Paternity leave: interrogating the evidence
Labour pledges to double paid paternity leave from two weeks to four weeks, and increase statutory paternity pay from £120pw to £260pw. We can do simple reasoning about the short- and long-term effects: to begin with it's a benefit for workers, and then contracts adjust to take it into account as they are re-negotiated across the economy. Since it costs the firm more than it's worth to workers wages go down by more than the benefit, workers lose out and firms may lose out.
But maybe there are positive externalities—i.e. even though the workers are more or less bound to lose out, maybe there are benefits to other people (like their children, their families, or society) that are not accounted for in their market decisions there.
Thankfully we have evidence from other countries, principally Scandinavia, as to what effects. These reforms might have. A 2011 paper looking at the Norwegian reforms found that they did nothing to affect labour market outcomes (and may have widened the division between men and women) and nothing to affect kids' schooling outcomes.
However a 2010 paper (newer, gated version), also looking at the Norwegian reform, found that extra paternity leave led to extra long-term involvement with children, to the detriment of their labour market outcomes—lifetime earnings dropped 2.1%.
Other evidence suggests that paternity reforms affect the household division of labour, making it more egalitarian, in a way that lasts. Iceland evidence suggests this leads to lower divorces and narrower wage divides twixt men and women.
The literature on maternity leave has a similar result: it worsens women's labour market outcomes but has no effect on children's outcomes.
In general we see roughly the same results for men as for women but the case is not open and shut—if people have a strong preference for women and men to be have more similar careers then the external benefits may outweigh the cost to the affected workers.
The Green spectre
I was reading the other day that The Green Party Is The Second Most Popular Party For Young People. This popularity surge is probably not that surprising really - we see increased environmental awareness in younger people these days, and it’s often the case that a vote for a minor party means a vote that expresses disenchantment towards the mainstream parties. However, many prospective Green voters would surely be thinking about being a little more circumspect if they saw Andrew Neil's Sunday Politics interview with Green Party leader Natalie Bennett, which stands out for me as one of the most alarming exposures of ill-conceived economic policy I've seen in a long time. It's rare to see a leader having her party's policies torn to shreds without even the smallest ability to defend them or balance them up - instead simply getting in a jam each time and responding with “I would urge your viewers to go our website and see how the figures are worked out.”
Alas, that's the reality, though - their policies are indefensible - economic moonshine of the worst kind I've seen. Not only are they inimical to successful human progression and increased prosperity, they are antithetical to even the basic truths you'd learn about in first year economics.
Their proposed wealth tax is simply a pipe dream. Bennett claims it will generate between £32 billion and £45 billion, when the reality is that wealth taxes in other European countries generated only a fraction of that. Add to that the proposals for import tariffs, business subsidies, increased minimum wage, price controls, and the kind of Piketty-esque redistributive taxation that would be almost certain to hamper innovation, and drive much of our best talent out of the UK, and there is a good case to made that with The Green Party in their current form, we have, in terms of the economy, perhaps the most dangerous fringe party of them all - a party whose policies would severely compromise the global benefits of innovation, trade, competition and the free market of supply and demand far more than all the other parties would.
A vote for the Green Party actually gives every indication of being a vote for negative growth, as they look to free humankind from what they perceive as the disaster of its Promethean economic advances. While it’s true that in some cases people willingly vote for one of the smaller parties because they are disenchanted with mainstream politics, it’s also true that as the landscape begins to shift, and dissection of the minor parties' policies intensifies as more look to get their feet in Westminster’s door, surely very few people could actually bear to envisage what the country would be like if The Green Party's policies were ever made manifest in any kind of sphere of political influence. At the very least Natalie Bennett's car crash defence of the Green policies on Sunday Politics should elicit the well known spectre: 'Be careful what you wish for' young people. Or to use a famous Shakespeare line:
Take but degree away, untune that string, And, hark, what discord follows!
President Obama: the ultimate poverty hypocrite
Americans are experiencing buyer's remorse. Last summer CNN found that 53% of those polled would choose Mitt Romney to be president today, over the 44% who chose Barack Obama. And with Obama’s approval ratings fixed these days below 50%, I suppose it’s only human to get a bit testy with those you're compared to:
President Obama poked fun at former rival Mitt Romney and leading Republicans on Thursday, saying the GOP’s rhetoric on the economy was “starting to sound pretty Democratic.”At the House Democratic Caucus retreat in Philadelphia, Obama noted that a "former Republican presidential candidate" was “suddenly, deeply concerned about poverty.”
