Thatcherism did actually make Britain richer, compared to everyone else

A new report by economists at Cambridge University’s Centre for Business Research purports to show that the post-1979 liberal reforms introduced by the Thatcher government did not boost the British economy. In a sense, that’s true. As the report shows, trend GDP growth and productivity were slower in the thirty years after 1980 than the thirty years before that. I hadn’t realised that this was new information, but OK.

The problem with the report is that it mostly looks at the UK in isolation. What it doesn’t mention is that this slowdown in trend growth was a global phenomenon. The real question should be how the UK did relative to the rest of the developed world.

Taking the US as a benchmark – the ‘technology frontier’ – the best any major economy can hope to do, basically – I’ve compared GDP per capita, adjusted for purchasing power parity, of France, Germany, Italy and the UK (German numbers include East Germany after 1991, so I’d more or less ignore them after that point). The UK is purple:

And here’s those countries’ relative performance, indexed to where they were in 1980. What we see is the UK's position basically not changing until 1980, with (West) Germany, France and Italy all converging on the US up to that point, then stagnating or declining slightly afterwards:

In this relative picture, the UK’s economic performance looks a lot better post-1980. There is a clear inflection point in the early 1980s where the UK begins to converge on the US, with GDP per capita as a percentage of the US's rising sixteen percentage points from 66% to 82% in 2010. In 1950 the UK GDP per capita was 69% that of the US's. The highest it was during the pre-Thatcher period was 73%, in 1961.

France, on the other hand, falls ten percentage points from 86% in 1980 to 76% today. Germany doesn't do much until the end of the 1980s, when political events render the data basically useless. Italy's decline tracks France's closely. In every case the UK improves relatively, and of course with the US at 100 the UK is improving relative to them, too.

This is probably mostly to do with labour force participation rates, not productivity. That might mask the true welfare situation: I might be much better off retiring early, but that would make me appear poorer and reduce GDP. But it still points to a large change that seems to have happened in 1980 that the report’s authors virtually ignore.

I say “virtually” because they do, actually, show this comparison in their report, it’s just hard to find. In a report with over thirty charts, all but one start during the postwar period. The only chart that doesn’t is this one – which, weirdly, starts in 1880. I cannot understand why, but it does make the UK’s relative recovery much more difficult to spot.

It is quite interesting that the Thatcher reforms don't seem to have boosted trend productivity by very much. As Pseudoerasmusnotes, there doesn't seem to be anything the UK can do to reach US levels of GDP per capita, and the Thatcher reforms only really brought Britain up to European levels of wealth. It looks as if boosting trend growth, not just playing catch-up, is really, really hard.

Well, you've got to admire the gumption here from timewise

Even if, perhaps, not the economics:

Britain is facing a ‘jobs bottleneck’ due to a lack of flexible working options, says a major new study, which has found that just 6.2 per cent of quality job vacancies in the UK mention flexible working. The research, conducted by flexibility experts Timewise and funded by the Joseph Rowntree Foundation, is the first robust overview of the quality of flexible roles available for skilled professionals across the UK. It found that 14.1 million workers, equivalent to 46 per cent of people in employment in the UK, want to work flexibly to fit with modern life - but are competing over a ‘handful of vacancies’.

The gumption part is that writing a report, which then appears in the newspapers, as a method of getting a bit of publicity, is not exactly unknown in the think tank world. And the timewise foundation (like the not economics frankly crowd, it's cool to obsess over the looming shortage of capitals) is actually a part of timewise recruitment network. Umm, specialists in finding part time work for people.

The tactic, of the report and the publicity, we do understand. But we're just kicking ourselves at not having thought up the idea of getting a charity, like the Joseph Rowntree Foundation, to fund it all. Whatever butchery that does to charity law we do think it's extremely clever. We suppose they've got to do something with the money now they're not funding Richard Murphy.

However, what isn't quite so admirable is that they've got the economics of this the wrong way around:

Timewise founders Karin Mattison MBE and Emma Stewart MBE have urged employers to use the ‘F word’ to attract talented potential employees. CEO Mattison said: “The world of work has experienced a revolution – technology advances and recent legislations have facilitated a huge growth in flexible working, yet this has not been reflected in hiring practices. “Businesses are missing out, as they consistently fail to realise just how important flexibility is to people looking for a new role. This often results in the best talent having to trade down, and take jobs way beneath their level of skill and ability. It's time we reboot the way we recruit in Britain.” Stewart added that it was time to stop talking about the ‘glass ceiling’ and instead: “do more to understand the ‘sticky floors’ in UK business, which are stopping talented people from progressing’.

