Production versus Productivity – @ASI

Here’s a thought-provoking post from Eamonn Butler at the Adam Smith Institute.

He discusses the difference between measures of production, such as GDP, and growth in actual productivity as enabled by technology.

From the humble washing machine to the new iPhone, technology enables us to do more, but that isn’t reflected in GDP. Similarly, inequality is measured by (relative) wage growth, but ignores that the poor as immeasurably better off than they were before:

The poor in particular have gained from entrepreneurial breakthroughs, the growth of new inventions and technologies, mass manufacturing, and other parts of the capitalist system. The prices of what poorer groups buy have plummeted more than most, while the quality of what they can afford has skyrocketed. Wages may not be rising fast for the poorest groups, but there are more fringe benefits as standard, and money buys a lot more than it did twenty, thirty, forty or any number of other years ago. So people who talk about ‘rising inequality’ are up a gum tree. The income figures greatly overstate inequality, because the poorest groups are so much better off than they have ever been in history.

Definitely worth a read.

 

Photo by frank cordoba on Unsplash

Build more or cut immigration – @MattwRidley

Matt Ridley’s Times column on the UK’s infrastructure challenges.

As ever, it’s an objective and data-driven argument:

Of the 1,447 people that Britain added every day in the 12 months to the end of June last year, roughly 529 were births minus deaths, 518 were net arrivals from the European Union, and 537 net arrivals from elsewhere, minus 137 departing British citizens. Given such a flow, our unemployment rate of 4.3 per cent and employment rate of 75.1 per cent are remarkable, if not miraculous. We are one of the world’s great workplaces, which, of course, is why people come.

and …

Though a densely populated country, Britain is not in any sense running out of land. Only about 7 per cent of the land area is classified as urban, rising to almost 11 per cent in England. But of that 11 per cent a great deal is still not concrete: gardens, parks, water and so forth. So the actual paved-over percentage, even just in England, is about 2.27 per cent according to the National Ecosystem Assessment in 2012, and more like 1 per cent for Britain as a whole. This is why a flight over southern England, let alone the Pennines, gives a very different impression from a car journey through the ribbon development along the roads: there is vastly more farmland and woodland (13 per cent of Britain and rising) than concrete.

As so often these days, we suffer from a long-standing failure to have made the case.

Here is the column in the Times.

Here is the same column from Ridley’s own blog, which includes links back to the data sources.

Over decades, we have failed to make the case for development.

We had the Brexit vote (at least partly) because we failed to make the case for immigration.

People deify that nice Uncle Jeremy Corbyn because we failed to make the case for free markets.

Is the shrill intolerance of no-platforming, safe-spacing, snowflake students the result of past failure to make the case for free speech?

 

Photo by Stephen Crowley on Unsplash

Philip Hammond eyes £1bn budget raid on freelancers – @TheSundayTimes

The Sunday Times reports that the Chancellor is considering another attack on sovereign professionals. The concern seems to be, as before, “disguised employment” and the Sunday Times’ coverage is couched in terms of “levelling the playing field” and “significant tax advantages”.

The reality of course is different.

When running properly, individuals operating through personal services companies are each individual businesses carrying all the risks of business and not enjoying the corporate comfort blanket benefits of traditional employment. If the cost to the client company is higher than employing a traditional employee (and often the fully loaded costs are not as far apart as crude comparisons of “day rates” suggest), then the client business benefits from flexibility and agility that no commitment, on-demand services provide.

A tax raid risks damaging the supply of this important flexibility while also increasing the cost to client firms. This has already been seen in the public sector where restrictions similar to those imagined here have already been implemented. It’s a short-sighted and ill-considered move.

Does “disguised employment” actually exist? I’m sure it does. A number of recent court cases suggest that there has been a trend for some employers to seek the cost benefits of using freelance contractors whilst retaining all of the control traditionally associated with  “permanent” employment. Those cases should rightly be pursued, but not by painting the self-employed as either downtrodden, abused workers or system-abusing fat cats.