“That's great! Let's go do something about it!” Obama added in a not-so-veiled jab at Romney.
What’s not particularly smart, however, is to frivolously attack someone’s track record on poverty when your own record looks abysmal:
A few ugly facts about the Obama Presidency:
- Median household income has slumped from $53,285 in 2009 to $51,017 in 2012 just up to $51,939 in 2013.
- In comparison to his three previous successors, this fall in median income looks even worse:
- Real median household income was 8.0% lower in 2013 than in 2007.
- Nearly 5.5 million more Americans have fallen into poverty since Obama took office.
- Obama oversaw the first time the poverty rate remained at or above 15% three years running since 1965.
- Home ownership fell from 67.3% in Q1 2009 to 64.8% in Q1 2014; black home ownership dropped from 46.1% to 43.3%.
- Labour force participation rate fell from 65.7% in January 2009 to 62.7% in December 2014.
- The federal debt owed to the public has more than doubled under Obama, rising by 103 percent.
- 13 million Americans have been added to the food stamp roll since Obama took office.
Obama has been very successful in painting a picture of himself and the Democrats as the 'Party of the Poor', and did an even more sensational job convincing 2012 voters that Romney's riches and successes put him out of touch with the middle-class America. But in reality, the president's policies have pushed millions more people into financial stress and poverty.
And he's still causing damage; even his latest State of the Union address called to raise taxes on university savings accounts and still cited fake unemployment numbers, as if this somehow helps the double-digit workers who have given up looking for jobs.
Perhaps the president really thinks his increased federal spending will pay off for the poor. Maybe he really believes that multi-millions more on food stamps is a saving grace instead of a tragedy. But regardless of intention, the facts speak for themselves.
Obama's talk on poverty is cheap. And his mockery of Romney cheaper.
One cheer for democracy
Today (20 January) is hailed in the UK as Democracy Day – the 750th anniversary of the establishment of the first parliament of elected representatives in Westminster. Let's not get too dewy-eyed. We classical liberals are democrats, but we are sceptical democrats. Yes, some (minimal) functions require collective action. We think that the public, not elites, should make those decisions - and that representative government is probably the best way to do it. But we are fully aware hat the democratic process is far from perfect. It is not about reconciling different interests (as markets do), but about choosing between conflicting interests – a battle in which only one side can win. Democracy is tainted by the self-interest of electors, of representatives and of officials; it can produce deeply irrational results; and all too often it leads to minority groups being exploited, and their liberties curbed, all in the name of ‘democracy’.
That is why democratic decision-making must be bound by certain rules, and should focus, with precision, only on those issues that cannot be decided in any other way. Many people (and almost all of those who happen to be in power) argue that more and more things should be decided through the democratic process. But that means deciding them through the political process; and politics is not always a benign force. The more things that are decided politically, the easier it becomes for the rights and liberties of individuals to be eroded, and for minority groups to be exploited or suppressed by those who are wield the coercive power of the state.
But rights and freedoms are for everyone: they are not a matter of numbers and majorities. Election success does not license the winning majority to treat other people exactly as it chooses. The power of majorities needs to be restrained.
That restraint really has to come from within the understanding and culture of the people. A constitution might curb the excesses of politicians for a while, but even countries with seemingly strong liberal constitutions are not immune from rapid increases in the size of government and from the erosion of individual rights and liberties by majorities. Constitutional freedoms are hard to protect if the general public loses its understanding of their importance and its will to protect them. Let's hear it for Limited Democracy Day.
Cameron's 'full employment' pledge isn't very convincing
Earlier today in Ipswich, Prime Minister David Cameron pledged to turn Britain into a nation of “full employment”, aiming to overtake Germany for the top percentage of people in work. From the BBC:
The PM is aiming for Britain to have the highest percentage of people in work of any developed nation.
Labour said the Conservatives' promises would sound like "empty words" to the unemployed or those on low pay.
Mr Cameron's goal of "full employment" would involve the UK, currently 72%, overtaking Germany's 74% in terms of the percentage of people in work, said BBC assistant political editor Norman Smith.
There is no timescale, but it is an "aspiration which he wants to achieve", he added.
