Oxfam's latest gambit: let's raise global inequality
I'm afraid that I really don't understand this latest idea from Oxfam. I can only conclude that it comes from some unfortunate brain spasm or something. They seem to be calling for a rise in global inequality. Here's their actual paper, here's The G and the TUC both praising it. And here's their central demand:
An end to extreme wealth by 2025. Reversing increasing extreme inequality and aim to return inequality to 1990 levels.
I've long had my little problems with Oxfam: they seem to be suckers for every right on initiative going. But I hadn't thought that they'd been taken over by complete loons. Not up to now that is. For the problem with this demand is that 1990 levels of inequality were higher than they are now.
There's a logical point that need to be made:
Free public services are crucial to levelling the playing field. In countries like Sweden, knowing that if you get sick or that you will receive good treatment regardless of your income, is one of the greatest achievements and the greatest equalisers of the modern world. Knowing that if you lose your job, or fall on hard times, there is a safety net to help you and your family, is also key to tackling inequality. Similarly, access to good quality education for all is a huge weapon against inequality.
I agree entirely that free public services reduce inequality. Indeed, the TUC itself has calculated that income inequality in the UK is some 30x: the top 10% get 30 times the bottom 10% in market incomes. By the time you add in all the effects of taxes, benefits, those free public services like health care and education, that true income disparity falls to 6x. Given that all rich world countries do indeed have free health care, state pensions, free at the point of use education and so on, it's thus very difficult indeed to see that inequality is anywhere near as bad as is being stated. For we do indeed all have those public sectors which reduce inequality. We cannot thus go around measuring inequality purely by market incomes. Thus the very measure that Oxfam is using is, by its own lights, incorrect. For you just cannot go around recommending state services as a method of reducing inequality without taking note of how state services already reduce inequality.
And there's a factual one too. The go to guy on inequality is Branco Milanovic. A slide show is here, a paper here. Global inequality, the only form of inequality that a good little liberal should be concerned about at all, has fallen over the years. Substantially. As I've pointed out here, it's also true that the past few decades have seen the biggest reduction in actual poverty in the entire history of our species. And as here, the poorest of the poor, sub-Saharan Africa, has seen both rising incomes and falling inequality over that time period.
We've just managed, amazingly, to concoct the right economic policies to do exactly what Oxfam wants. We've let globalised capitalism rip and the poor are getting rich even as global inequality falls. So now they want us to stop doing what so obviously works.
I can really only think of three explanations for their desire to reverse all of these achievements. The first is that they're simply ignorant. Ignorant of the most basic facts about inequality and poverty. The second is that they've suffered some sort of brain spasm and need to go and have a little lie down. The third is that the organisation has been hijacked by loons. I'm afraid I just cannot think of any other reason why they would propose that we increase global inequality back to 1990 levels.
The mercantilists strike back
Professor Dani Rodrik at Harvard University has offered up a challenge for free market liberals. He is openly, and unashamedly mercantilist: the very ideology that Adam Smith originally set out to defeat back in 1776. While rejecting the historical obsession with amassing precious metals, Rodrik proposes a mercantilist alliance of government with corporations towards common objectives like economic growth.
Swatting aside accusations of cronyism, he offers two reasons to be mercantilist. Firstly, he claims that it works: the recent Asian experience of modern economic growth suggests so, along with the fact that classical liberalism only became dominant in Britain around the 1840s, after it had already started to industrialise. But both of these claims are dubious at best. Regarding the Asian economies, most of them are experiencing catch-up growth, skipping stages of invention. For example, they needed only to import smartphone technology, rather than going through the painstaking process of inventing every single model of mobile phone from the clunky ancient ones to the iPhone. The adoption of capitalism they experienced was not the alliance of the state with business, but the openness to adopting ideas. Indeed, countries like Japan who have recently caught up now experience stagnation. The mercantilist structure does not seem to be quite so conducive to sustained, original innovation, and hence modern economic growth.