Being a sovereign professional is a choice. It has real benefits – not least in flexibility – but it comes with risks, costs and responsibilities. A suitable test of employment would investigate the extent to which those risks are real, rather than simply punishing providers of needed skills through a flexible model.

 

Photo by Lily Lvnatikk on Unsplash

Markets, fairness and wolves – @mattwridley, @worstall

Over on CapX, Tim Worstall elaborates on Matt Ridley’s recent Times column regarding free markets and fairness.

Ridley observes that free trade, contrary to common socialist rhetoric,  actually makes people behave more fairly and generously:

The more integrated into the commercial world people are, the more generous they are. As one of the authors, the economist Herb Gintis, summarises the results: “Societies that use markets extensively develop a culture of co-operation, fairness and respect for the individual.”

Worstall elaborates that, as a result, a free market of repeated interactions is self-regulating:

Buying bread is, for example, a fairly common activity. Anyone trying to cheat us will quickly find their market disappearing. We might tell on them. We might just reject their offering. But bad bread does quickly disappear.

Buying pensions on the other hand is different – we only really do it once in a lifetime. And it takes perhaps 50 years to find out we made the wrong decision. We can rely a great deal less upon that trained-to-operate-in-markets set of reflexes that multiple iterations allow.

Which is rather a long-winded way of explaining what must be regulated and why.

Worstall’s assertion that fairness is a learned response reminds me of this recently reported experiment which found that wolves and domestic dogs have a similar sense of fairness (i.e. that it pre-dates the domestication of dogs). As reported on the BBC:

Two animals of each species were placed in adjacent cages, equipped with a buzzer apparatus. When the dog or wolf pressed it with their paw, both animals got a reward on some occasions. Other times, the dog or wolf doing the task got nothing while the partner did.

The key finding was that when the partner got a high value treat, the animal doing the task refused to continue with it.

“When the inequity was greatest they stopped working,” said Jennifer Essler, from the University of Veterinary Medicine in Vienna.

“For some of them it was a really really quick and strong response. One of the wolves stopped working after the third trial of not receiving anything while his partner received something. I think he was so frustrated he even broke the apparatus.”

 

Photo by Courtney Clayton on Unsplash

 

Matt Ridley on free trade – @mattwridley

Matt Ridley’s column from the Times, now on his own site, offers a powerful, evidence-driven, argument for free trade:

The “ultimatum game” is a fiendish invention of economists to test people’s selfishness. One player is asked to share a windfall of cash with another player, but the entire windfall is cancelled if the second player rejects the offer. How much should you share? When people from the Machiguenga tribe in Peru were asked to play this game, they behaved selfishly, wanting to share little of the windfall. Not far away, the Achuar in Ecuador were much more generous, offering almost half the money to the other player — which is roughly how people in the developed world react.

What explains the difference?

The answer is, here.

 

The Magic Money Tree explained by @Worstall

All you wanted to know about QE, the circulation of money and why magic – at least as it relates to money trees – isn’t real, from Tim Worstall.

The magic money tree is permanent spending of the same invented money, it is not temporary – the effects are permanent – and it is not reversible without stinging tax rates. It is also known as the monetisation of fiscal policy, or the monetisation of spending. And it has everywhere and everywhen been a disaster from the point of view of subsequent inflation. Not inflation of a couple of percent here and there either, but of two and three digits a year sort of inflation.

There is also mention of the Hungarian pengő, which I understand to be a small and adorable penguin.

 

Photo by Adarsh Kummur on Unsplash

 

Aging population and immigration curbs – Bloomberg @Business

Lessons we won’t learn?

A piece on Bloomberg about Singapore’s imminent labour crisis:

In Singapore, immigration restrictions can partly explain an expected drop in working age population growth from 2027, even as Kuijs [Louis Kuijs, Head of Asia Economics at Oxford Economics] credits foreign labor inflows for helping boost that pool over the last decade.

and…

The grim rule of thumb for the [Asia] region: A 1-percentage-point decline in labor supply growth in any of these areas would shave off a half-point to two-thirds of a percentage point in GDP growth.

Read the article, here.

 

Photo credit: Foter.com