Markets involve substantial fairness

I have been writing recently about how market mechanisms work against taste-based (i.e. objectionable) discrimination on grounds of race and sex. A while ago, I wrote how, even if we think that people should not be punished with bad lives for being unlucky with their upbringing or talents, we should favour some wealth and income inequality in many situations so as to achieve more overall justice.

For example, if some choose to take more leisure instead of income, then it would not be just (on egalitarian grounds) to make sure their monetary income or wealth were equal—leisure is a sort of income. Similarly, it would not be just for people with more pleasant, safe or satisfying jobs to earn as much as those with less pleasant, more risky, or less interesting jobs (on egalitarian grounds).

There is one school of thought that understands and agrees with these caveat to equality. They may even note that teachers, who are respected and admired by society, and whose jobs are largely pleasant, satisfying and risk-free should not justly earn as much as despised unhappy bankers. But in the real world they see examples where people seem to have jobs that are high in pay and low in other benefits—boring or risky or low-status. Are markets failing to compensate people in pecuniary terms for the non-pecuniary costs of their job?

According to a new paper, they are not:

We use data on twins matched to register-based information on earnings to examine the long-standing puzzle of non-existent compensating wage differentials. The use of twin data allows us to remove otherwise unobserved productivity differences that were the prominent reason for estimation bias in the earlier studies. Using twin differences we find evidence for positive compensation of adverse working conditions in the labor market.

The authors look at twins to control for 'unobservable' factors about the person—basically their productivity and how employable they are—and find that workers are paid more for doing less desirable jobs. Though it often seems like they aren't, this is only because some people (mainly people on early steps of the productivity/human capital ladder without much in the way of experience or skills) are very unproductive. Of two twins, the one with a less pleasant or more risky job gets paid more.

The unique feature of our data is that we are able to estimate specifications that also control for unobservable time-invariant characteristics at the twin pair level (e.g. place of residence, spouse’s occupation, or family situation) and the common wage growth for the twins. We find evidence for positive compensating wage differentials for both monotonous and physical work using the data on MZs (monozygotic, i.e. identical, twins). Assuming that equal ability assumption holds for MZs, the results imply that both twin difference estimates and Difference-in-Differences (combined twin difference – time difference) estimates are unbiased for MZs.

I am perfectly comfortable with arguments that differences in endowments (basically upbringing and inborn talent) mean that there is a case for redistribution between individuals. But it bears repeating that markets, working properly, automatically produce results that in many ways elegantly fulfil the egalitarian concerns of leftist social justice.

The answer isn’t blowing in the wind

Last week, EU leaders agreed to the next round of targets for reduction of carbon dioxide emissions: a headline target of a 40% reduction on 1990 by 2030. But rather than let the market decide how to reach this goal most efficiently, they also set a 27% target to add more renewable energy to the mix. In practice, this love affair with renewable energy means promoting wind and solar; there is little scope for new hydropower plants and large scale, practical wave and tidal power seems to be as far away as ever. There is no rational justification for this, but politicians seem to be incapable of fixing top level targets and providing a market framework to meet them.

Wind and solar power have been heavily promoted by the green lobby as the clean alternative to fossil fuels and policymakers have swallowed the bait enthusiastically. The more perceptive of them may already have realised that life is a lot more complicated than that but, for those who still need to see the light, I recommend they read a new report published by the Scientific Alliance and the Adam Smith Institute.

Wind Power Reassessed: A review of the UK wind resource for electricity generation will make uncomfortable reading for those who continue to put their faith in wind farms. The author, Dr Capell Aris, has analysed the data on wind speed and direction collected from a total of 43 sites across the UK (22), Ireland and northern Europe over a period of nine years. He then used this data to calculate the output of a fleet of wind farms.

The results will be no surprise to anyone who has looked at this topic in any detail: output is highly variable, and the entire fleet would only produce 80% or more of its rated output for about one week a year. The problem is that, however much we hear about wind being a free resource and the cost of equipment coming down, the effect of adding more and more wind turbines to the electricity grid is to push prices up with only a modest impact on carbon dioxide emissions (the whole reason for current policy) and no improvement in energy security.