It’s a nice ‘aspiration’ sure, but Labour’s not the only group to think these are ‘empty words’ coming from the PM.
Why?
His pledge to bring full employment to Britons includes measures to increase the number of start-up loans provided by the government, as well as plans to invest in infrastructure, which he hopes will attract business and support new apprenticeships. But no word about changes to the minimum wage. Not a word about the personal allowance or National Insurance tax.
Research that my colleague Ben recently highlighted shows what a negative effect the minimum wage can have on unemployment – it's estimated that “minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point(s)” in the United States during the late 2000’s.
What’s more, a job is significantly less valuable to the newly employed if she is still unable to provide for herself and her family. At the same time the PM scraps the minimum wage, he should raise the tax-free personal allowance to the Living Wage, taking the poor out of tax completely. National Insurance tax should also be scrapped for low-earners, as it works as just another form of income tax.
A backtrack on minimum wage increases combined with pegging the personal allowance and NI to a Living Wage would be a serious indication of Cameron’s commitment to ‘full employment.’ But while he continues to spout plans for increased government spending and building, I remain unconvinced.
Democratic discrimination: Minors’ voting rights, poorer households and inequality
Usually, across countries, relatively low-income households tend to have more children than higher-income households; this difference also holds between countries that have relatively high incomes versus low incomes. It’s also the case that the voting age in most countries coincides with the age at which one is no longer considered a minor but a fully-grown adult (16, 18 or 21, usually). Since it’s not just the individuals who vote but also the entire household that is affected by the government’s economic policies – the moral principle of affected interests, would seem to imply that children should be granted the vote. Poorer households have, on average, more children than wealthier households, by denying minors the right to vote, the law is essentially discriminating against poorer households and communities on the whole. Even though both wealthy and poor households are affected by the elected government’s policies, if we presume that both households have an equal number of adults (say, for example, 2), the average wealthier household would actually have a disproportionately higher voting power relative to its own size and the size of the average poorer household. So, if the poorer household had 2 adults and 3 minors (a total of 5) and the wealthier household had 2 adults and 2 minors (a total of 4), though the poorer household is larger and, therefore, more people are impacted by the government’s policies, their voting power is equal to the wealthier household’s since only the adults can vote. In this way, by denying ‘minors’ the right to vote, the wealthier household is favoured and the poorer household is discriminated against.
In many developing countries, there is a high fertility rate amongst both urban and agricultural communities when compared to their developed counterparts and, furthermore, within these poorer countries, the difference in the fertility rate between a wealthier and a poorer household is even larger than in a supposedly free, developed country. Therefore, denying minors the right to vote discriminates against poorer households even more so in developing countries than poorer households in developed ones and, by that same logic, favours the wealthy elite in the developing nations even more so than the wealthy in developed countries!
This has repercussions for subsequent policymaking and the government’s calculations for re-election next term. If those who are less fortunate have proportionally less self-determining power in elections than others, less attention will be paid to them in proportion to those biased proportions.
Furthermore, people are generally much younger in developing countries and when we consider that various diseases, poor employment opportunities, food shortages etc. might lead to a large number of children in many developing countries dying before they even reach the legislated voting age, it is imperative that they be given the chance for self-determination as soon as possible.
One could easily argue that although there are many minors who might be able to walk, talk and vote independently, there are still those who might be unable to do so in an adequate manner (such as newly born babies and toddlers). My suggestion would be to allow children to claim their right to vote whenever they feel ready rather than at some arbitrary, legally imposed age that results in biased representation of socioeconomic groups in elections.
How about an online platform through which citizens can repeal laws?
A platform through which citizens could directly vote to abolish laws would enable the electorate to directly limit the size of government. Enabling institutionalised, immediate public backlashes to legislation and responses to previous legislation would help modernise governance by creating a new, peaceful and legitimate check-and-balance on power that enhances the democratic process. One of the arguments for having elected representatives (as opposed to Direct Democracy) is that the deliberative, legislative is inherently complicated and it would be impractical for everyone were directly involved. Representatives, supposedly, effectively synthesise and present the interests of a heterogeneous constituency. Of course, it would be difficult with the current state of technology for all eligible, voting citizens to propose amendments, directly deliberate etc. in the policymaking process. However, it would only, in theory, require a majority of eligible voters to simply repeal laws (voting in favour of repeal and abolition does not, after all, require careful rewording etc.).
