Tuesday, 18 July 2017

The New York Times Manages To Get This One Entirely Backwards

Some people really don't think things through very well. The New York Times ran with a story that celebrated the fact the solar industry employs far more Americans than wind or coal: 374,000 in solar compared with 100,000 in wind, 160,000 in coal mining and coal-fired power generation, and narrowly behind natural gas, which employs 398,000 workers (in gas production, electricity generation, and petrochemicals).

The article writer was trying to insist that this must be a good thing for solar power, because it demonstrates how important solar power is in creating jobs. Alas, anyone who understands economics would not reason this way - they'd instead reason that solar power presently shows itself to be a pretty unresourceful and inefficient part of the energy industry.

And once you then compare number of workers to energy output as a percentage, things look even worse for solar energy. 398,000 natural gas workers amounts to 33.8% of all electricity generated in the United States and 160,000 coal employees amounts to 30.4%, whereas 374,000 solar workers amounts to just 0.9% of total electricity.

If you try to break that down to electricity generated per worker, then coal generates 7,745 megawatt hours of electricity per worker, natural gas is 3,812, and solar is a measly 98 megawatt hours of electricity per worker. That is to say, producing the same amount of electricity requires 1 coal worker, 2 natural gas workers and a whopping 79 solar workers.

To put that into perspective, it would be like having three large supermarket chains across the country, producing the same output, but Supermarket A does so with 300,000 workers, Supermarket B does so with 600,000 workers, and Supermarket C doing so with 23.7 million workers, and the state subsidising Supermarket C because it thinks it provides better value than A and B.

Solar energy is, at present*, showing itself to be a wasteful and inefficient method of producing energy, but people won't get why until they understand that jobs are a cost of doing something, because they are the price we pay for people's labour.

I encourage any readers who deny that jobs are a cost to email me immediately, as I have plenty of opportunities for you to partake in some 'cost-free' activities. You can come and wash my car, do the dusting and hoovering, and while we're at it, my bathroom could do with a good clean too. And, of course, you won't want paying for any of that because according to you those activities do not have any costs attached to them.  

* I say at present, because there probably will be a time when solar power is the predominant and most efficient energy technology

Sunday, 16 July 2017

The Tax Love That Dare Not Speak Its Name

Yesterday I made a comment that if the NHS really is the envy of the world, it can easily be put to the test by allowing people to opt out of it, and instead receive a tax rebate equivalent to their National Insurance contribution, while having to pay for any health care they need.

Under this improved system there would be a measure in place to factor in how much National Insurance the individual has already contributed, plus a safety net for people that cannot afford the funds for health care.

After making this comment, I received tonnes of hate mail through my letter box, and dozens of online death threats. Only joking, not really! Although my wife did give me a funny look. Her feelings are widespread, because I don't think this policy would be at all popular in Britain, as the NHS is the closest thing we have to a religion, despite being none of the following:

A) The best health system in the world
B) The envy of the world
C) A health system on which any other nation has ever tried to model its own system
D) Affordable in its current incarnation, particularly long term in the future

