Voters are very ignorant, and that should terrify you

Voters are very ignorant about the basic facts of politics. This is where Americans fall when asked what the US government spends the most on: And here is how the money is actually spent:

As I've often asked before, how can we possibly expect voters to elect the right people if they know so little about the issues at stake? It's like asking a blind man to be your ship's navigator.

Governments have vast powers and responsibilities. Their reach is essentially limitless. And the people who decide what they do are hopelessly ill-informed about the world. Forget the Hayekian knowledge problem – the voter ignorance problem means democracies cannot hope to elect decent governments with the priorities and policies that the voters themselves would want if they were well-informed.

Elite rule might have been the answer, but elites are dogmatic, closed-minded ideologues. No, there does not seem to be any group we can rely on to rule. Voter ignorance should make us extremely reluctant to bring the state in to solve some problem we're having.

And before you tell me that democracy is the worst system we know of, apart from all the others: Are you sure?

Markets like women too

Last week I wrote about how markets militate against racism. It's a basic and over-worn point, but it seems to be forgotten regularly anyway. Here I shall make the same point, but with respect to women. It's a common view that women are paid less than men on average, even after you account for hours, experience, qualifications, industry, risks, pleasantness of job and so on (though they do account for a very large fraction of the gap).

But there are a few other factors that studies have only started looking into recently. One of those is exit. Women often exit the labour force earlier than men, trade down to more flexible or part-time jobs that don't pay as well. It might well be said that this is the product of socially constructed expectations about what different genders are expected to do and how they are expected to structure their lives—with one gender still doing more work outside the house and one still doing more inside.

But even if this is true, it is important to stress that this 'discrimination', which certainly doesn't seem to result in lower happiness for women, happens at the level of upbringing, schooling, and so on rather than at the level of employment. Firms are not to blame and indeed, recent research suggests firms are actually pretty pro-women.

For example, "Gender Differences in Executive Compensation and Job Mobility", published in the Journal of Labour Economics in 2012 (up-to-date abstract here, full working paper pdf here) finds that if you control for background (i.e. skills and talent) and exit (i.e. women staying in the workforce) women earn more than men and get more aggressively promoted than men.

Fewer women than men become executive managers. They earn less over their careers, hold more junior positions, and exit the occupation at a faster rate. We compiled a large panel data set on executives and formed a career hierarchy to analyze mobility and compensation rates. We find that, controlling for executive rank and background, women earn higher compensation than men, experience more income uncertainty, and are promoted more quickly. Amongst survivors, being female increases the chance of becoming CEO. Hence, the unconditional gender pay gap and job-rank differences are primarily attributable to female executives exiting at higher rates than men in an occupation where survival is rewarded with promotion and higher compensation.

Another paper, from July this year, finds that reservation wages (the lowest amount a person will take to do the job rather than remaining unemployed and taking nothing) explain the entirety of the gender wage gap that remains after you control for personal and job characteristics. This suggests, again, that the discrimination that is happening (if it is happening) is not coming from markets.

The economic literature typically finds a persistent wage gap between men and women. In this paper, based on a sample of newly unemployed persons seeking work in Germany, we find that the gender wage gap disappears once we control for reservation wages in a wage decomposition exercise. Despite a concern with reservation wages being potentially endogenous, we believe that the exploratory results in our paper can help one better understand what the driving forces are behind the gender wage gap. As the gender gap in actual wages appears to mirror the gender gap in reservation wages, there is a clear need to better understand why there are gender differences in the way reservation wages are set in the first place. Whereas a gender gap in actual wages could reflect either productivity differences or discrimination, a gender gap in reservation wages essentially reflects either productivity differences or differing expectations.

This just adds to a burgeoning literature finding that the reason men and women have different outcomes in labour markets is that they differ systematically in job-relevant ways. For example, men in the Netherlands systematically choose more competitive academic tracks. Even very narrow estimates of the risk-tolerance gap between men and women estimates it at about one standard deviation (implying the male and female distributions overlap 80%).

Again, this does not imply there is no discrimination in society—it just shows that it's not corporations, firms, companies, businesses, start-ups, market organisations who are doing it.

How lovely to see another statistical misrepresentation gallop by

Sadly, Joan Smith has previous on this sort of thing:

So let’s go back to that report I mentioned earlier, and what it had to say about false allegations of rape and domestic violence. Starmer described them as “very rare” and went on to say something that might have been written with Gone Girl in mind. “In recent years we have worked hard to dispel the damaging myths and stereotypes that are associated with these cases,” he observed with a hint of weariness. Everyone who works in this area knows what he means, and foremost among those myths is the idea that victims can’t be trusted. It’s a favourite theme of the Daily Mail, which is always ready to clear its front page to highlight cases of men who have been acquitted of rape, without pointing out that false allegations are rare.