This isn't a problem for businesses, this is just great for businesses. For, as Gary Becker pointed out, they get to hire talent cheaply. If businesses are "taste" discriminating against part time workers, that is doing so irrationally, then this provides better and cheaper labour for those who don't: who will then outcompete those who do irrationally discriminate. As Becker also went on to point out, if this situation persists for some time then we'd probably better conclude that it's not irrational discrimination: for that outcompetition should have eradicated that taste discrimination. Leaving us only with rational discrimination, meaning that the reason there's few part time jobs around at decent salaries is because there's few things people are willing to pay people decent salaries to do part time.

Still, getting the JRF to pay for this is pretty good.

Income inequality: more reasons not to care

Over the last few years, people have been getting very het up about socio-economic inequality. You've got the academics looking at the causes and effects; the newspaper articles detailing its contours; and even the everyday discourse whose central feature seems to be Russian/Arab super-wealthy oligarchs. The most popular narrative, among those characters you might see writing in The Guardian, the New York Times, and Vox —what you might call 'the smart centre-left'—focuses on neoliberal policy reforms. These shifts, seen across the Western and developing world since the late 1970s, have removed constraints that prevented the rich from accelerating away from the poor.

Market forces lead to a widening gap twixt rich and poor now just as they did when let rip in earlier eras (inequality now is more like the 1870s than the 1970s). There are other accounts, of course, as well as subtlety and complexity. Some think that states have more or less deliberately handed out wealth to elites—and this is partly true in middle- and low-income countries, though surely not the West. Some note that most of the widening has come through land, itself made scarce 'artificially' by policy.

This centre-left narrative holds that inequality is bad for a number of reasons. The Spirit Level argued that it led to a number of bad societal outcomes. Their data selection and methodology are extremely questionable—looking mainly at cross-country regressions and doing little to actually test whether changes in inequality itself led to worse outcomes. Others argue that it leads to inefficiency and holds back meritocracy because the rich can invest in their children. This comes up against the fact that such investments do not tend to bear much fruit.

The best argument is that people in practice have a preference against inequality in groups they are in, including society as a whole, and like any other preference this should count in what we judge desirable. The problem with this is that people tend to have wildly inaccurate judgements of what inequality actually is in their society, and their judgements don't move in line with actual changes.

One argument might be that inequality undermines the political system, since the wealthy can buy elections and impose policies that favour them at the expense of society generally. This thesis has trouble dealing with the empirical evidence, which suggests that money has very little influence in Western democracy. Indeed, economists are apt to ask 'Why is there so little money in politics?' (pdf)

Another argument might be that inequality might undercut morality or community. This certainly seems intuitively plausible. Yet even this further argument is thrown into question by a 2012 paper I just stumbled upon. Giacomo Corneo and Frank Neher look at survey data from all 34 OECD countries over 30 years and find no effect of inequality on honesty, altruism or civic-ness, very little effect on obedience or tolerance, and a positive effect on work ethic. (pdf)

So why care about inequality at all?

It's not capitalism but markets that must be argued for

Around here we're rather fond of Allister Heath. But we do think we need to gently correct him here. It's not capitalism that needs to be argued for, to be fought for, but markets. And we think it an error to try to fight for both at the same time:

Capitalism creates wealth and opportunity for the many, not just the few. Lower taxes are the best way to forge a stronger and more generous society. Social problems can often be traced to misguided government intervention. These are some of the sentiments that underpin modern small-c conservative thinking across the English-speaking world. Such ideas are relentlessly expounded by centre-Right politicians in the US, Australia, Canada and New Zealand. But when was the last time you heard such striking, unapologetic language from the Conservative Party? There has been the occasional speech over the years, of course, and the odd newspaper article, but they all quickly vanished without trace.

