Capitalist Bastards

Really, making things cheaply:

Given that a kilt usually costs upwards of £375, I know what you\’re thinking: Scots love a bargain – or at least words to that effect – so they must be delighted at such a good deal. Well, yes and no. As prudent as Scots are – and I proudly count myself among them – after a day of wearing the £25 kilt, I\’m left wondering: is nothing sacred? I ask, not because of the inevitable chaffing that comes from wearing a kilt around the office, or the funny looks I got going to the canteen, or even because of the difficulties I encountered going to the loo, but because it\’s so cheap.

How dare they make things that the hoi polloi can afford? Next thing you know the proles will have enough to eat!

Top Ideas to Make Britain Better

Some of these are very good indeed.

Paul Ormerod economist

I would make more explicit the connection between tax and services received by abolishing the PAYE system. Instead of income tax being deducted by employers at source, I would make everyone sign a cheque to pay their tax. While it would increase administration in the first instance, it would bring home to people what they are paying for. When you physically hand money over, you inevitably question whether you are receiving value for money. This system would put political pressure on public services to ensure they deliver efficiently and would prevent the waste of public funds.

David Starkey historian

I would remove everyone earning less than £25,000 a year out of the tax system. At the moment we have a ridiculous circular system in which people are taxed, then given their money back in tax credits. It produces the idea of the state as provider – for something like one-third of the population. It imprisons people we should be liberating.

Chris Woodhead former chief inspector of schools

I would introduce an education voucher for parents with school-age children. The voucher would pay for a state education but could be cashed in at independent schools as payment or part-payment. It would help to make the rhetoric of parental choice a reality; would promote new providers of education in to the market and at a blow, would destroy the state monopoly which has created appallingly low standards which we see in so many schools today.

Socialist Lunatic of the Day

Mark Braund:

And it is the structure of the economy that has enabled those who go to Davos to make their fortunes.  I\’m not saying the poor are poor because the rich are rich, only that under the current system, the means by which the rich get rich necessarily reduce the life chances of those at the bottom, be they in rich countries or poor ones.

There is a rapidly growing band of African millionaires, but this has led to no change in the situation of most Africans, and nor will it.

Lessee. Mobile telecoms in Africa is an industry that is creating many of those African millionaires. Does this system, whereby capitalist pigdog bastards grind the faces of the poor into the dust on their communications costs reduce the life chances of those at the bottom?

Hmm, given that we are told that a rise of 10 per 100 of the population having mobile phones leads to (and it is causation, not correlation) a 0.5% rise in the trend growth rate of the economy containing that population I think we\’d have to say that no, this isn\’t true. That the means by which the rich get rich is that in fact they provide a service that the poor want, one that increases their life chances. Which is why said impoverished peasants scream with rage when they are not allowed to hand over their cash to their exploiters in return for the life changing opportunity to communicate.

Thus I think we\’ll have to regard the original statement as unthinking socialist windbaggery, something dreamt up rather than anything which relates to the reality of our watery planet.

Pity, Braund\’s usually better than that.

Minimum Wage Workers

Russ Roberts points out one of my favourite little factoids about the US minimum wage: how few people actually earn it.

I often ask students or people attending my lectures to guess the proportion of the US work force that earns the Federal minimum wage or less. The median guess is usually around 20%. In 2006 (the latest numbers available), the BLS reports that the answer was 2.2%:

Unfortunately, on the page he\’s taken his information from he\’s missed one thing which makes his case even stronger.

Nearly three in four workers earning $5.15 or less in 2006 were employed in service occupations, mostly in food preparation and service jobs.


That\’s your waitron units and barkeeps folks. And what do we know about people who do these sorts of jobs? Well, perhaps you have to have actually done them (as I have, everything from the graveyard shift in a Denny\’s to tending bar around the corner from this guy\’s place): they all make tips. In fact, so much so that there is (or at least used to be when that BLS report was prepared) a special minimum wage for those in such jobs, one lower than the official Federal minimum wage.