The figures are stark. Starmer asked the Crown Prosecution Service to look at a 17-month period, during which there were 5,651 rape prosecutions and a staggering 111,891 for domestic violence. In the same period, only 35 women were prosecuted for making false allegations of rape and six for false claims of domestic violence. The standout finding was that occasions when a suspect deliberately makes a false allegation of rape or domestic violence “purely out of malice” are “extremely rare”.

Oh dear. The number of false allegations that are prosecuted is not the same as the number of false allegations of rape that are made.

Sadly, the only two things we really know about false allegations are the following. The first is that they do happen: we've (a very small number of) people currently serving jail sentences for having done so. The second is that the vast majority of allegations are not false. Our problem is that we do not know the gap between that vast majority and the number that are definitely false.

As best we know the number of false allegations is in the 3 to 8% range of all allegations made.

The point of this is not to muse on the background of what should be done about allegations of rape. Rather, it's to point, in fact to jeer, at the manipulation of the statistics that is being performed. The number of prosecutions for making false allegations is not a good or reasonable guide to the number of false allegations that are made.

The NHS: bread and circuses

Juvenal, as every schoolboy used to know, coined the term “panem et circenses” almost exactly two millennia ago to describe the way politicians bought votes with little regard for important issues of state. What goes around comes around: this party conference season has seen Labour, Lib Dem and Conservative Parties trying to outbid one another in their promises for the NHS.  I am not suggesting that the NHS is mere entertainment even if party conferences are.  The point is that NHS spending is becoming a bribe in the same way bread and circuses were.

Any amount of money can be thrown at the NHS, just as it could at the Roman games.  And consuming more increases the appetite for more again.  Somehow questions of value for money, compared with other ways in which our money can be spent, need to be honestly and realistically addressed.  Does a Health service need to pay for people’s life choices or how they wish to look?  Does it need to accommodate elderly, but healthy, people who have nowhere else to go?

Does it need to fund legions of lawyers, managers and compensation claims for real and exaggerated errors?  Harold Wilson started this problem in the 1960s when patients became customers and could suddenly claim.  Until then the only customer was the state and we all had to take our chances.

Emotional wool seems to cloud all NHS discussion.  As it is all free to us individuals, we, naturally enough, only want the best even when the merely good would be good enough.  For, roughly, the same treatment, big hospitals cost double cottage hospitals which double GPs.  Scale does have benefits for specialism but also diseconomies. Only the hassle of big hospital visits, and car parking charges. keep us local.

The cutting edges of medicine, technology and techniques always cost more but some means of rationing will have to be found.  Alternatively, alcohol, tobacco and fatty foods should be prescribed as bread and circuses were.  Dying younger would keep NHS costs down and morale up.

Why do people oppose immigration?

My Buzzfeed post on immigration generated a bit of traffic yesterday and a bit of disagreement, too. The most common objection to our approach to immigration is that it's one-dimensional—OK, we might be right about the economics, but c'mon, who really cares? It's culture that matters. This point was made to me a few times yesterday and there's definitely something to it. My first response is that I think people underestimate the public's ignorance of the economics, and hence the public's fears about immigration. This poll by Ipsos MORI (I love those guys) asked opponents of immigration what they were worried about—as you can see, their concerns are overwhelmingly about job losses and the like:

The top five concerns are all basically to do with economics, with the highest-ranking cultural/social concern getting a measly 4%.

Obviously this isn't the whole story. People might be lying to avoid seeming "racist", for example. But in other polls people seem less reserved—last year 27% of young people surveyed said that they don't trust Muslims. Less than 73% of the population say they'd be quite or totally comfortable with someone of another race becoming Prime Minister, and less than 71% say they'd be quite or totally comfortable with their child marrying someone of a different race. So the 'embarrassment effect' of seeming a bit racist can't be that strong, and clearly the ceiling is higher than 4%.

I reckon it's more likely that people have a bunch of concerns, of which the economic ones seem more salient. Once they've mentioned them, they don't need to add the cultural concerns to the pile. Either that, or we just believe people in the absence of evidence to the contrary.

That's why I think it's legitimate to focus on the economics of immigration, even if we concede that the cultural questions are important (and tougher for open borders advocates to answer). Persuading some people that their economic fears are misguided should move the average opinion in the direction of looser controls on the borders.