Well, sorta, but not quite:

There is only one possible way forward for the Tories, and that is to re-engage in the battle of ideas. They must start campaigning explicitly and methodically for capitalism, for markets and against the pernicious view that Whitehall always knows best. The aim over the next five years must be to reframe the narrative around capitalism by depicting it as a tool of social progress, a means to tackle poverty and a mechanism to help families enjoy a better life.

Again, nice, but not quite grasping the very beating heart of the matter. Which is that capitalism and socialism are descriptions of who owns the productive assets of a society. And this is one of the less important factors in determining how good that society is for the consumer (and as both Smith and Bastiat pointed out, we really must be looking at the society and economy from that aspect of consumption). Yes, the profit motive is also important and so on: but what is vastly more important is the market. For it is that market that tempers the profit motive extant under either capitalism or voluntary socialism to the benefit of those consumers.

To take a direct example, the British supermarket industry. One player, Asda, is owned by Walmart, a rather good example of entreprenurial capitalism turned patriarchal. Some 50% of the company is owned by the children of the founder. Sainsbury's is rather further down the road to extended outside shareholder ownership, Tesco and Morrison's all the way. These are definitely capitalist organisations. But we've also got, in this same space, the Co Op which is a mutual owned by the customers, and Waitrose which, as part of the John Lewis group, is mutually owned by the workers. These various methods of ownership are interesting, but they're not in any manner what makes food and booze cheap , plentiful and always available to the consumer. That's that there's these organisations, and others, fighting in a horrendously competitive market for each pound, penny and groat that the consumers desire to spend.

In this sense we're entirely indifferent to either capitalism or voluntary socialism. Of course, we're still vehemently opposed to imposed socialism: but then so are we to imposed capitalism, or as that's normally called, crony capitalism.

Sure, we think capitalism is pretty good. It works which is always nice for a socio-economic system. But we really do not think it's the important and defining thing that needs to be argued or fought for. That it is possible is enough: as that people can organise themselves into whatever version of mutual or socialist cooperative they desire is also enough. Neither needs to be promoted.

But we must absolutely make sure that whoever does own those productive assets is made to compete, to sweat it out, in those markets. So if as and when the Tories, or anyone in fact, goes out on the road to argue for capitalism we'll be the ones right behind them shouting "Markets!" at all times. Just as if people want to go out and argue for mutuals and co ops we'll be the ones shouting that "Markets!" at all pauses in the conversation.

Because the truth is that whoever does own those assets their behaviour, their chase for profit and advantage, is only tempered by the existence of others doing the same. Those markets that we shout about.

Wait a minute: is the government self-interested or isn't it?

Are politicians and voters public-spirited or selfish like firms in the marketplace? Sam argued that lots of voting and legislating behaviour was 'sociotropic', and that it couldn't be squeezed into a model where actors maximised their narrow self-interest. But Sam's argument is best taken on the libertarian margin: public choice theory is probably less true than the average libertarian economist thinks; but it's probably still more true than the average person thinks. Five new papers illustrate this nicely. Firstly, a finding that goes against public choice. Public choice says governments do what's likely to maximise their own power/votes/income. The alternative is that they do what they honestly think is good for the country/citizenry as a whole. According to an experiment from Thad Kousser & Daniel M. Butler legislators play public goods 'games' (imagine game theory scenarios where you get real payouts for the outcomes you achieve) more co-operatively than undergraduates. I suppose playing less selfishly than 19-year-old students is hardly a huge achievement but it's something.

Now here's four supporting the public choice model. Jonathan Brogaard, Matthew Denes & Ran Duchin, all at the University of Washington, find that connected firms get much better government contracts. Specifically, "connected firms are 10% more likely to win a contract. Connected firms receive larger contracts, with longer durations and weaker incentive structures". Pretty nice for them, but not so nice for us, and definitely something predicted by public choice and crony capitalism.

In "A Structural Model of Electoral Accountability" by S. Borağan Aruoba, Allan Drazen & Razvan Vlaicu we discover that term limits make governance worse by leaving top politicians nothing to exert effort for after they've got as far as they conceivably can. Looking at US state governors 1982-2012, they find that first-term politicians do considerably less when they can't win a second term. They say that a two-term regime improves voter welfare by 4.2% over a one-term regime, and a three-term system could be even better.