Its main problem - a problem that is woven into the fabric of most public sector, taxpayer-funded services - is that the people are not getting true value for money, because behaviour and incentives are mis-aligned with consumer costs. If there is anyone that epitomises this error of thinking it is the man who wants to be the Chancellor of this country.
John McDonnell, the Marxist in the Shadow Cabinet with about as much charisma as a cactus plant, was on The Andrew Marr Show explaining how their excessive tax programs pay for themselves because the revenue they generate will help them break even, therefore creating a value to society. This is wrong, wrong, wrong. As I said the other week, taxes have deadweight costs, roughly to the tune of 30p in every pound. That is, if it costs £1 to provide something in the private sector, it's going to cost something like £1.30 for the equivalent thing in the public sector, which robs society of value.
Consider one of Labour's programs to create jobs, costing £10 million a year in salaries. Let's even be generous to McDonnell and suppose that the program manages to generate a profit of £1 million a year. Labour records this as a success and offers it as proof that their job investment program benefits society. Now factor in the 30% deadweight costs of taxation - you'll find that a program with an £11 million return (that is, a £10 million yield + £1 million profit) actually costs £13 million to create due to the financial distortions that come with taxation.
The other glaring omission from John McDonnell's medley of myopia is that such programs fail the second test too - that is, they rob society of some of the instances in which people can spend their own money on things that benefit them most.
Suppose a mugger waves a knife at you in the street and asks you to hand over your wallet containing £130. After giving it to him, he promises to spend £100 of it on a pair of shoes for you and he'll keep the remaining £30 for himself. Not only are you £30 worse off in terms of opportunity costs, you are also worse off in the fact that you probably didn't want to spend the whole £100 on shoes, and even if you did, the chances are he is not going to pick the same pair you'd buy for yourself with your own money.
Our present party leaders are not quite like muggers, they are more like mafia bosses. When the mafia used to start up protection rackets they had to strike a good economic balance. Suppose they were going to operate in an area with 50 bars and restaurants - how much should they charge the owners for 'protection'? If they charge too little they don't maximise profits, but if they charge too much they might drive the bar and restaurant owners out of business, which means no more revenue.
While government taxation is slightly different to a protection racket, in that the benefits from taxation do extend out to taxpayers more than the benefits from 'protection' extend to bar and restaurant owners, the ethos isn't too dissimilar - the likes of Theresa May and Jeremy Corbyn want to get as much tax out of the electorate as possible without reaching the tipping point of election-losing unpopularity.
It is a mistake though to think of the Laffer curve - which looks at the relationship between tax collected and the rates at which they are collected - as determining the rate of taxation that will raise the maximum revenue for the government. That's not what we should think of as the optimal tax rate - the optimal tax rate is the tax that raises the optimum revenue with the fewest negative spillover effects on the economy.
To suggest that a healthy tax rate is one that maximises government revenue is like suggesting that a healthy conscription rate is one that maximises the number of soldiers in the armed forces, or that a healthy diet is one that maximises food intake. The true value of a tax rate or an army quantity or a healthy diet is one that proves most effective when considering all effects, not simply getting the most of something we can.
As things stand with the 45p top tax rate, the tax gained from the top 1% is apparently at a record high. The top earners earn 13% of the income but now pay 30% cent of income tax collected. Even the top 0.1% (stress that's nought point one percent, not one percent) pay a comparably astronomical 14% of the total income tax paid, which is an increase by a factor of 140. If you want more money to spend on public services, more borrowing isn't the answer, and neither is higher taxes - you have to adopt policies that will generate more income. And in that failure, both main parties are on a mission to become more and more alike in this.  

Thursday, 13 July 2017

A Fascinating Article That Comes To Totally The Wrong Conclusion

I stumbled upon this intriguing article in the New York Times by Nicholas Kristof, entitled “What Monkeys Can Teach Us About Fairness” in which the author tells us about an experiment in which monkeys were taught to hand over pebbles in exchange for cucumber slices. They were happy with this deal. He goes on:

"Then the researcher randomly offered one monkey — in sight of a second — an even better deal: a grape for a pebble. Monkeys love grapes, so this fellow was thrilled. The researcher then returned to the second monkey, but presented just a cucumber for the pebble. Now, this offer was insulting. In some cases the monkey would throw the cucumber back at the primatologist in disgust. In other words, the monkeys cared deeply about fairness. What mattered to them was not just what they received but also what others got."

If Kristof had stopped there, that would have been an interesting account - when monkeys receive something but see other monkeys receiving something better they react dissonantly. That in itself is fascinating.

Unfortunately, Kristof uses this to propound the theory that what monkeys care about here is income disparities, and that this has parallels with the wider human concern about income inequalities. This is a step too far, and takes the conclusions into illogicality, because interpretations of income distribution are based on something fundamental that is missing from the monkey experiment - and that is, what people do to earn what they received.