If we could put the economic arguments to bed we might be able to have a more productive discussion about immigration. If culture's your problem, then let's talk about that, but remember that the controls we put on immigrants to protect British culture come with a price tag. Maybe we'd decide that more immigration was culturally manageable if we ditched ideas like multiculturalism and fostered stronger social norms that pressurised immigrants into assimilating into their new country's culture. I don't know. (Let's leave aside my libertarian dislike of using the state to try to shape national culture.)

The point, for me, is this: the economics of immigration does matter a lot to people. Immigration is not either/or—we can take steps towards more open borders without having totally open borders. At the margin, then, persuading people about the economics of immigration should move us in the direction of more open borders. And that, in my view, makes the world a better place.

Longevity and the rise of the West

Did the Industrial Revolution happen because of improvements in institutions or because of improvements in human capital? A duo of new papers attack the question from an interesting new angle, looking at longevity, and finding that its rise precedes (by a good 150 years) the onset of the Industrial Revolution. The first, a 2013 study from David de la Croix and Omar Licandro, builds a new 300,000 strong database of famous people born from 2400BC to 1879AD (the year Einsten was born) and has four key findings (pdf) (slides):

1. On average, before the cohort born in the 1640s, there is no trend in lifespans; they stay at an average of 59.7 years for 4,000 years
2. Between the cohort born in the 1640s and Einstein's cohort, longevity increases by 8 years—this trend pre-dates the industrial revolution by generations
3. This increase occurred across Europe, not just in the leading advanced countries
4. This came from a broad shift, rather than a few especially long-lived individuals

The second, published less than a month ago by LSE economic history professor Neil Cummins, makes use of an even more innovative source of data—a collaborative project between the Mormon Church of Latter Day Saints and individual genealogical experts. Apparently the LDS is a major collector of genealogical information:

‘Baptism for the dead’ is a doctrine of the church of Jesus Christ of the Latter Day Saints(LDS). The practice is mentioned in the Bible (Corinthians chapter 15, verse 29, TheHoly Bible King James Version (2014)). The founder of the LDS church, Joseph Smith,revived the practice in 1840 and ever since, church members have been collecting historical genealogical data and baptizing the dead by proxy. The church has been at the frontier of the application of information technology to genealogy and has digitized a multitude of historical records. Today they make the fruits of their research available online at familysearch.org. The records number in the billions.

The paper draws longevity statistics on 121,524 European nobles who lived between 800AD and 1800AD to establish that the West was rising even before the marked gains seen from the 1640s, and suggesting that the roots of economic development go very deep (much deeper than institutions).

The fascinating paper is saturated with insight-nuggets. Perhaps unsurprisingly, the top ten exact death dates in the periods are all battles:

There's also extra support for Stephen Pinker's thesis of massively declining violence in society:

And here's the overall result:

Taken together, the papers seem to provide strong support for the human capital thesis, as against the idea that changes in institutions were key in allowing humans to escape from the Malthusian trap and see general rises in the living standards, for the first time ever.

It sounds like we've the possibility of a deal here

These new figures do need to be taken with a pinch of salt, of course. But even so there does arise the possibility of an interesting deal:

Kevin Farnsworth, a senior lecturer in social policy at the University of York, has spent the best part of a decade studying corporate welfare – delving through Whitehall spreadsheets and others, and poring over Companies House filings. He’s just produced what is, as far as I know, the first ever comprehensive audit of the British corporate welfare state.

The figures, to be published in a forthcoming report, are astonishing. Farnsworth takes the financial year 2011-12 and tots up the subsidies and grants paid directly to businesses. They amount to over £14bn – that is, almost three times the £5bn paid out that year in income-based jobseeker’s allowance.

Add to that the corporate tax benefits, the value of the cheap credit made available to banks and other business, the insurance schemes run by the government to protect exporters, the marketing for British business laid on by Vince Cable’s ministry, the public procurement from the private sector … Farnsworth calculates that direct corporate welfare costs British taxpayers just shy of £85bn a year.

No, let's not try to pry into the accuracy of those numbers for a moment. Let us, for the sake of argument, take them to be true. And let us add one more piece of data. Corporation tax revenues run around £40 billion a year or so. So, if we are to believe these new figures it would appear that we've the possibility of a very promising agreement here. From our side the simple abolishment of corporation tax and also the abolishment of all that corporate welfare sounds like a great idea. And clearly those who believe that number for corporate welfare should also leap at such a deal. The Exchequer would be, by those numbers, near £40 billion a year better off.

