Banning adverts for unpaid internships will only hurt young people
During the closing weeks of 2012, Labour MP Hazel Blears claimed to have attracted cross-party support for a private bill that would have effectively made advertising for unpaid internship positions illegal. Thankfully for those that are eager for valuable work experience regardless of short-term financial rewards, her calls to effectively exclude tens of thousands of would-be interns from pursuing their preferred vocation fell upon deaf ears. The bill has since faded into obscurity.
Monday saw Nick Clegg criticise the movement to protect interns from themselves, with his spokesman citing potential “unintended consequences” - such as the creation of a “black market” for unpaid internships - as grounds for opposing the ban. Speaking to Graduate Fog, the Deputy Prime Minister’s spokesman explained:
“We want to bring an end to the ‘who you know not what you know’ culture. But there are possible unintended consequences of legislating on this issue – it could actually be entirely counterproductive and force these valuable opportunities back on to a kind of ‘black market’ where the vacancies are filled by people with the best connections.”
I don’t think that Hazel Blears and co. harbour a desire to deny all but the well-connected a chance to hone skills that will help them to secure preferential employment. Nonetheless, in the words of Milton Friedman, “one of the great mistakes is to judge policies and programs by their intentions rather than their results”. The result of prohibiting advertising for unpaid internships would be the substitution of meritocracy for nepotism.
The rhetoric surrounding unpaid internships has, for the most part, been overwhelmingly negative in tone: skewing the debate towards the emotive rather than the factual. Whilst more reasonable detractors cite cases of interns being treated poorly by employers (and there are a number of such cases), oft-repeated comparisons to “slavery” are hyperbole at best, and callously trivialise the plight of millions of actual slaves living in the world today.
An individual choosing to be paid in experience rather than money should be allowed to do so, free from a coercive state severing access to the former option through banning certain job advertisements. The appropriate response of those who rue interns lack of access to paid employment should be deregulating the labour market, rather than denying young people the opportunity to improve their future job prospects by acquiring indispensable knowledge and skills.
Extrapolating general ‘anti-internship’ sentiments from a few extreme cases masks the true story: one of a practice that provides saleable skills, easier access into highly competitive professions, networking opportunities, and a plethora of other benefits. At present, I am lucky enough to be completing an unpaid placement at the ASI; hopefully, the constructive nature of such a placement is evidenced by the very existence of this blog post. I don’t claim that every intern will be as lucky as me in his or her remit, but I do know that I am definitely not alone in gaining substantial benefits from an unpaid internship.
German retail sales trundle along
Summary: German retail sales moving sideways
What the chart shows: The chart shows German retail sales in real (inflation-adjusted) terms, with an index where 2010=100
Why is the chart important: The euro area economy has recently surprised on the upside. Absent any new political or fiscal crises, activity should now expand, meaning the EA is out of its long recession. But future developments depend very much on demand in Germany. German retail sales are a very volatile series, which is prone to substantial revisions. Nevertheless, it is disconcerting that – in essence – the volume of German retail sales has moved sideways in a very narrow range over the past two years. Germany is also in recovery., But domestic demand remains sub-par and may not be enough to act as a growth engine for the rest of the euro area.
Bale and the market
Is Spurs striker Gareth Bale really worth €100m? Plus whatever eye-watering salary his new employers, Real Madrid, will pay him? Isn't it immoral to pay footballers such enormous amounts for what is basically entertainment, when nurses (say), who do such an essential job, are so badly paid?
You can certainly discuss the morality of such questions, but pay is the outcome of a market process, not a moral question. If millions of people admire the skill of a footballer – or for that matter a singer, a guitar player, an artist, an actor, an architect—and are prepared to pay well to see that person in action, who has acted immorally? You might say that "society" should value nurses more than footballers, but value, like beauty, is in the eye of the beholder. It is a personal reaction to something. "Society" is not a person with values of its own: only individuals can value things. So if we are criticising the price that is put on a footballer, it is individuals that we are really criticising, those that voluntarily pay to see him. But none of those individual customers has acted unjustly or dishonestly or wrongly or immorally in any way.
When people start criticising how much different people are paid for different jobs, they are making a moral judgement about the distribution of rewards. The implication is that rewards should be distributed in some other manner. But who is to judge. But as the Nobel economist F.A. Hayek noted in The Road to Serfdom, how could we ever decide what would be the "fair" pay of a nurse, a butcher, a coal miner, a judge, a deep sea diver, a tax inspector, the inventor of a life-saving drug or a professor of mathematics? Appealing to ideas such as "'social justice" or "value to society" or "merit" does not give us the slightest help, because we all disagree on these things.