This one's probably obvious: Joshua L. Kalla and David E. Broockman show through an experiment that donors get much more access to their congressmen than non-donors.

The experiment focuses on whether contributions facilitate access to influential policy makers. In the experiment, a political organization attempted to schedule meetings between 191 congressional offices and the organization's members in their districts who were campaign donors. However, the organization randomly assigned whether it revealed to congressional offices that prospective attendees had contributed to campaigns. When informed prospective attendees were political donors, senior policy makers made themselves available between three and four times more often. T

Finally, perhaps the most damning paper shows that perceptions about a revolving door between politics and business are borne out in fact. "Is the Revolving Door of Washington a Back Door to Excess Corporate Returns?" by Mehmet İhsan Canayaz, Jose Vicente Martinez & Han N. Ozsoylev finds that "firms where current public officials become future employees outperform other firms by a statistically significant 7.43% per year in terms of four-factor alpha". You might just think that government workers are more attracted to better firms, but show that "such financial gains are significantly reduced during periods in which presidential executive orders restrict revolving door movement", ruling this out. However, it still seems possible to me that government workers are talented and know the system and that this improves the firms' returns in 'legitimate' ways.

I still think libertarian economists might have run a bit far with the public choice model, but this is a nice reminder that for all that it does bear substantial fruit.

Will Hutton doesn't quite grasp this FIFA thing, does he?

Not that this should be all that much of a surprise, that Will Hutton doesn't grasp the central reality of a matter. The thing that does surprise is the sheer number of things that Will Hutton doesn't grasp the central reality of. Take this from his latest, about FIFA:

Is the over-riding principle of our times that bad behaviour drives out good? The assertion of self-interest and the pursuit of profit, by fair means or foul, trumps everything. Great values are under assault. Whether nobility of purpose, behaving with integrity, looking out for others, accepting responsibility or just doing the right thing – all seem to be withering on the vine.

Emblematic of the age was the action of 133 leaders of world football associations tamely re-electing Sepp Blatter for a fifth term as president of Fifa.

It's no more emblematic of this age than of any other. The central assertion of economics is that incentives matter. So, if people can enrich themselves through bribery and cronyism, they will. The question is, if we do not desire that they do so, how do we design the incentives so that they do not do so?

Under different leadership, the published report could have triggered global action against corruption in football. Fifa’s governing processes should have been overhauled from top to bottom. There should be term limits on executives, transparency in the bidding process to host tournaments and proper checks and balances. None of this happened and the author of the inactivity has now been re-elected president. It is breathtaking hypocrisy and a global signal that bad behaviour pays off.

It isn't a matter of just having the right people in place. It's a matter of the incentives. Any private business that acted in this manner would be going bankrupt right about now: because that's what competition does, weeds out those who misbehave. Yes, even among those who run competitions that competition works.

If you really qwant to sort out FIFA then the answer is to start another competition between national football teams. And may the best cup win the match.

The Living Wage is a false solution to our problems

I normally agree with the Centre for Policy Studies on economic issues, so I was surprised to see Adam Memon’s call for a mandatory ‘Living Wage’ last week. Philip Booth has already written a post criticising Memon’s original piece, but I’d like to add my perspective to Adam’s response to Philip, posted today. To be clear, Adam prefers “tax cuts, deregulation and other supply-side measures to boost productivity”. He and the CPS have long argued for tax cuts for the poor. This is admirable, and as Adam says it deserves to be acknowledged.

My main contention is that Adam is comparing apples with oranges by using the impact of historical increases in the National Minimum Wage (NMW) to justify a future rise to the NMW to Living Wage levels. There is a lot of evidence against his position that he ignores.

Adam says that “an objective reading of the studies of the impact of the National Minimum Wage can only lead to the conclusion that it has boosted the incomes of the low paid without particularly damaging employment”. Correct. There does not seem to be much, if any, good evidence that the NMW has increased unemployment in the UK.

But this doesn’t tell us that employment would not be higher without rises to the minimum wage. Simply looking at times when we have raised the NMW, and looking at whether unemployment has risen or not, as Adam does once, is extremely crude – there are of course many other factors going on, and without an analysis that attempts to control for those factors we have no idea what the counterfactual would be. But, yes, there have been more sophisticated studies in the UK that do suggest that the NMW has not harmed employment compared to there being no NMW.