Some might argue that this would make government’s job very difficult since there could easily be a popular, legal revolt against newly enacted, controversial pieces of legislation. They argue that unpopular legislation is necessary “for the sake of the public good” but who are they to impose on others their vision of an ideal society? If people cannot be persuaded about the merits of their proposals, what right do they have to impose them? Providing a legal means of revolt will create an alternative, much-needed, non-violent channel through which legislators will also be able to gauge exactly how people feel about some laws.
There may, in the end, be very few laws that a clear majority of eligible voters would even agree to abolish. However, even if there are currently only a handful of laws that we would collectively repeal from the vast, voluminous collection we are subject to, it reduces the need to lobby and burden our representatives with something we ourselves, as the people, could do. This will also enable increased deliberation by representatives on more salient issues.
Wouldn’t it be an absolute pleasure if we could, en masse, stop proposed tax increases and limit the continuous extortion of individuals by government? That’s just one example though. Think of all the other absurd laws that we would collectively have the power to stop without having to lobby our representatives. Most importantly, we can see first-hand whether we would collectively choose to continue restricting ourselves or to actually abolish those laws that inhibit the free society.
Osborne's cuts take us back to the dark days of, umm, 2001
It's good to see that we're not the only people who have realised that Osborne's cuts are not about to plunge the nation back into the penury of the 1930s. We're actually going back to the dark old days of 2001:
Because the government does not want to raise taxes to fund these plans, public spending is forecast to fall from 41% of GDP today to just 35% by the end of the decade.That has prompted accusations that the government wants the country to go back to the late-1930s—and the Britain Orwell describes in his cri de coeur against poverty. The Office of Budget Responsibility, Britain's fiscal watchdog, stated that Mr Osborne's plans would force public spending down "below the previous post-war lows reached in 1957-58 and 1999-00 to what would probably be its lowest level in 80 years". "You're back to the land of Road to Wigan Pier", one BBC journalist roared. The opposition Labour party also sensed good electioneering material; on December 17th, Ed Miliband accused the prime minister of wanting to send Britain "back to the 1930s".
Hmm, well, yes:
Stripping away the hyperbole about Mr Osborne's plans shows that in reality they only amount to a reduction to the levels of public spending seen in 2002-03 in real terms, or 2001-02 in real terms per capita. The government could, back then, clearly afford a welfare state, as it will be able to still do in 2020.
You might think this a tad cynical, in fact, so do we think it a tad cynical. But then we are cynical about politics. Blair and Brown were elected: they stuck to the previous Tory budget plans for their first couple of years. Then they let rip: raising public spending as a portion of GDP from the levels it had so painfully been managed down to. No, this isn't bank bailouts, nor is it just the result of the recession. It was a deliberate plan for what they thought would be a better Britain (obviously we disagree on that betterness). All that is being done now is a reversal of that Brown Terror and splurge. You might agree that this should happen, you might think that it should not, but those screaming that it's a return to the 30s well, here's the cynicism: we think they're the people that that extra money has been spent on these past 12 years. No one likes to see the gravy train shunting back into the yard one last time, do they?
‘Radical’ policy, electoral cycles, protests and term-length
Implementing ‘radical’ policy carries risks. Abolishing marriage law, scrapping the minimum wage or converting a central banking system into one of free banking carries the inherent risk of ‘shocking’ the population, to put it mildly. There are remedial measures that can be taken but rigid electoral conventions and the length of governments’ terms makes their implementation more difficult. For example, suddenly abolishing the minimum wage would likely cause immediate harm to those on it (or being paid close to it) if it were done in an improper, ‘shocking’ manner – and that’s not even considering the long-term sociological impact of the resulting aversion to ‘free market’ ideas involving ‘liberalisation’ and ‘deregulation’. Putting aside the long-term individual, communal and intergenerational psychological impact of poorly managed liberalisation policies, the immediate harm is mainly caused by the fact that the affected individuals have little time to prepare for it and, therefore, any immediate harm can be mitigated if policy is announced well in advance.
On the 9th December 2010, the House of Commons voted to raise the tuition fees cap. By then, so many students had already applied to university and were due to start in 2011 (though, admittedly, the tuition fee rise would not be effective until 2012) and the students from the year below who had made plans based on previous estimates would feel the brunt of this. One and a half years is hardly enough for those students and their families to make suitable provisions for a 3 or 4-year, full-time course at Uni (which has increasingly become the preserve of the middle-class).