If there were no arbitrary renewable energy target, governments would be free to focus on what most voters expect: providing a framework in which a secure and affordable energy supply can be delivered. If emissions are also to be reduced, the most effective measures currently would be a move from coal to gas and a programme of nuclear new build. In the meantime, the renewables industry continues to grow on a diet of subsidies, and we all pick up the tab. Getting out of this hole is not going to be easy, but it’s time the government started the process rather than continuing to dig deeper.

Martin Livermore is the Director of the Scientific Alliance.

It's Monday so it must be sneer at Will Hutton day

My own antipathy to the European Union is, I think, reasonably well known. But I do acknowledge that there are people who like the institution, the ideas and ideals behind it and that at least some of those people are also being both realistic and also expressing their real views. But I can't help but feel that Will Hutton might be able to manage a better defence than this:

Yet Europe’s peoples are shaped by its Christian past, however secular we have now become, and by the Enlightenment, with its commitment to rationality, rule of law and democracy. Industrialisation and urbanisation in Europe forged a powerful commitment to social solidarity. Common underlying values bind us.

Rationality? When monetary policy in the eurozone is resolutely following exactly the mistakes of the Federal Reserve in plunging the US into the Great Depression? As everyone from Milton Friedman though Ben Bernanke to Scott Sumner, with our own Eddie George and Mark Carney in the middle, has been telling us? Rationality when even the creation of the euro was pointed out to be a non-optimal currency area before it was even formed?

Rule of law when the Commission insists that the UK must include prostitution in the measurement of GDP and then charges the country £1.7 billion for having done so? Or the way that the agreed upon rules and laws concerning referenda rather suddenly got changed when people voted the "wrong way" as several countries have done?

And as for democracy I do hope that someone, somewhere, can point to the elections that we've just had for that new European Commission.

There might even be valid defences for the EU but a supporter and protector of rationality, the rule of law and democracy doesn't really seem to fit. Many of us might be rather more favourably disposed to it if it were.

There's a reason why we have farming you know

There are those out there who think that we should return rather to our hunter gatherer roots. Simply pick from nature's bounty rather than intensively farm the planet. There's really only one problem with this delightful idea: we'd all starve within months having stripped the Earth of everything edible:

Epping Forest, an ancient woodland straddling the border of greater London and Essex, is one of the best fungi sites in the country, with over 1,600 different species. But, like other fungi-rich sites such as the New Forest, it is being stripped out by illegal picking by gangs believed to sell the wild mushrooms to restaurants and markets.

“They leave a trail of destruction,” says Dagley, who has been head of conservation for 20 years at the 6,000 acres wood. “It has stepped up over the last five years. Sometimes people run away when they are challenged, but we have been threatened too. People pick using knives so they feel armed.”

He says pickers often take everything away and sort the edible from the poisonous later: “You can find people with 40kg of fungi, which is huge” but much is just thrown away.

Dagley says it is distressing to see the destruction, and it prevents the forest’s 4.5 million annual visitors enjoying the spectacular variety of fungi. The weird and wonderful shapes and colours of the fungi he points out revives his enthusiasm. “You have gills, frills and pores and the puffballs, they are like things from outer space,” he says.

The growing popularity of foraging for wild food may be part of the problem, says Sue Ireland, director of green spaces for the City of London Corporation, which manages Epping forest: “In rural areas, foraging is fine if you are picking for your own personal use.”

Quite: there's no problem at all with a couple of people going off for some ceps: nor with a bit of picking the hedgerow for some blackberries of the sloes for the Christmas Gin. But as soon as many people do it it becomes unsupportable. This is why we have mushroom farms of course. And farms for cows, because hunting the aurochs to extinction has already been done. And farms for what and so on. The truth is that, other than as a very marginal leisure activity, we just cannot live off nature's bounty. There's just too many of us to be able to do so.

Yes, the public health people are lying to us again

It would be useful if they could manage to keep their stories straight:

A landmark report by Public Health England (PHE) says lack of exercise is as dangerous as smoking - directly contributing to one in six deaths.