Adam says that “This is quite a big deal because it does rather make the traditional argument that the minimum wage would destroy jobs somewhat out-of-date”. But, unless we think there is something particularly unique about the UK’s labour market, the UK is not the only place we have to look at.

Internationally, most of the evidence is that increases in the minimum wage do increase unemployment at the margin. I looked at some of this last year:

Neumark and Wascher's review of over one hundred studies found that two-thirds showed a relatively consistent indication that minimum wage increases cause increases in unemployment. Of the thirty-three strongest studies, 85 per cent showed unemployment effects. And “when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, the evidence for disemployment effects seems especially strong”. There is evidence that suggests that minimum wages deter young workers from acquiring these skills that allow them to get better jobs in the long run.

Of course there are times when this does not happen, but most of the time it does. Most of this evidence is based on US data, and much of it compares employment rates in similar US states where one has had a minimum wage rise and the other has not.

Though UK evidence might be the most relevant evidence we have, we would need a very good reason to completely ignore the international evidence and suppose that the UK experience is all that we should look at.

I am certain that Adam agrees, because he has cited international evidence in discussions about the UK in the past. And rightly so.

Is the UK special? Maybe. But the Low Pay Commission seems to disagree, because its recommended increases have been very low compared to what Adam is proposing. Similarly, the Living Wage Foundation does not call for a mandatory Living Wage.

Distributionally, if some people are put out of work but others receive pay rises, this may well be a negative. Adam says that “There are of course some who lose out from the minimum wage but there are many more who benefit”, but concludes that “broadly speaking the minimum wage is a net positive.”

But taking all of one person’s earnings and distributing them among other people who are already in work is likely to be harmful overall, because of diminishing marginal utility. If there is an unemployment effect it may well be an upwards income redistribution from now-unemployed people to the people who hang on in their jobs.

I do think the Low Pay Commission has done a good job at keeping NMW increases quite restrained. That’s why I suspect they would balk at the idea of raising the NMW to the Living Wage level for the foreseeable future. It’s simply not convincing to compare previous rises that the Low Pay Commission has deemed safe with a future rise that it presumably deems unsafe.

Note that productivity has been very low recently, and the Low Pay Commission has barely raised the NMW as a result.

I find it extremely implausible when Adam defends his claim that the Living Wage might lead to extra productivity gains from workers. This concept is known as ‘efficiency wages’ – a well-paid worker is often a more profitable one.

But firms are profit-seeking, so wouldn’t they be doing this already? Adam addresses this by saying that “often some of these productivity gains through eg reduced absenteeism are unanticipated by firms because unsurprisingly, they don’t always have perfect information” – fine, but these firms will be the exception, not the rule. Yes, firms sometimes miss out on profit opportunities – this doesn’t mean that I or Adam or anybody else knows better.

I enjoyed Alex Tabarrok’s recent post on this, "The False Prophets of Efficiency Wages". He points out that ‘efficiency wages’ were actually studied by economists as a way of explaining unemployment:

In the original efficiency wage literature there is no wishful thinking–no idea that we can have more of everything that we want without tradeoffs. Instead of being desirable, the efficiency wage is a problem because lower wages would reduce unemployment and be better for the economy as a whole.…

Firms routinely track turnover and productivity and they are well aware that higher wages are a possible means to reduce turnover and increase productivity although, as it turns out, not necessarily the most effective means. Indeed, the whole field of workforce science deals with retention, turnover and job satisfaction and the relationship of these to productivity and it does so with more nuance than do most economists. Thus, it’s simply not plausible that large numbers of firms on the existing margin can increase wages, profits and productivity.

To be fair, Adam suggests that his Living Wage rise would be offset by cuts in taxes for business. If these were specifically cuts to the cost of hiring workers this may actually work: cutting employer NICs for NMW workers workers might offset the extra cost of paying the worker the Living Wage. But this would just be a roundabout way of cutting the income taxes or employee NICs of those workers. The Living Wage would be doing none of the heavy lifting, and would still exclude some workers from jobs.