In free markets, people pay us for the goods and services we produce because they value those products. So market rewards do depend, very directly, on the value that we deliver to other members of our society. They reflect the scarcity and skill of the producers, the numbers of customers who want the service and the urgency and importance that buyers attach to it. That is a pretty good way of rewarding people's contribution to human life. If earnings are to be decided by right-thinking politicians and officials, the main gainers will instead be those groups with the best lobbying operations. Which won't be nurses.
In which we are lectured by a Scottish socialist
One should never underestimate the ability of a Scottish socialist to observe a true and pertinent fact about the world and then entirely garble the significance of it. As with this example:
Next you’ll be told that tax makes you uncompetitive internationally. Except even the most market-friendly of competitiveness indicators, such as those produced by the World Trade Organisation or the IMD international business school places high-tax nations such as Sweden, Norway, Germany or Denmark well above the UK. In fact, most of the most competitive countries economically have higher tax rates than the UK and almost all the Nordic nations are in the top ten. Once again, since higher tax favours productive and manufacturing enterprises over low-pay, low-productivity, low-margin businesses, this is exactly what you’d expect to happen.
It is true that the Nordics are extremely market friendly by most measures: Scott Sumner has written a paper pointing out that Denmark might have the most economically liberal economy in the rich world for example. It is also true that they have eyewateringly high tax rates: although we should point out that they don't have high tax rates on business, corporate profits or returns to capital. Those are all quite low by international standards in fact. It's the income and consumption tax rates that are high.
So much of the observation is correct. It's the interpretation that isn't. Our Scot seems to think that it is high tax which causes this economic liberalssim. Not so, it is the economic liberalism that allows the gouging of the population.
To take a step backwards: we do know that there are two things that can restrict the growth of an economy. One is high rates of tax (especially on those profits and returns to capital). The other is regulation of what people may do in the economy. You can thus imagine four states of the economy: high regulation and high tax, low of either and high of the other, and then a low tax low regulation environment. That high regulation and high tax economy isn't going to get very far. The low and low we'd see impressive growth in. The two mixed cases are where the interest is in this case. If you want to have a high tax economy then you've simply got to have that market friendly regulation thing going for you. If you're going to go for the regulation by armies of pettifogging bureaucrats then you need to have the low tax rates: otherwise nothing will ever get done.
Which leads us to our political lesson. You can indeed have an economy with reasonable growth and also high tax rates. But you can only do so by having a cuthroat economically liberal economy underneath those taxes. No other system will generate enough wealth for you to be able to tax it that much. Now of course, around here we'd prefer to have the low tax and low regulation economy because that way we'd get truly great growth, not just a reasonable amount. But the lesson we need our Scottish socialist to heed is that if you do want that high tax economy then you've got to give up all of that other meddling in the economy so beloved of socialists. Which isn't, I'm sad to have to say, either something they would understand nor a deal they would accept if they did.
Part of this argument is correct and part isn't
So, sure — this is all just capitalism, and I’m all for it. But market failure is also a hallmark of capitalism, and those purporting to hold forth on the economy have a responsibility to recognize such failures, particularly when they violate norms of equity and opportunity. If significant portions of some industries pay wages on which grown-ups cannot support a family, while other industries post historic profits, and, importantly, the gains to the latter fail to ever reach the former, then corrective policy is needed. Some of that should be done through wage subsidies and work support (for example, the earned-income tax credit, and health and housing support), and some should be through moderate increases in the minimum wage. To me, that’s not radicalism. It’s plain common sense.
That's Jared Bernstein over in the US. And the part of it that is correct is this:
If significant portions of some industries pay wages on which grown-ups cannot support a family, while other industries post historic profits, and, importantly, the gains to the latter fail to ever reach the former, then corrective policy is needed.
The rest is error: the most obvious one being that this is not capitalism doing this this is markets doing this and the two are very much not the same thing.
What needs to be understood is that prices (and wages and profits are both prices) are a source of information as well as the reward for having done something. High profits indicates, in he absence of rent seeking etc, that whatever it is that is being done is adding high value. And we like people adding lots of value because that value is, by definition, the wealth that society is creating. That wealth that we all then get to enjoy: more profits means we're all richer.
Similarly low wages for a particular line of work indicates that this particular line of work isn't adding much value. If this line of work were adding great value then wages would be rising in order to encourage more people to enter it and add more of that high value. We would very much prefer that people stopped doing these low value added things and went off to do high value added things instead. Thus, as above, increasing the total amount of value that all in society can then enjoy.
In which case taxing the people adding lots of value to give the money to the people adding very little value is an insane economic policy. We are deliberately punishing those making the society richer in order to subsidise those who are not.
None of this changes the fact that we are going to have a welfare policy and some redistribution. Nor that the richer parts of society are, clearly and obviously, going to be the people paying for most of that. But taxing rich people to provide it is just an unfortunate necessity of having any of that welfare or redistribution at all (and we do indeed all believe that there's going to be some of both. No one at all is suggesting that there will never be any State provision of those two at all.). But that's a very different argument from the one that Bernstein is making, that we should deliberately tax and dissuade those who produce more value in order to subsidise those who produce little. That really would be an insane economic policy.