If the teacher gives little Johnny 2 chocolate bars and little Freddy 1 chocolate bar, it might be that she has treated Johnny better than Freddy. But if beforehand she stipulated that there will be a classroom maths test, and the person who scores top marks will get 2 chocolate bars, and the runner-up 1 chocolate bar, then nothing she has done has been unfair, because Johnny and Freddy's chocolate bars were given based on merit. Their rewards were commensurate with what they did to earn those rewards.

The same is true of wages - they are not arbitrarily distributed like the cucumber and grapes in the monkey experiment - they are based on what people produce for their employer. Monkeys may suffer dissonance at income disparities irrespective of how those incomes came about, but humans generally do not - they recognise the source of the variance in the incomes.

Tuesday, 11 July 2017

Winding Back The Snowflake-Shaped Clock

Have you noticed how people habitually choose when to get publically offended, using offence as a public convenience to express phoney outrage from the comfort of their ideological hobbyhorses? Conservative MP Anne Marie Morris makes a stupid reference - to "A nigger in the woodpile" - that only someone with the brains of a suet pudding would make, and gets branded a 'racist' by the twitcherati.

Yet the consistently ludicrous Diane Abbott has a string of obnoxiously bigoted comments to her name (''White people love playing 'divide & rule", "London shouldn't have another white middle ages mayor", "Blonde, blue-eyed Finnish girls are unsuitable as nurses because they had never met a black person before" are just some of the lowlights) but you can guarantee that the people castigating Anne Marie Morris would not do so to Diane Abbott - even though it is about as unlikely that Morris is a racist as it is that Abbott isn't one.

Similarly, when the DUP registers on people's political radar, everybody Googles them and unleashes swathes of invective because they are homophobic, anti-abortion, freedom-oppressing, pro-death penalty, science-denying young earth creationists. And yet these views are so prevalent in Muslim communities in our country that very few people bat an eyelid anymore, much less express public disapproval. Snowflakes abound in this offence-seeking culture, but it seems that people are good at taking their offence a la carte.

Now for my principal point. Wind back the clock every quarter of a century in the UK and yes, for sure, you'll see a generation worse than the one that followed it in numerous ways. On things like sex, skin colour, disability, ethnicity and sexuality we used to be terrible, then we got a little less terrible, then a little less, and less still, and then a lot less terrible (as progression generally follows exponential power law patterns). There is still a lot of work ahead of us, but, the likes of Anne Marie Morris and Diane Abbott aside, things are much better than they ever have been.

There are, however, things that are slowing down the progression in some parts, and in others stifling it altogether. One is what has been aptly termed 'generation snowflake', which is where society is helping people along in being too lily-livered regarding matters of offence and/or being offended on behalf of others. The other is the preoccupation with diversity and positive discrimination, whereby everything from businesses to art are valued too much on their diversity at the cost of not being valued enough on their merits.

Now I'm all for diversity, and have written several times about its qualities, and also about how a lack of diversity limits the potential of the agency in question. I have something I call 'The Family Business Impediment' - which, to quote, is basically this:

"Family businesses have a higher probability of doing less well in the market than other businesses - where, by family business, I mean businesses that tend to favour hiring family members over a more competitive recruitment process. It stands to reason that if your opportunity pool of talent is more closely related to average percent DNA shared than it is ability, experience and merit, you limit your chances of finding the best candidate (ditto if you discriminate based on skin colour, sex and sexuality)."

But it's also very much the case that these things can be taken too far, and often are - such as the case where diversity becomes a superficial tick-boxing exercise rather than having candidates that are there on merit.

Apparently last year the Oscars got criticised for having no black actors/directors shortlisted. Now I know little of this, nor much about films released last year - and maybe this was criticism for past legacies - but we mustn't cultivate a society whereby people become frozen with fear if they do something that fails to satisfy a diversity ticking exercise.

Maybe, just maybe, it was thought by the judges that the best films of last year just happened to not have any black lead actors or directors. In fact, given the extreme duress they know they are under to include a diverse range of candidates in order to not appear prejudiced, it's possible, just possible (and I don't know, myself) that the films nominated were genuinely thought to be the best.