Adam claims that tax credits and other in-work benefits subsidise employers by letting them pay their workers less. I’ve always found this a strange claim. Why would workers’ wage demands fall just because they’re getting top-up money from elsewhere? Do lottery winners ask for lower wages? In any case, he does not provide evidence of this. The consensus from the literature I have seen is that both payroll tax cuts and wage subsidies go to the workers, without driving down wages. So there is no subsidy effect.

In light of all this, my basic view is that raising the minimum wage always risks creating unemployment, and raising it as high as Adam wants would run a very large risk of creating unemployment. I believe that low pay will be the economic problem facing my generation, as unemployment was for my parents’ and grandparents’ generations. To address it, I prefer cash transfers like the Basic Income and anything that boosts innovation, so we can improve people’s productivity and the total stock of wealth.

At best the Living Wage will act as a roundabout way of cutting taxes on workers. At worst it will put many people out of work. I admire Adam’s willingness to challenge the orthodoxy on our side, but in this case I believe that the bulk of the evidence in favour of the free market orthodoxy. The Living Wage is a siren call – a seductive but false solution to the problem of low pay. We should reject it.

The case against caring about inequality at all

Readers of this blog will probably not need convincing that inequality is not something to worry about. We’re more interested in reducing absolute poverty. If you become £100 richer, and I become £50 richer, I say that’s a good thing. But because we’ve become less equal, someone who is concerned with inequality alone would not. But even given this, inequality might matter. Whether we think they should care about it or not, people do, and it makes no more sense to think of that as a ‘bad’ or unimportant desire than thinking a passion for expensive or high-tech watches is bad.

And because people care about it, they might act on it. If inequality makes a revolution or populist, anti-market governments more likely, as Noah Smith suggests it does, then it might reduce investment and growth as well.

Crucially, these harms from inequality come from people’s perceptions of inequality, not necessarily actual inequality. Which makes a new NBER working paper, “Misperceiving Inequality”, rather interesting (hat tip to Bryan Caplan, who quotes some of the key parts directly).

The paper shows that most people know very little about the extent and direction of income inequality in their societies, or where they fit in to the income distribution. This holds for wealth as well as income.

This isn’t a pedantic complaint about imprecision. One question asked people to choose which of five diagrams, above, best described where they live. Responses differed significantly between different countries (68% of Latvians chose Type A, 2% of Danes did), but in almost every country a majority got it wrong.

Globally, respondents were able to pick the “right” diagram only slightly better than randomly – 29% got it right, compared to a random baseline of 22.5%. Accuracy differed significantly between countries: 61% of Norwegians got it right, 40% of Britons did, 5% of Ukrainians did. In only five countries out of forty did more than half of respondents guess correctly. (All this uses post-tax-and-transfer data; people’s accuracy is much worse if you use pre-tax-and-transfer data.)

And respondents weren’t even close – looking at how many people were only one diagram off the right one, respondents only did one percentage point better than random (69% versus 68%). As the authors note, “with only five options to choose between, getting within one place of the correct option is not a very difficult task”.

The paper also shows that people are terrible at judging where they fall in the income distribution – 40% of British second-home owners said they were in the bottom half. 3% said they were in the top 10%.

Crucially, given worries about investment and political instability, “In countries where inequality was generally thought to be high, more people supported government redistribution. But demand for redistribution bore no relation to the actual level of inequality.”

There’s too much in the paper to cover in one blogpost, but the results are extremely clear: people’s perceptions of inequality are really, really inaccurate – that holds globally and in all but a handful of Scandinavian countries.

There are some good arguments in favour of reducing inequality based on how people perceive it – that it makes people unhappy, more left-wing, more prone to revolution, more hateful to the people around them.

But this paper shows that those perceptions are related to the realities of inequality only very slightly, if at all. Redistributive policies that reduce actual inequality are costly, and because actual inequality is barely related to perceptions of inequality they may do little to make the country more stable or market-friendly. If these are important problems, we can only solve them by making people feel less unequal – not by making them less unequal in fact. In short: even if people’s perceptions of inequality matter, the reality does not.

Torts and tortes

It's pretty hard to lose weight. A lot of evidence suggests that waist circumference is heritable, with as much as half the differences between individuals down to genes. But this genetic explanation probably doesn't explain social trends towards obesity; surely there haven't been enough generations of heavier people having more kids than less heavy people (do they even have more kids?)