Furthermore, the sense of an impending tuition fee rise no doubt exacerbated the sentiments necessary for a strike. If, instead, they announced their plans at the start of the term but delayed actual implementation until mid-way or late into the term, any protests may actually be smaller since people would have had a longer time to lobby/reason with the government and, indeed, for the policy’s advocates to reason with and persuade the people.
Thus, when planning to implement such policy, an adequately advanced announcement ensures that those affected have time to make provisions and, therefore, significantly diminish any potential, immediate harm caused upon implementation.
The problem, however, is the phenomenon of behavioural changes during electoral cycles; politicians and governments behave differently before and after elections (think promises before and actions after elections as well as populist policies in the run-up to elections) – they want to win elections and, sometimes, expectations-stability when implementing radical policy is sacrificed.
One possible policy suggestion here is to allow the electorate to choose how long they would like the government’s term to be during the elections (by indicating a preferred term-length and then collating the results according to a collated ranking system or weighted average of some sort – of course, selecting the optimal social preference ordering methodology is controversial but that is beyond the scope of this blog post). If the electorate were to opt for a longer term-length, it would be a signal (quite possibly of confidence or of a desire for longer-lasting stability or simply a desire to delay future elections etc.) and this means that otherwise shocking policy can be implemented with less immediate harm. Conversely, shorter term-lengths will ensure that those governments with shaky mandates will be time-constrained in implementing their more extreme policy proposals.
Local government cuts needn't be the end of the world
Local governments are having their spending power cut by 1.8% in real terms next year. Local councils pay for things like social care, some education, public transport and roads, and some of the arts. So this cut is not so popular in some quarters.
I hate relying on ‘waste cutting’ as a way of making spending cuts, but local councils really do seem to waste a lot of money. Since 2010 they’ve made £10bn in efficiency savings, and a third of councils say they can make bigger savings. I’m sure at least some of the other two-thirds are just being shy. The Local Government Association estimates that local governments can continue making efficiency savings at between 1 and 2 percent per year. So that’s something.
The big spending items are social care and waste spending. Both of these can be reformed so that people who can afford to have to pay for themselves. Waste collection is often contracted out, and there is academic evidence that doing so results in significant cost reductions. (There’s an easy way for councils who do not already do this to save some cash.) But more significantly there’s no real reason that more of the actual payments for this should not be moved to private residents as well, at least those who can afford it.
Social care is much trickier and, as the population gets older and lives for longer, paying for it is becoming a bigger and bigger problem. Those people who can afford to pay for their end-of-life care should do so, but there is the problem that this disincentivises saving. Nevertheless it is hard to see a case for people who live in social housing and earn low amounts of money paying for the end-of-life care of people who own the big houses that they live in. Reforming this wouldn’t solve problems in the short run, but it might help stave off a bigger funding problem in the medium run.
Normally everyone focuses in on arts funding. In my view, there is no role for government in arts funding at all. I won’t convince you of this here, but Pete Spence might. And there are all the weird little things that local governments spend their money on that could be cut to save even a tiny bit of money. Where I live, in Lambeth, half the adverts I see seem to be thinly-veiled political campaign posters (paid for by me and my neighbours).
And, funnily enough, there’s one way councils could raise quite a lot of money and solve another problem in the process. The country needs a lot more houses, and planning permission is the main thing standing in the way. In some parts of the country, a piece of agricultural land that gets planning permission rises in value by one hundred times. Councils should be allowed and encouraged to auction off development rights for new houses. That would raise money for them and help tackle the housing shortage.
The problem here is that housing demand is not equal across the country, and it’s the richer places like London and the south east that would benefit the most from this. So there’s probably a case for some minority fraction of the money raised being redistributed to poorer authorities. In general I like the principle of council funding redistribution from rich to poor parts of the country, but that does reduces the incentive for councils to improve the economic prospects of their own areas. Though perhaps they lack the powers to do this anyway.
We have a government deficit that most people want reduced, some very large areas of central government spending that most people want increased (pensions, healthcare), and a general consensus that economic growth is a good thing (so tax rises are out). Something’s gotta give and there is almost nothing that can be cut painlessly. But given some willingness to reform alongside cutting, local government cuts could be the right way to go.