For example, way back when, the min. wage was $3.35 an hour. Waiters got $2.01. You didn\’t really care because even serving pancakes at 5 am you made another $25-$30 a shift ($50-$150 in a decent place). Barkeeps got $3.35 plus tips.

The BLS numbers are reporting what employers paid employees, not what people are actually earning. So we might in fact say that while the number being paid the minimum wage or less is 2.2% of the workforce, the number actually earning that figure is more like 0.5%.

How True

My perspective is classical liberal. I caution the reader not to slip into thinking that classical liberalism characterizes the foils Krugman sets against himself, chiefly Republican politicos. By and large, they do not represent classical liberalism, first, because they are politicos, and secondly, because they are Republicans.

From a study of all Paul Krugman\’s NYT columns. The basic thesis is that his committment to social democratic ideals obscures the fact that many actual proposals and positions are to the detriment of the poor.

You could substitute Conservative for Republican there and it would make perfect sense in the UK context.

Mr. Freedland Speaks Out!

Please Jonathan, learn what words mean:

The Black Monday of 2008, which saw £77bn wiped off London share values, was matched at one point yesterday on Wall Street, where even a drastic emergency cut in interest rates could not prevent wild volatility.

Volatility means changes in prices. Both up and down. The aim of cutting interest rates was in fact to increase volatility: they wanted to make share prices go back up again after they had fallen. So they didn\’t in fact want to prevent wild volatility, they wanted to cause it. Sheesh.

For they suggest turbo-capitalism is not just unfair – it is dishonest and dangerous. If that sounds excessive, focus, if you will, on the banking sector at the heart of today\’s mess. It was the reckless gobbling up and selling on of shaky subprime loans – mortgages given to bad-risk customers – by American banks, and the threat that those debts would never be paid back, that triggered the entire loss of confidence that stopped banks lending to each other and caused the run on our own Northern Rock. Those sub-prime debts were dodgy, but they were wrapped up and sold on as if they were triple-A-rated, pukka debts, as solid as a government bond.

That was dishonest – and you need only look at the cost to the taxpayer of Northern Rock, £24bn in loans and another £30bn in guarantees, to see how dangerous it has been for our economy and, given the diversion of public money that could have gone elsewhere, for our entire society.

The American banks have already owned up to $100 billion in losses on such products: those who made the mistake (the dishonesty if you must) have paid the price: we\’re not going to see this particular mistake repeated in our lifetimes. Please also note that all of this has happened before the bureaucrats have finished sharpening their pencils. Yes, markets do go wrong, as does any other system inhabited by human beings. The question is, what system clears up such mistakes best? Markets or those guys still working away with the penknives on their pencils?

As to Northern Rock, I\’ve not heard that their own loans sold on (the Granite paper) have defaulted. That was a different mistake, one of borrowing short and lending long (which all banks do) on a larger scale than was prudent. What\’s made that problem greater than it could and should have been is precisely that we\’ve got the pencil sharpeners looking for a political solution. Twenty years ago there would have been some City heads knocked together (if indeed NR hadn\’t been stopped from pursuing the path it did in the first place) and we\’d have had a messy, but adequate, solution back in August.

You could argue that capitalism is always like this, parasitical on the state.

Well, some of us do indeed argue that, that capitalism, in the form of big business, always tries to be parasitical on the State. Seeking rents and privileges. Which is why we argue that the State should not have the power to grant such rents and privileges. But that\’s not I think what you are arguing.

Whether it\’s the internet businesses that would be nowhere had it not been for the government research and development that created the web,

Grr, grr. The internet and the web are two very different things. The internet was indeed trialled by the US DoD. The web was something very different indeed, knocked together by one man over a week or two. That Sir Tim Berners-Lee was working at CERN at the time is pretty much irrelevant.

or the vast agribusinesses and others dependent on the "corporate welfare" of state subsidy – an estimated $92bn a year in the US, according to the libertarian Cato Institute – it\’s time to admit there is no such thing as a free market.

No one rational ever tries to state that there is, ever has been or ever will be a free market in anything. Markets are always constrained: it might be by customs, by law, by habit, but there are always constraints. There must be, for how can you have a market without a delineation of property rights?