As for the British experience of the Industrial Revolution, the original technical innovators, Rodrik's claim does not imply that mercantilism is the better system. Just because the British state did not adopt a liberal attitude to innovation until the 1840s does not necessarily mean that pro-innovation liberalism was not already in action before the Establishment adopted it. If anything, the liberal view is the anti-Establishment view. It wasn't in state-subsidised or state-monopolised industries or businesses that the unprecedented innovation took place. If anything, the much-admired cotton industry of the time had to operate despite protectionist laws like the Calico Acts. Similarly, the invention and increasingly sophisticated application of steam power had almost nothing to do with the government whatsoever. We also have a useful comparison, as post-Revolutionary France was desperately intent on copying the British industrial experience. Yet despite massive subsidies, early attempts consistently failed.
Secondly, Rodrik says that under mercantilism, it is producers rather than consumers who are king. He claims that mercantilists subsidise liberals' vaunted consumption. The obvious question is "Why?" What is the purpose of production if not to satisfy someone's wants or needs? Even people who value work for work's sake are "demanding" the production of something that meets those values. What is the point of having an economy, of interacting and exchanging with others, if not to acquire value for yourself? This does not necessarily mean that you are some selfish miser, obsessed with money, but includes the whole panoply of values you can hold, from equality, to community, to family and to love. If Rodrik's mercantilist challenge is to have weight, he needs to explain what the point of production is, if not to satisfy demand.
EU renegotiation: UK must play hardball, with referendum threat
There is talk of Britain renegotiating its relationship with the European Union, and the ‘in’ and ‘out’ lobbies have been marshalling their troops. But a report for the Adam Smith Institute concludes that, whichever outcome it prefers, the British government needs to raise its game to get anything at all from the talks.
In Britain and the EU: A Negotiator’s Guide, City analyst Miles Saltiel says the Prime Minister should not rely on civil servants with EU ‘form’ but instead recruit ‘tag-teams’ of hardened negotiators who have ‘iron discipline’ and the stamina to survive gruelling late-night bargaining sessions. They will need the backing of experts in law, economics, politics and negotiating psychology;, and must be prepared to use not just the media and public opinion, but the ‘dark arts’ of every aspect of negotiationing too.
Saltiel asks how much commitment the government is willing to invest in the renegotiations. If the UK really wants to stay in, will it challenge the other side enough? Will its team be full of tough negotiators who can look at what’s offered objectively, or ‘old Europe hands’ who will easily fold? Will it be prepared to play hardball?” Will it threaten a referendum if deal-breaking conditions are not met?
Britain’s best negotiating chip is that it is not getting enough tangible benefits in return for giving up sovereignty. Specifically, the EU has not yet delivered a free market in services – crucial to the UK because of its large financial sector. Its negotiators should set a deadline on this, and other failures.
Saltiel, an experienced international negotiator, says that the government must be prepared to stand on the brink, even if it does not want to step over it. To strengthen its hand, it should hold two referendums. The first would provide a mandate to renegotiate, and would set a deadline to prevent the talks dragging on indefinitely. The second would seek voters’ approval of the eventual deal – or their permission to get tougher if the negotiations are stalled.
Analysing the arguments and counter-arguments that will be raised on the key issues, Saltiel says that the UK needs to marshal its opening, fallback and hardball positions, and will achieve little if it is not prepared to play hardball.
But would a hardball threat to pull out of the Union be credible? There would be disruption in terms of diplomacy, trade, investment, business and consumer confidence, he warns. But on most fronts, he concludes, Britain could survive out of the EU, given “good luck and good management.”
Untangling the EU web
The most constructive approach towards the renegotiation between the EU and the UK would embrace a fulfilment for the UK of the EU’s central bargain: a surrender of sovereignty in return for palpable gains. For the UK this means not so much peace (as for France), or respectability (as for Germany, as well as in different ways as for the Southern and Eastern European members with only recent history of democracy), or a voice (as for the Low Countries and other smaller nations), but free access to local markets where we have comparative advantage, specifically services.
This, however, has been delayed indefinitely: for all that the “Service Directive” was negotiated during the good times from 2000 to 2006, it was rendered toothless by vested interests and now stands unenforced. The failure of the EU to deliver on its central bargain with the UK amplifies the grievances which find expression as concerns about sovereignty.