I don't want society's generation snowflake to impede people's ability to employ who they think is the best candidate, or to make the kind of TV show they want to make, or to give awards to whichever films they think are best, and so on. This is a thin end of the wedge problem.

I mean, I was reading an article recently (from a few years ago) where a member of staff in a job centre told a prospective employer that she wasn't allowed to put 'Must be had working and reliable' on the job ad for fear that it 'could offend people that are lazy and unreliable'. Yes this was an isolated case that the job centre repudiated, but it shows the level of fear society is able to engender about offending on people's behalf.

I don't want that, just as I don't want schools being afraid to hold an assembly, or nurses being afraid to wear a crucifix around their next at work, and so on, and so on. Personal offence, and its more annoying cousin, offence on someone else's behalf, has been one of the most unsettling and troubling culture shifts in my lifetime.

It is to some extent a sign of our becoming more caring and empathetic too, but equally, I fear, a sign of our becoming more anodyne as we adopt an unhealthy risk-aversion, a protectionism if you like on intellectual ideas for fear of being hounded as a sexist, a racist, a xenophobe or an Islamophobe.

Finally, in a past Blog post, I proffered an answer to the question about what it is that has caused us to journey from reasonably intrepid proponents of free expression to lily livered impotents - and it is on this note that I shall end, as it occasionally bears repeating:

"I can think of two main changes that might have altered the public consciousness. In the first place, the country now has a lot more diversity, which means there are a lot more minority groups with views that differ from the mainstream. And in the second place, computer technology has undergone radical changes, which means there is mass communication going on, and also that everything everyone does it pretty much under external scrutiny now.

Personally I see no reason why either of things should cause us to become spineless again, but it would appear that we have. Diversity of people has generated an unprecedented range of beliefs, opinions and cultural practices that appear to make many people uncomfortable in expressing themselves for fear of upsetting someone, or being labelled a racist or bigot.

The widespread fear of upsetting Muslims is perhaps the most obvious case in point. And the extent to which everyone can have their say on social media is unprecedented too - it appears to be bringing with it a huge rise in vile threats and guttersnipe abuse, which as a consequence appears to be making many people fearful of free expression once again. But I've said it before on here, and I'll say it again - we must stop this train of timidity in its tracks as soon as possible."


Saturday, 8 July 2017

Econocracy? More Like Idiocracy!

On Newsnight last night, there was an interview with an economics student called Joe Earle, who has co-authored a book entitled Econocracy (article link below) that has gone on to create a new student movement that looks to challenge how economics is supposedly out of touch with reality and defined by the views of the elite.

The founders of Econocracy, as the title suggests, want to make economics less about the wisdom of economists and more about the views and beliefs of our democratic nation. By making their discipline all-pervasive, the author argues that economists have turned the subject of economics into too much of a scientific discipline in a way that apparently undermines the democratisation of economic viewpoints:

“We live in a nation divided between a minority who feel they own the language of economics and a majority who don’t. As Ed Miliband and Jeremy Corbyn have found, suggest policies that challenge the narrow orthodoxy and you will be branded an economic illiterate. Academics who follow different schools of economic thought are often exiled from the big faculties and journals."

Alas, the book's authors and the reviewer in The Guardian do not really understand what is actually happening, and this is because they are missing the most important point - that despite highly charged protestations, most people really are very unapprised of even the basics of economics, and it is only because their views are subjected to rigorous analytical and empirical scrutiny that they find themselves on the periphery of rational enquiry.

To give you a fourfold and very topical example, in recent times we've seen evidence presented that tuition fees do not reduce the number of working class students (as Jeremy Corbyn claims); that Corbyn's favoured living wage increase has been shown in Seattle to engender all the negative outcomes economists have been warning about for decades; that Corbyn's favoured increase of corporation tax has been shown to be a simple sideways transfer of costs picked up by staff and by consumers and being unbeneficial to those struggling; and worst of all, that Corbyn's fairly recent praise for Venezuelan socialism and his desire for Britain and America to adopt that model as a 'rejection of neo-liberalism' is without question one of the most foolish and dangerous assertions any modern politician has made.