Don't fear immigration from Romania and Bulgaria
Barely a week goes by without some politician or newspaper warning of an imminent immigration apocalypse after the expiration of temporary immigration controls on Romanian and Bulgarian workers in 2014. They predict unprecedented strains on housing, welfare and the NHS – not to mention a coming “crime wave”.
Examining the profiles of migrants from these two countries currently living in the UK, as well as survey evidence from potential EU migrants, it becomes clear that such doomsaying simply isn’t accurate. As is typical for new migrant groups, Romanians and Bulgarians already in the UK are predominantly young and have small families; as a consequence of this demographic profile, they are statistically far less likely to “have a significant impact on health services as a whole”.
The demographic make-up of potential Romanian and Bulgarian future migrants is, according to a BBC survey conducted earlier this year, extremely similar. Research also strongly indicates that EU immigrants are significantly less likely to claim benefits or social housing compared to UK natives.
As for the numbers themselves, several factors point to some of the more outlandish predictions as being without factual basis. Remember that it is not just the UK, but the entire EU, that will have lifted previous restrictions for 2014. As the Oxford Migration Observatory explains, “the UK might not be uniquely attractive to migrants who would have similar labour market access in other major EU economies like Germany and France”.
Indeed, historically, the UK has not been a strongly favoured location for Romanian and Bulgarian migrants, who often prefer the cultural similarities and pre-established personal networks in countries such as Spain and Italy. The falling unemployment trends in both Bulgaria and Romania weaken claims that joblessness will be a major factor in encouraging migration from these two countries to the UK.
Immigration is a net fiscal benefit to OECD countries; the hysteria directed at potential Romanian and Bulgarian migrants to the UK is counter-productive in the extreme.
Why we're hoping the wisdom of crowds can beat Mark Carney
Today we've launched two betting markets to try to use the 'wisdom of crowds' to beat government economic forecasters. Here's the press release we sent out:
The Bank of England’s economic forecasts have been wrong again and again. To counter this, the free market Adam Smith Institute is today (Wednesday 28th August) launching two betting markets where members of the public can bet on UK inflation and unemployment rates, taking the government’s experts on at their own game. The markets are designed to aggregate individual predictions about the economy’s prospects to use the ‘wisdom of crowds’ to beat the predictions of government experts.
The launch coincides with Mark Carney’s first major speech as governor of the Bank of England and follows his announcement earlier this month that the Bank will consider both inflation and unemployment when deciding monetary policy.
The markets (which will be run by bookmaker Paddy Power and can be accessed here) offer these odds:
UK Inflation on 1st June 2015 7/1 - 2% or Less 3/1 - 2.01 - 3.00% 9/4 - 3.01 - 4.00% 5/2 - 4.01 - 5.00% 7/2 - 5% or Greater
UK Unemployment rate on 1st June 2015 9/2 - 5% or Less 3/1 - 5.01 - 6.00% 15/8 - 6.01 - 7.00 % 5/2 - 7.00- 8.00% 5/1 - 8% or Greater
Bookmaker odds tend to be far more reliable than expert opinions about sports, politics and the Eurovision Song Contest, because betters have a strong financial incentive to bet in a dispassionate way and betting markets collect the judgments of thousands of different people, eliminating individual biases.
Even if no single member of the public can beat the experts, collecting the local knowledge of thousands of people in betting markets allows for a much broader set of data points, weighted according to the strength of people’s beliefs. The Office for Budget Responsibility already collects around two-dozen expert predictions, but this is nothing like the kind of volume needed for the ‘wisdom of crowds’ effect to take place.
These markets follow the CIA’s attempts to use betting markets to anticipate geopolitical crises, which were short-lived because of public objections. In future, the Adam Smith Institute will use these markets to compare betters’ judgments about the direction of the economy to those of government forecasters.
Sam Bowman, Research Director of the Adam Smith Institute, said: “No individual can know enough about the economy to make a really reliable prediction about it. By combining the local knowledge of thousands of people, betting markets can outpredict any panel of experts. If these markets catch on, the government should consider outsourcing all of its forecasts to prediction markets instead of expert forecasters.”
Rory Scott from Paddy Power said “Mr Carney – forget your fancy financial models; let’s see where the great British public put their pound instead. Failing that, perhaps the solution to topping up the Bank of England coffers is to take advantage of Paddy Power’s 7/1 for inflation to be 2% lower come June 1st 2015.”
