attitudes, as Gregory admits: "We can\’t assume that employers are simply stupid." Assuming it costs as much to hire and train part-timers as full-timers, they will offer a lower return on investment. There may also be co-ordination costs, especially associated with part-time or job-sharing managers. But it is hard to know the true height of these barriers.

If it costs more to employ part timers then part timers will get less pay.

It might be that there is in fact no "solution" to this problem. Even if contracts were adjusted so that men can take similar child rearing leave, this would simply mean a pay gap between parents and the childless. And given that social attitude about childcare, there would still be many more women takinig the extended leaves than men and thus still that gender pay gap that everyone is complaining about.

I can\’t see any problem wih encouraging companies to offer more fleixible work packages: I can see large ones with legislating to force them to do so. This will benefit larger companies at the expense of smaller as the larger you are the more flexible you can be. Screwing SMEs really isn\’t in the long term interest of the economy.

What I rather like about the way the debate is turning out now though is that at least the problem itself is being correctly identified and the causes properly noted.

Yes, there is a pay gap and it\’s a motherhood, or a child bearing and rearing pay gap.

Now we have to answer two further questions. Do we want to do anything about it, given that it is coming from the voluntary choices of the people involved?

Secondly, is there actually anything we can do about it?

Anything that isn\’t entirely counter-productive, that is?

 

Ooooh, Dear.

Mark Braund.

allowing privately owned banks to create money at will

I may well be wrong here but I take it as a basic guide to the opinions of others that when people start complaining about fractional reserve banking that rants on the Rosicrucians and the Bilderbergers aren\’t far behind.

It\’s not quite Grey Aliens and the Lizardoids territory, milder than that, but as a rule of thumb it\’s not failed me yet.

In Which I Agree With Karl Marx

Bit of a shocker, I know, but this from the old boy I agree with absolutely:

Economy of time, to this all economy ultimately reduces itself.

Right, so that\’s the Slow Food movement, growing your own veg and recycling, along with anything else which refuses to consider the value of your time, dealt with.

The National Trust

Well, yes:

The report says land and its natural resources were undervalued, underfunded and needed better care……The trust, which manages 250,000 hectares of open countryside and 700 miles of coastline, says it had drawn on its experience as Britain\’s biggest landowner after the Government in writing its Nature\’s Capital report.

When the largest landowner in hte country is a charitable trust, one which does not manage land for its economic value, then, yes, it\’s pretty clear that here will be a misvaluation of land by the market.

Erm, Guys, Macro, Macro

Drinkers and drivers were hit in the pocket yesterday as Alistair Darling used them and a borrowing surge to try to steer Britain away from recession and through global financial storms.

I bloody well hope that\’s not what Darling is trying to do. The borrowing makes sense in Keynsian terms. If there\’s a recession coming along then deficit spending is a reasonable thing to do (although there\’s a lot to be said fo the idea that we\’ve already got enouh natural such spending  built into the system).

But raising taxes is, under the same rubric, entirely the wrong thing to do. Because, er, the aim of deficit spending is to boost spending, see, not just move it from the drinker\’s pocket to the public sector\’s.

Tax Incidence Again

I\’ve had a response to an earlier post from John Christensen of the Tax Justice Network. Essentially, he takes issue with my contentions about tax incidence: the idea that just because a company is handing over a cheque for corporation tax, it doesn\’t mean that it\’s the corporation bearing the burden of that tax. Here\’s what he says:

I am an economist.  The idea that the tax incidence might be shifted, in some circumstances, from shareholders to workers or consumers, is based on very specific assumptions relating to the nature of the economy in question (i.e. it is a closed economy), the structure of the labour force (full employment is assumed) and the capital market (assumed to be perfectly competitive).  Back here on planet Earth, we recognise that these assumptions don\’t apply, and the model is merely an exercise in academic guesswork.  In real life very economies (other than North Korea) operate as closed economies, and companies do pay tax on behalf of their shareholders: hence the huge effort made by the corporate sector to avoid paying taxes and lobby for tax breaks.   Greetings from planet Earth.   John

Note please that he insists that such shifting of the burden depends upon it being a closed economy.

Here is the Congressional Budget Office on the subject:

This study applies a simple two-country, five-sector, general equilibrium model based on Harberger (1995, 2006) to examine the long-run incidence of a corporate income tax in an open economy. In equilibrium, capital is assumed to be perfectly mobile internationally in the sense that the country in which a real investment is located does not matter to the marginal investor. In addition, each country is assumed to produce at least some tradable corporate goods for which the country cannot affect world output prices. Like the original Harberger (1962) model, the worldwide stock of capital and the supply of labor in each country are fixed. Under those assumptions, the model provides closed form solutions and easily understood predictions about its comparative static equilibria. As with any simplified model, the analysis is silent about some potentially important issues – such as the effect of the corporate tax on savings, growth and other dynamics – that may also have important effects on corporate tax incidence.

We are, of course, still using a model, but we\’re certainly not assuming a closed economy. Their finding?

Burdens are measured in a numerical example by substituting factor shares and output shares that are reasonable for the U.S. economy. Given those values, domestic labor bears slightly more than 70 percent of the burden of the corporate income tax. The domestic owners of capital bear slightly more than 30 percent of the burden. Domestic landowners receive a small benefit. At the same time, the foreign owners of capital bear slightly more than 70 percent of the burden, but their burden is exactly offset by the benefits received by foreign workers and landowners.

John, given that the assumptions you make about the model are wrong, might you want to address this issue of tax incidence again?

As to the rest of you, well, make up your own minds. You want to believe a buddy of Richard ("tax is not a cost") Murphy or the Congressional Budget Office?