The natural course would be to revisit the issue with a new timetable. Setting aside credibility, at present no-one can engineer such a thing. There is neither understanding, fiscal capacity nor political will for the critical reform, cleaning up bank balance sheets and the zombie companies they support.
Instead the authorities have diverted themselves with regulatory tokenism, while the Euro's sovereign debt crisis complicates events beyond any hope of timely resolution. In addition, the political class’s successful campaign to demonise banks has demolished any appetite for public intervention to restructure balance sheets. So efforts on this score are acutely untimely, with the recession and banking crisis leading to greater rather than lesser restrictions.
So negotiators will be left unable to address the market in services in a positive spirit. This means that possibly in spite of themselves, our delegation will be obliged to engage with the other side of the failed bargain - in other words to contemplate the repatriation of powers which famously threatens to inflame attitudes. Do negotiations founder at this point? It depends on how the Government’s has communicated its ambitions for renegotiation and the public's sense of these things.
Ahead of the PM’s speech, we are getting a strong sense of a PR campaign to manage expectations. In the last few days, this has included the Sunday Telegraph interview with the PM himself, articles by senior commentators and Tuesday’s round-robin letter to the FT from business leaders. Whether or not culminations, Wednesday’s speech by a senior US diplomat, Philip Gordon, followed by today’s by Gunther Krichbaum, the chair of Germany’s European affairs committee, do double duty.
On their face, such speeches argue for restraint by drawing attention to the misgivings of principal allies. More to the point, they do HMG the favour of defining sovereignty down, so that after such interference any reference whatever to a referendum qualifies as bulldog independence. Knee-jerk comments from harrumphing columnists are already helping this along.
Why Paul Krugman shouldn't be US Treasury Secretary
The Guardian has endorsed Paul Krugman for the US Treasury Secretary job. The initiative began with actor Danny Glover’s online petition. The Guardian's case for Krugman begins:
Krugman has been right about the major problems facing our economy, where many other economists and much of the business press have been wrong. [For example]: he wrote about the housing bubble before it collapsed and caused the Great Recession.
So have many others – earlier and more accurately than Krugman. As for Krugman's predictive powers on the housing bubble, here he is in 2002:
The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Of course, we hear similar arguments today: that the government needs to create a spending boom to offset the lack of private sector investment. The more things change, the more they stay the same.
Krugman claims that he was taken out of context. He meant that the only good Greenspan could have done was to create a bubble. He was right. After all, the housing bubble did lead to a recovery. Up until 2007, that is.
Going back to the endorsement:
[Krugman] has forecast and explained that large budget deficits and trillions of dollars of "quantitative easing" (money creation) would not cause inflation or long-term interest rates to rise; and that the "confidence fairies" would not reward governments that pursued austerity in the face of recession.
Of course inflation and long-term interest rates are low: the environment is uncertain and growth in the West is stagnant. Investors are looking for safe havens like US, UK or German bonds. That will change once we begin to recover. As for inflation expectations, we are still waiting to see how the Fed-induced monetary "bomb" will affect us in our next boom years – however far away they are.
And gee – I wonder why the confidence fairies are not rewarding tax increases, postponement of structural reforms, and a highly uncertain political environment? (Think Eurozone; think debt ceiling.)
Krugman has written extensively about the stupidity of the last few years of economic policy in Europe, which has been a major drag on the whole world economy. The treasury secretary would have only limited influence on Europe through the IMF, but in developing countries the US treasury department pretty much is the IMF.
Well, yes – Paul Krugman was opposed to the "stupidity" of Europe's economic policies, but from the wrong side. He opposed reforms to welfare states but was strongly in favour of large stimulus spending to "end this depression now". This is the same reasoning behind the UK's enormous budget deficit, unsustainable public finances, and current kick-the-can-down-the-road policies.
If Paul Krugman had been Treasury Secretary in 2002, would he have supported Greenspan in initiating the housing bubble or would he have opposed it? These are the decisions a Treasury Secretary has to cope with every single day. Krugman’s record does not suggest that he would make the right decisions.