The only problem with this deal is that those who claim to believe those corporate welfare numbers simply wouldn't take it. Meaning that they might not believe in them quite as much as they say they do.

The risk tolerant benefit more from entrepreneurship training

Policymaking always utilises a broad brush with which to redraw the lives of individuals. However, though broad, with the right evidence this brush can be narrowed by taking account of the heterogeneity of human behaviour. Just consider the many and varied schemes designed to support entrepreneurs. Putting aside the debate over whether or not this is the best use of tax revenues, nobody could deny that if we are to spend money on promoting entrepreneurs we should do so in most efficient way.

In “Entrepreneurship Training, Risk Aversion and Other Personality Traits: Evidence from a Random Experiment”, Robert W. Fairlie and William Holleran from the University of California draw on data from Growing America through Entrepreneurship (Project GATE), the largest randomised control experiment on providing entrepreneurship training ever conducted in the United States. Fairlie and Holleran find that:

[I]ndividuals who are more risk tolerant benefit more from entrepreneurship training than individuals who are less risk tolerant. The estimated interaction effects are large: averaging our estimates across the three waves implies that individuals who have a one standard deviation higher level of risk tolerance experience a 2.9 percentage point larger increase in business ownership and a 3.7 percentage point larger increase in the likelihood of starting a business from receiving the treatment than individuals with the lower level of risk tolerance.

This is a useful insight and suggests that we should consider identifying specific groups that may benefit more or less from government programmes to help people start a business. There can be no sure-fire way for spotting the next Zuckerberg, but we can increase the odds. Interestingly, Fairlie and Holleran also find “no evidence that individuals who are more innovative benefit more from entrepreneurship training than individuals who are less innovative.”

As the paper states: “some of the most disadvantaged groups such as at-risk youth and individuals with a criminal background have high levels of risk tolerance, and thus might benefit more for entrepreneurship training than more traditional job training programs.” There might be something in this: John Timpson has found ex-offenders fit in well with his unique entrepreneurial, bottom-up model for running his high street retailer.

As things stand in the UK, we have a remarkably limited understanding whether the schemes used to support entrepreneurship are doing any good. According to Gov.uk, business owners have 278 schemes to choose from. With proper analysis it might turn out that this is the correct number and they are being targeted at exactly the right group in the most efficient way. But I doubt it.

Philip Salter is director of The Entrepreneurs Network.

Five myths about ISIS

For my money, the very best foreign policy blogger on the internet is anonmugwump. One thing he is particularly good at is skewering popular myths. His latest post is one of the best I've read on his blog—an extremely well-sourced and detailed look at five popular myths about ISIS. He shows, in detail, that:

1. Military intervention probably won't make things worse
2. The issue isn't predominantly political
3. ISIS is likely a threat to the West
4. Intervening isn't a trap
5. Cutting off ISIS's funding from gulf states isn't the best way to deal with it.

To some extent, the following myths are all interlinked. The typical anti-war activist believes that the current crisis is mainly political and financial and so military means are not addressing the primary cause of the rise of ISIS. The idea that we’re going to make it worse through military intervention isn’t just because its failing to address the key causes but because it reinforces what went wrong: Maliki alienated Sunnis and bombs will alienate Sunnis. And somewhat linked but not entirely, they think because ISIS is a response to local conditions, ISIS is not concerned with attacking the West. This post is addressed to these people – their premises are false and so their conclusions and prescriptions are also flawed.

Read the whole thing, as they say.

In which we take to Buzzfeed to bang the drum for open borders

Over at Buzzfeed I've written the ASI's first 'community post', with nine reasons people should favour more open borders:

2. Immigrants don’t steal native jobs, they create them

When immigrants take jobs, that’s all some people see. What they don’t see is that immigrants spend the money they earn too. That means that for every job taken by an immigrant worker, she will create another one by buying goods and services with the money she earns. Study after study has found that immigrants don’t ‘steal’ jobs.

The idea that immigrants steal jobs is sometimes called the ‘lump of labour fallacy’, because it mistakenly assumes that there is fixed amount of work to go around. If that were true, women entering the workforce in the mid-20th Century should have created mass unemployment. It didn’t.

It's quite a fun format, and I was able to include the obligatory Mean Girls gif, so hopefully it'll get a bit of attention. Now I want to think of other subjects to cover – Which era of Hayekian political philosophy are you?; 10 reasons to privatise the NHS; The Great Recession in 13 kitten gifs. Suggestions in the comments, please...