Now, if Corbyn and his cult of personality acolytes were in any way friendly to empirical evidence - that is, open to what is actually true and factual about the consequences of their views - they would humbly repudiate those four false beliefs, and honestly declare that a rethink of their position is necessary. But you just know that is not going to happen, because what these people care about is not what is true and factual, it is what best serves their own interests.

Of course, economics didn't need those four evidential examples to feel vindicated - this is what economists have been arguing for decades, and this is what the Econocracy crew do not get - economics is not for the elite because it is elitist, it merely appears to be for an elite group because that group contains a relatively small proportion of society's individuals that actually care about the truth and understand the evidence and logic to arrive there.

So when the author says “We live in a nation divided between a minority who feel they own the language of economics and a majority who don’t.", well yes, we do, but that is not really any different from a pastor in a predominantly young earth creationist church saying we have a few evolutionists in this church who feel they own the language of biology in a majority church congregation that don't. Quite! If you marginalise yourself by believing foolish, counterfactual things, expect to find yourself marginalised from the mainstream.

That is also why, when the author says "As Ed Miliband and Jeremy Corbyn have found, suggest policies that challenge the narrow orthodoxy and you will be branded an economic illiterate" - well again, yes, if you publically hold beliefs that are economically illiterate you will be branded an economic illiterate, just as if you go around breaking people's garden fences, plant pots and car wing mirrors, you will be branded a vandal. If the cap fits, and it has your name on it, you are going to find a lot of people asking you to wear it.

Economics as a science
Economics is scientific, so it is only democratic to the extent that people value evidence or don't value evidence. Economics is about human preferences and behaviour played out in the form of mathematics. Therefore although it falls into the category of soft science, it is an empirical science nonetheless. For example, indifference curves represent a series of combinations between two different economic goods, and they play out in geometrical terms when slopes of indifference curves on a graph reflect marginal value. Economics is a proper empirical method for assessing what humans prefer given many combinations of goods.

If this process is interfered with in a way that imposes unnecessary costs on individuals that know their own preferences more than politicians, then economists understand in advance why the ill-effects of scrapping tuition fees, the Seattle-effects of raising the minimum wage, and the consumer-effects of increased corporation tax culminate in undesirable outcomes. 

Try chemistry as an illustration. Chemistry is a noble science, and one which returns reliable and consistent empirical data. The main reason for this is that natural laws that underpin the material constituents are not compromised or retarded through human interference. When considering gaseous compounds, the masses of one constituent that combine with a fixed mass of the other constituent are in the ratio of (small) integers to each other. But, if scientists interfered in this law so that it was no longer obeyed by all gas mixtures, the fundamental constituents of chemistry would be undermined.
This applies pretty neatly to economics as well, at least to the greatest degree. Economics resembles science in that its truths are based on empirical observations and patterns distilled from data. If we treated economics as rigorously as we did chemistry we would find one of the golden rules of economics - the fundamental principle of least resistance (otherwise known as maximum efficiency) - playing out much more prominently, and economic growth happening even more readily.
The upshot it, the only way that the Econocracy movement is going to get its wish for a more ubiquitously democratic economic discipline is when there is a more ubiquitously informed society. Economics is a bit like string theory in that only a relatively small proportion of society understand it. The main difference though is that with string theory most laypeople do not go around opining as though they are experts in the subject.

* The article about Econocracy in The Guardian.

Saturday, 1 July 2017

A March That Was Utterly Devoid Of Logic, Arithmetic & Fiscally Responsible Citizens

Thousands of people marched in an anti-Tory, anti-austerity rally in London today - during which Jeremy Corbyn declared "This is the movement that will win the next election". He's probably right about that. The way this cult of personality is gathering momentum against a mediocre Conservative government with a leader utterly devoid of charisma, Labour is very likely to win the next election.