Finally, can I make a suggestion for the US Treasury Secretary, since we're apparently allowing anyone to make important nominations? I nominate Ron Paul. He served his last day in Congress the other day so he's available. Maybe a famous fan like Kelly Clarkson should start a petition.
EU derision time
The EU Federalists have already written the script for the UK’s new relationship as an “associate member”. We will be subject to all the regulations and costs of EU membership without any influence or voting rights. That is roughly the deal Norway currently has.
So is this decision time as we choose between attractive alternatives or derision time as we crawl pathetically back into our hutch?
The Federalists believe the UK has little negotiating room and Cameron will be out of office before the talks get tough. At the next election, UKIP will not be taking many, if any, Westminster seats but they will be drawing away the key marginal voters. Any Lib Dems remaining will undermine negotiations.
So is the EU now a lost cause? If it was left to the FCO, it certainly would be. Our diplomats have no blueprint of an EU, nor of an exit, that we would like, nor any plan to achieve either of them.
What can we do? Cameron needs to agree the seriousness of the issue with Milliband – forget Clegg. The UK’s national interest needs a negotiating team and a strategy that will survive the next election whatever the outcome. The team should work in secret and bring together some of the more thoughtful MPs and MEPs, both Conservative and Labour, as well as the City – our most crucial economic interest. Unfortunately it will also need diplomats, but retired ambassadors rather than serving civil servants, because it will be essential to know the extent to which we can bring other EU members along with us.
The team should be given a year, no more, to come up with an A and a B scenario to compare with scenario C, and plans to achieve A and B:
A. What is the best “staying in” deal we can reasonably expect to achieve?
B. What is the best “opting out” deal we can reasonably expect to achieve?
C. If we are blocked from both of those and continue to be dragged, whingeing, along, how will that look?
A referendum should be deferred until we are ready but that is easy. If a premature referendum comes to the wrong answer, have another a year later.
We can win this campaign but not if we continue to deal with the EU in the manner we have for the last 40 years. If we lose this campaign it will resemble our last Eurovision Song Contest entry: a tired old gent being derided by a bunch of countries with whom we have lost touch.
How not to start negotiations with the EU
David Cameron is expected to make his long awaited EU policy speech shortly. We are told it will be radical and bold. The consequence, we are told again, will be a major renegotiation of our EU terms or departure with our head held high. That choice will be for the UK to make on the basis of an in/out referendum.
Cameron is in the weakest negotiating position of any British Prime Minister since Edward Heath. With her Bruges speech, Thatcher turned us from a respected contributor to a moaning Minnie, complaining at every step of the EU way and thereby alienating our friends. Major dismantled what could have been a powerful trading partner for the EU leaving a rump EFTA today. He led our potential allies into the arms of Brussels. Now they want our money but not us. Blair, to appease the unions, gave away John Major’s opt-outs and, to curry favour with new EU members, much of the Thatcher rebate. Brown handed City regulation over to Brussels.
So far Brussels has been helpful on Scottish independence because Spain is terrified that Catalonia will go the same way. But if the Federalists can use Scottish independence as a further way to undermine the UK position, they surely will.
The track record of our City, regulators and civil servants has been weak. Much of the EU treaty and regulatory wording has been drafted by our people. They claim, naturally, that the treaties and regulations are better than they otherwise would have been. From the Federalist perspective these civil servants look remarkably like a Fifth Column, advancing the EU cause under British colours.
And finally consider the witlessness of our MPs. Have any have sat down and worked out what we are trying to achieve and how that can be done? Bill Cash is thoughtful but no one listens to him any more. On fisheries, did we not sell most of our rights to Spanish fleets? Will the courts allow us to repatriate those rights without compensation and will the compensation not be higher for an independent UK?
Our MPs and our media have further alienated Brussels and other member states by blaming them for UK intervention and undermining our sovereignty when, for example, far more regulations have arisen from Whitehall and Westminster than ever came from Brussels. Transparently, it has suited Whitehall to escape the odium that should be theirs.
In short, the UK will begin the negotiations with the worst possible background.