The argument isn\’t "free markets" or "not free markets". It is always "freer markets" or "less free markets". And one very important part of the argument for freer markets is that we want to reduce the ability of people, whether they be unions, corporations, individuals, classes, professions, whatever, to seek rents and privileges from the State.

It is of course lovely that you quote Cato: but it would be interesting if you understood the point that they\’re trying to make. Archers Midland Daniel is as much a danger to, a leech upon, freer markets as the minimum wage or the UAW. And Cato (along with people like the ASI) are one of the few groups who proclaim this evident truth loudly enough that even you should be able to hear it.


Demand for trained nannies has sent their salaries to record levels, with many earning as much as teachers, nurses or police officers.

So what? Isn\’t this what you would expect in a properly functioning labour market? Roughly equal skills levels command roughly equal wages?

Subsidies, Subsidies

Always the same, eh?

When a litre costs 0.7p, and filling the tank of a 4×4 costs 42p, it is a fair question. Petrol is so cheap here – reputedly the cheapest in the world – as to be almost free. Even under the artificially overvalued official exchange rate, petrol is 45 times cheaper than in Britain.

Some economists call the subsidy "Hood Robin", because it steals from the poor and gives to the rich by favouring relatively wealthy car owners above the poor who rely on public transport.

Subsidies most often don\’t actually benefit those they\’re aimed at initially.

I\’ve got this half-formed thought rolling around. I\’m not quite sure whether I\’m onto something or whether it\’s actually a very silly idea, so your thoughts would be appreciated.

It\’s pretty much a basic assumption at that interface between economics and politics that efficiency and equity often are in conflict. We might say that the market distribution of incomes is efficient, but that it is inequitable. Thus we should redistribute through taxation.

Or we might say that the market pricing of petrol is inequitable, it being too high for the poor, so we should subsidise it. Or, closer to home, that heating is too expensive for pensioners so we should send them al £200 a year to increase equity, at the expense of the efficiency of the heating market and the wider economy (for all taxes have deadweight costs).

My half-formed thought is that equity and efficiency are not in quite as much conflict as many think.  An inefficient system, by definition, either uses more resources to get to a specific outcome or, gets to a  worse outcome with the same resources, than an efficient one. This in itself is inequitable, as in order to get to our (possibly) desired equitable position, the reason we\’re actually fostering this inefficiency, we leave everyone worse off in aggregate than they would have been.

Writing this out I think I\’m actually reinventing a wheel that\’s been around a long time. The answer usually given might be to do with the decreasing returns stuff: the 99th pound you have is worth less to you than the first, so taking that 99th and giving it to someone as their first might increase aggregate well being.

But I still think that there\’s less conflict between equity and efficiency than many think: that an inefficient system by and of itself is inequitable, despite that decreasing returns stuff. The question then becomes whether the increase in equity from the redistribution overcomes the decrease in it from total resources.

Yes, this is reinventing a wheel, isn\’t it?

OK, I\’m left with the statement that we need to look more closely at the claims of increased equity as against efficiency in each specific case. As there are two effects it\’s an empirical question as to which predominates in each case.

No, not knew then, just another reason to be casting the gimlet eye over claims on either side each and every time perhaps?


Incentives Matter!

Half of all marriages in Britain are unhappy, but the millions of men and women trapped in matrimonial misery will not walk away for fear of financial and emotional hardship, according to a new survey.

Katherine Whitehorn

I used to love reading Katherine Whitehorn\’s pieces in The Observer: they rather made the paper for me. She\’s back standing in for Boris and is typically on the target.

No quotations, it\’s a great piece: two major points, one that I\’ve been known to bang on about. Everyone knows about economies of scale, far too few think about diseconomies of scale. The other is something that Chris Dillow has been known to bang on about: institutional memory.


So, No Collusion Then

Energy watchdog Ofgem has dismissed suggestions that the UK\’s six largest energy companies colluded to increase gas and electricity bills. The regulator has also demanded that those alleging price-fixing should produce the evidence.