The issue gets weirder when we discover that animals living in human environments are also getting fatter, even lab rodents eating controlled diets!

Whatever the explanation for the macro issue, it's refreshing to note that on the micro level, people are still responding to incentives. After a big 2002 anti-McDonald's judgement 26 US states passed rules making it much harder to sue fast food companies for causing your weight gain. After this, people seemed to take more responsibility for their own weight and health.

This finding comes from a new paper, "Do 'Cheeseburger Bills' Work? Effects of Tort Reform for Fast Food" (latest gated, earlier pdf) by Christopher S. Carpenter,  and D. Sebastian Tello-Trillo. Here is the abstract:

After highly publicized lawsuits against McDonald’s in 2002, 26 states adopted Commonsense Consumption Acts (CCAs) – aka ‘Cheeseburger Bills’ – that greatly limit fast food companies’ liability for weight-related harms.

We provide the first evidence of the effects of CCAs using plausibly exogenous variation in the timing of CCA adoption across states. In two-way fixed effects models, we find that CCAs significantly increased stated attempts to lose weight and consumption of fruits and vegetables among heavy individuals.

We also find that CCAs significantly increased employment in fast food. Finally, we find that CCAs significantly increased the number of company-owned McDonald’s restaurants and decreased the number of franchise-owned McDonald’s restaurants in a state.

Overall our results provide novel evidence supporting a key prediction of tort reform – that it should induce individuals to take more care – and show that industry-specific tort reforms can have meaningful effects on market outcomes.

I'm not saying individual responsibility always works but maybe some of the blame for obesity is down to individual choice.

Mark Carney meets some journalists looking for a story

If you’ve read the papers today you might have seen the story about Bank of England Governor Mark Carney’s supposed intervention into the immigration debate. The Mail and the Times both covered Carney’s inflation report with this angle. The Times’s coverage was boldest, claiming that Carney had ‘waded into the debate on immigration’ by describing ‘the present high level of net migration as “a key risk” to the economy’.

This is strong stuff, and it would indeed be big news if it were true. But I'm not sure it is.

Here’s what Carney actually said:

In recent years labour supply has expanded significantly owing to higher participation rates among older workers, a greater willingness to work longer hours and strong population growth, partly driven by higher net migration. These positive labour supply shocks have contained wage growth in the face of robust employment growth. Wages have grown by around 2% in the past year – less than half the average rate before the global financial crisis – and a key risk is that these subdued growth rates continue.

Such strong growth in labour supply is unlikely to be sustained. Going forward, growth in the UK economy’s potential will increasingly depend on productivity.

It’s hard to see Carney’s exact meaning from this, and he has already distanced himself from the Times's and Mail's interpretation. As BusinessInsider’s Mike Bird points out, he’s most likely talking about a compositional effect – the average changing because we’re adding more people on the lower end of the spectrum, not because any existing worker is being made worse off.

Bird quotes the Inflation Report itself:

Bank staff estimates suggest that the changing composition of employment growth — including the mix of occupations, industries, ages and job tenures — could explain around 1 percentage point of the recent weakness in average annual earnings growth. Compositional effects will only suppress wage growth for as long as such shifts continue.

Indeed. It would be a surprise if Carney had said what the Times and Mail suggest he said. The government’s Migration Advisory Committee found in 2012 that “Studies estimating the impact of migrants on UK wages have generally found little or no impact on average wages,” although, “in some studies migrants were found to increase wages at the top of the UK wage distribution and to lower wages at the bottom.”

That means that, if there is a negative impact from immigration, it reduces wages for the workers at the bottom, but not the overall wage or productivity level, as Carney is supposed to have claimed.

A 2014 Home Office report concluded that this effect on low-paid workers was found during recessions but not periods of economic growth, and was small and temporary in any case. The effect was not present in other government studies at all.

NIESR’s study into the impact of immigration on native British productivity found it to be small but positive. In general I suspect that there is a strong relationship between how good immigration is for natives and how flexible the receiving country’s labour market is.

The Mail is the Mail, but I can’t quite understand why the Times, in particular, decided to report Carney’s remarks in this way. To misinterpret him so badly seems to almost wilfully prefer a good story to an honest one.