However, the premise on which today's march, and the movement in general, is based is faulty and illogical. In actual fact, on the austerity issues up for discussion here, the demonstrators have got their reasoning exactly backwards on both issues. They are advocating the very thing they should be opposing, and opposing the very thing they should be advocating.

I'll explain. Suppose that in the past few years your monthly spending has exceeded your monthly wages. Worried about the household budget, your partner suggests three ways in which you could be more fiscally responsible.

A} Cut down on your spending

B} Increase your earnings (either through more hours or higher wages)

C} Go to the cashpoint more often to ensure you’re never short of money

I’m sure no one needs telling why A and B are viable options, and why C is a ridiculous suggestion. But just in case there’s any doubt, the reason option C is ridiculous is that drawing out more of your finite supply of money is not going to help your fiscal irresponsibility if your spending already exceeds your earnings - it will, in fact, compound your irresponsibility.

Now replace you and your household bank account with the government and the treasury's collection of taxes, and suppose that in the past few years your government’s spending has exceeded its income and been irresponsibly spent. What could the government do?

A} Cut down on spending

B} Increase our taxes

Option A is a viable option. Spending less money means working hard to find government waste or government non-necessities and cutting back on all the profligate expenditure it can. But this is the very thing that Corbyn, McDonnell and the thousands marching today were arguing against. In times when fiscal irresponsibility has been levelled at the government, the demonstrators want more government spending, not less - the very opposite of the fiscal responsibility most people want to achieve. 

But what about option B? Option B is not a viable option, because increasing our taxes is not like earning more money. It is more like option C in the first scenario – it is like being in a state of fiscal irresponsibility yet going to the cashpoint more often to ensure you’re never short of money.
The government’s money comes primarily from taxpayers – and they choose how they tax us. But there is a caveat that the left seem to be missing - the taxpayers are like the government’s cashpoint; whatever you take out this month leaves less for next month, and so on. Unlike in scenario 1 when cutting down on your spending or increasing your earnings is like adding to your monthly income, government's increased taxation is not like adding to their monthly income, it is like paying a visit to the cashpoint.

Yet despite this, option B is the one Corbyn, McDonnell and their cult followers are arguing for. They have their reasoning completely backwards in both cases - they should be advocating A and opposing B, not the other way round. Instead they are arguing that cutting spending (profligacy?) is detrimental and that an extra few billion pounds in tax hikes can change government spending from fiscally irresponsible to fiscally responsible.

That's as silly as saying that buying a £300 packet of toilet rolls can be fiscally responsible as long as you go to the cashpoint and draw out the money there. Taxing more does not make a government fiscally responsible - the only thing that makes a government fiscally responsible is spending less, by cutting out all the waste and non-necessities from its expenditure (don't forget, government spending is at a record high).

I hope now you can see that the enumeration is crystal clear. You as a worker can increase your income by working more or spending less, amounting to lower depletion of your assets. The government also cannot increase its taxation without a lower depletion of its assets.
Whatever they don’t tax is either spent or it is saved privately by the people that earned the money. If it is spent (freely) then there is a net economic gain because both buyer and seller partake in a mutually beneficial transaction. And if it is saved then it is available for banks to use (savings are basically us lending banks our money for a small return of interest), and it is still available for taxation when it exchanges hands next time. Similarly, if you don’t spend that £300 on those toilet rolls, then the money either stays in your bank gaining you interest, and being available for banks to invest, or it is spent on one of those mutually beneficial transactions to which I just alluded.

Unless the demonstrators get the basics right, they will be running full pelt down a dark tunnel with a brick wall at the end, into which they will smack their silly heads. Instead of congesting parliament square and making lots of waffling reverberations, they'd be better off reasoning things through properly, and then putting pressure on the government to cut much of its waste and inefficient spending. The trouble is, a lot of that waste and inefficient spending comes in the shape of things the left historically supports - so don't hold your breath there either.