They see large changes in market share, record switching between suppliers: signs of a highly competitive market. Yes, it\’s true, that prices are also moving in lockstep….but that\’s also a sign of a highly competitive market (when it isn\’t a sign of collusion). But some people are never pleased:

The Scottish National Party\’s Mike Weir called for the Competition Commission to investigate the companies, saying: "This statement displays an incredible complacency by Ofgem. It doesn\’t take Inspector Rebus to see that this same process happens every time there is an increase."

No, but it might take someone economically literate to see that a rise in taxation, a rise in compliance with green costs and a rise in feedstock costs will lead to a rise in bills to consumers. But here we\’re taking about a politician of course.

Social Mobility

Aha! Something of a gotcha moment here I think.

Men\’s chances of rising up the social scale in Britain have stalled because of greater competition from women and a slower rate of growth for top jobs, a study published yesterday reported.

The studies from which comparisons of social mobility (when in fact they mean economic mobility for they measure wages but that\’s another story) specifically and deliberately exclude women.

We focus here on sons so that results are less directly influenced by women’s labour market participation decisions

Now, take a step back and think about what is the largest change in the labour market of the past three or four decades? It\’s the entry of women into it on equal (or very nearly equal, as compared to the past) terms. The majority of undergraduates, the majority of trainee lawyers, the majority of trainee doctors, are now women. That\’s a vastly larger change, I would submit, than the decline of unions or whatever else one might use to explain social mobility.

So these studies which show a decline in social mobility are not really very accurate. They\’re measuring a decline in social mobility for men, yes. But that is then being interpreted as a decline in total social mobility, which isn\’t actually what is being measured at all. And the decline in male social mobility is being described, but without reference to the largest change in the labour market, the rise to equality of women.

Soi perhaps the next time someone starts to whiffle on about the decline in social mobility, perhaps the appropriate response should be that they\’re talking bollocks? For they\’re not taking account of the huge rise in womens\’* social mobility?


* To a large extent, before these labour market changes of recent decades, women\’s social mobility was promoted by marriage. No, I\’ve no figures, but I would guess that this has decreased as the potential for doing it under their own steam has risen. Certainly there are those who insist that the rise in income inequality at the household level has to do with assortative mating, professionals marrying professionals, to a larger extent than in the past.

Polly Discovers Economics!

The most serious objection is not safety but "nuclear blight", the probability that government and energy firms\’ cash, engineers and project management capacity is swept up in this great nuclear South Sea bubble and nothing is left for other renewables.

Halleluljah! Polly has actually managed to grasp an economic concept. And she\’s even grasped the correct end of the stick!

This is opportunity cost. If we decide to go down one path then we cannot use these same resources to go down another.

Of course, this applies to everything, not just nuclear: if we go down the renewables path then we face exactly the same problem. The things that we use to do that cannot be used to go down any other paths. Which means that it\’s not quite the killer argument she thinks it is. It becomes, instead, which is the best use of those resources….and I would argue that nuclear is it.

You can of course disagree with my conclusion, that\’s not a problem. As long as you\’re willing to agree that any path taken leads to exactly the same result, that we can only do one thing with the resources we have available, at least we\’ll be having the discussion about which is the best.

The Real Meaning of Socialism

Yup, here it is:

I also don\’t accept your claim that £7 for a chicken is out of most peoples price range. £7 for a whole fucking bird – that\’s what it should cost. This is a creature that has to be raised, slaughted, plucked and packaged. It only seems expensive because capitalist intsensive farming has reduced animals to mere commodities that are cheap enough to eat everyday.

Expensive chickens. That\’s the real meaning of socialism.

Thanks Tom


The key word for anyone with an investment horizon beyond the next tricky year or so is "scarcity" – too many people chasing too little stuff. Long after the financial excess is washed through the system, population growth and rising incomes mean the world\’s principal economic theme will be the battle between excess demand and finite or limited supply.

Pretty much the definition of economics isn\’t it? The allocation of scarce resources to satisfy unlimited desires?