Chart of the week: US durable goods orders continue to trend up
Summary: Signs that the US economy will remain weak in H2 2013 are multiplying
What the chart shows: The chart shows the level of orders for US for and shipments of durable goods (ie, manufactured goods intended to last for some years) excluding defence and transport
Why is the chart important: The Federal Reserve has made it clear that it intends to start the process of tapering – reducing – its quantitative easing sometime this fall – most likely in September. This is a sign that the Fed believes that the US economy has now gained enough traction. While most likely a correct assumption, there are also an increasing number of signs that growth during the second half of 2013 will remain below trend (estimated at 2-2½%). One of these is the weakness in durable goods orders, even when excluding the volatile defence and transport data. Both orders and shipments (the data used for GDP calculations is based on shipments, not orders) are barely above their levels when the Great Recession began. This confirms other data, including business surveys, which point to weak, although still positive, corporate activity – and hence output growth.
Led by Donkeys
By 2014, the Financial Ombudsman Service is expected to have grown its headcount 20 times since it was inaugurated 10 years ago with 200-300 people. The FOS is merely responding to the level of complaints and is not to blame. The chief executives of our financial institutions, notably the banks, are. Their leadership is reminiscent of that by our generals in WW1. It is a strange way to celebrate that centenary.
In 1914, Britain was a, maybe the, global military power although Germany, since Bismark, had developed superior land forces. Nevertheless, complacency was rife, Britain ruled the empire and the war would be over by Christmas. In the event it lasted four years and needed US intervention, principally because our generals refused to recognise, still less learn from, their mistakes.
Today the City is a, maybe the, leading global financial centre, although New York has developed strongly.The battlefield now is the financial services marketplace.
In any trade and industry, consumer complaints are an important performance measure. Most companies try to ensure that consumer experience is positive, complaints are few and those that do arise, are dealt with by the companies themselves.
In the year to March 2013, the FOS received over 2 million initial enquiries and complaints from consumers of which half a million turned into formal disputes, an increase of 92% on the previous year. Sixty-two per cent of those were with just four banking groups. On average, FOS found for the consumer on about 50% of occasions, and just 20% for building societies. For the four large banks, however, they found for the consumer 80% of the time.
Do these four CEOs even recognise, still less learn from, these mistakes? It would appear not. The causes of the complaints may be some years back but that is not the point: it would be quicker, cheaper and better business to resolve today’s complaints internally today. Marketing academics have long established that consumers whose complaints are well handled become more loyal whereas those who do not receive satisfaction become more dissident.
Compare FOS with the Advertising Standards Authority, not a direct match of course, but relevant. According to the 2012 Report, across all consumer markets the ASA only received 32,000 complaints about 19,000 advertisements and promotions, 94% fewer than the FOS. Bear in mind that these are direct, not filtered by the brand companies dealing with any themselves. Of these only 11.5% were decided in favour of the consumer, compared with 50% on financial marketing and 80% against the big four banks.
On three times (101,000) the occasions, the ASA was spending its time helping the advertisers and promoters prevent complaints. FOS has no wish to bash banks and would much rather be helping them to install best practice in dealing with complaints and, better still, helping banks screen their new offers to ensure they do not give rise to legitimate complaints in the first place.
Unfortunately, like WW1 generals, the four big bank CEOs seem reluctant to learn anything.
In praise of supermarkets
There's a certain sector of the chatterati that likes to slag off supermarkets. It's quite appalling how they ship food all over the place, how it's all the same bringly good quality. They set up out of town, the nasties, and thus drain the life out of the high street. We should all go back to patronising our local butcher and baker and sear never to have anything to do with a corporate behemoth ever again.
What these people don't seem to grasp is that there's a reason that we have supermarkets. And no, it's not because we all save time by going shopping in great big lumps rather than continually. Rather, it's because only in such a large and capital rich system can we have an efficient logisitics chain. And it's that logistics chain which is the real value to us all:
It hoped foreign supermarkets like Tesco and Walmart would come in and revolutionise India's backward agricultural sector. Forty per cent of all Indian produce rots on clunky bullock carts and rough baked roads before reaching the market. When they arrive, farmers get a tiny fraction on the retail price as as they pass through at least five agents, each taking their cut. Of the eighty rupees per kilo they were selling for last week, the farmer's share was just eight. India needs new smooth roads, cold-chain storage and modern transport logistics to replace sweaty bullock carts, and direct sales from farmer to retailer to stabilise prices, increase farm incomes and reduce food inflation - one of the country's most politically sensitive issues.
There have been other reports which make a very similar point. In the poor world, and one of the reasons these places are poor is because of this lack, some 50% of food rots somewhere between field and plate. In the rich world there is also waste, yes, but it's more that we consumers buy too much which we then don't eat. And let's be honest about it, having too much food in our fridges is a very much better outcome than having not enough food in the house. And that is the difference between having the supermarkets and not having them. Those logistics chains might mean that we ourselves are so inundated with food that we waste some portion of it. But that's a much better result than not having enough food to be able to waste it.