Article: If elections have consequences, then so does economics
Speaking on Fox News Sunday following the U.S. presidential election, Bill Kristol, editor of The Weekly Standard, said that Republicans, having lost to the Democrats, could no longer hold out free market principles with respect to taxation. ‘I think there is a very good chance that [President Obama will] pass major consequential legislation in the second term, and people like me won’t like it that much. I think Republicans will have to give in much more than they think,’ he said.
Kristol elaborated on the GOP fallout: ‘The Democrats picked up seats in the House and Senate, and the President is in good shape ... the Republicans in the House will be able to get some concessions and some compromises, but I think there will be a deep budget deal next year, it will be an Obama-type budget deal, much more than a Paul Ryan budget deal, type budget deal. And elections have consequences.’
No Mr. Cameron, the UK has no moral obligations at all
David Cameron tells us that:
“The argument of the heart is even when things are difficult at home we should fulfil our moral obligations to the poorest of the world. There are still more than a billion people living on a dollar a day,” Mr Cameron said.
That's fair enough.
The Prime Minister acknowledged that the Coalition’s commitment to spending 0.7 per cent of GDP on overseas aid
That's not. It does make me wonder what, if anything at all, they teach in the philosophy part of PPE at Oxford. Only a moral actor can have a moral obligation: a country ain't such so it can't. We as individuals are indeed moral actors and we might well have a moral obligation to do something. Which, amazingly, many of us so with our donations to various international charitable causes. And well done us: but this does not extend to it being moral to confiscate our money to assuage the egos of politicians in alleviating foreign poverty.
Quite apart from which there's a more important point:
Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, normal Africans wouldn't even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid.
Governmental aid is simply the wrong way to discharge that moral duty even if it existed. I'm sure I recall the British Council spending some of that much vaunted 0.7% on a female dance troupe (most feminist you see?) to interpret the dangers of climate change just as a weird example.
The correct way to alleviate poverty is as Madsen has been saying for decades now. Buy things made by poor people in poor countries. And the government's aid to our doing so could and should be the breaching of all the trade barriers that prevent us from doing so.
As an example, abolishing the Common Agricultural Policy would do more for poor peasant farmers elsewhere than anythinhg else we could possibly conceive.
I have to admit that what confuses me is that all of the above is entirely clear and obvious. And if we really did elect the just, righteous and intelligent to rule us then all of the above would already be happening. It isn't so what is it that this tells us about those elected?
Denmark admits its fat tax failure
The world’s first fat tax will soon also be the first to be abolished. Denmark has taxed saturated fats since October 2011, and the experiment has been a failure. Danes are worried that the tax has increased food bills (which was the point of the tax) and that it could be threatening the food industry. One poll found that 70% of Danes felt the tax was ‘bad’ or ‘very bad’ and 80% said it had not changed what they ate.
At the same time, fat prohibitionists tell us that what Denmark really needed was a much higher tax to have the desired effect. Multiple studies find that a tax as high as 10% (much higher than the Danish tax) would reduce population bodyweight by less than 1%. Most of us tend not to change what we eat based on a change in price — foods like butter and bacon are relatively price inelastic. To get people to change their behaviour you have to set punitively high rates.
It is a good idea to question why the health-obsessives are going after saturated fats to begin with. Many believe that a good diet includes saturated fats, as they have been linked to increased testosterone, boost the effects of omega-3 fatty acids, and improved immune system function.
Simple economics tell us that when you tax something, like saturated fats, enough to cause a change in behaviour then their consumption will fall in favour of a substitute. In most cases, that substitute will be carbohydrates. The nutritional science is far from settled on whether carbohydrates are worse for us than other macronutrients (protein and fat). Politicians are unlikely to know better. The tax on fat could be making the 20% of Danes that changed their diets less healthy. That the impact of the tax is largely unknown is a good enough reason not to mess with the food on our plates.
Of course, there is a more fundamental liberal point. Why should we be coerced to be healthy? If someone decides that they prefer Danish bacon once a week to the last (probably quite uncomfortable) five years of their life, that certainly isn’t a ‘wrong’ choice. It is hard to coerce ‘healthy’ behaviour, and government should not try to. Sadly, politicians know that they can appear to attack the scapegoat of the unhealthy citizen, while taking more money from our pockets.