Officials warned that the UK population is now 20 per cent less active than it was in the 1960s, with half of women and one third of men damaging their health through lack of physical activity.

Given that weight is a straight function of calories consumed to calories expended we've the cause of our obesity epidemic right there. Calories consumed have fallen in that timescale but calories expended has fallen faster. We can thus junk 90% of the current public health programs over addictive sugar, trans-fats and all the rest as simply being nonsense. This part of the public health sector has told us what is really happening.

But it is, of course, worse than that. Our public health people do not seem to understand the economics, nor even the accounting, of public health:

Officials say that without major changes in the way people live their lives, the welfare state in Britain could collapse under the burden of self-inflicted diseases, which are fuelled by obesity, alcohol and smoking.

This simply isn't true. As we've pointed out many a time in these pages, fatties, boozers and puffers save the welfare system money.

Yes, there are public costs associated with the treatments for the diseases all three bring on. But in terms of medical care those costs are lower than the public costs of treating someone who does not die early. There are thus savings in public costs if someone pops an artery in their 60s rather than needing, a little later, a decade's worth of Alzheimer's treatment. When we include things like pensions savings the numbers are even starker. From the point of view of the finances of the welfare state we should be encouraging everyone to stuff themselves and to puff away and imbibe as they do so.

On the other hand of course there are substantial private costs to such early deaths: so we don't in fact go around doing that but just, if we've any liberality left at all, tell people so that they are informed of those costs: the benefits they already know of as it is pleasurable to eat, drink and smoke.

This does not mean therefore that there should be no information campaigns, no attempts to inform people that their health should be better if they stagger up off the couch for a walk for 30 minutes a day. That's all just fine. But what it does mean is that none of these campaigns or actions can be justified by reference to the costs to the welfare state or the public purse. It just ain't true that fatty, puffing boozers impose costs upon said welfare state: thus reducing the number of fatty, puffing boozers isn't going to save that welfare state any money.

Isn't it EUronic

I actually can’t tell if they’re kidding or not. From the BBC:

The UK has been told it must pay an extra £1.7bn (2.1bn euros) towards the European Union's budget because the economy has performed better than expected in recent years.

Replace ‘UK’ with ‘worker’, slot in a different extremely high number, change ‘EU budget’ to ‘UK budget,’ and the system starts to resemble something quite similar to tax law in the UK.

The article continues:

The payment follows new calculations by the EU that determine how much each member state should contribute.

It would add about a fifth to the UK's annual net contribution of £8.6bn.

A government source said the demand was "not acceptable" while one Tory MP said the UK should simply refuse to pay it.

“UKIP leader Nigel Farage said the UK had been "hammered again" while Labour said it was imperative that the European Commission must reconsider the "backdated bill".

It appears UK politicians are in complete shock that hard work and serious efforts to pull out of the recession are being threatened by a big, bureaucratic government body that feels it’s entitled to some of those earnings.

This is priceless.

On the issue itself, I agree it’s “not acceptable”, and I dearly hope the UK “simply refuse(s) to pay it.” What a wonderful precedent that would set for next year’s tax season, when hard-working taxpayers (who, according to this year’s stats, will have been working for the Chancellor for 148 days to pay off their obligations), decide that they, too, don't want to be penalised for working harder and being a bit better-off financially.

Politicians can be slow on the uptake, so I guess there’s no deep surprise that it took them this long to understand the mechanics of ‘hard work = rewards.’ I just hope they whistle the same tune come next tax season.

To Polly the populace are just the milch cows of the State

Polly Toynbee is bemoaning the manner in which UK wages aren't rising:

On Wednesday Steve Machin, research director at the LSE’s centre for economic performance, laid out to a meeting of economists the collected evidence on the nature of falling pay – and warned that this is beginning to look not like a slow recovery in wages, but a permanent, structural feature of the UK economy. He showed how the group-think of economic forecasters has consistently and wildly over-estimated an expected increase in wages: the OBR forecast for March this year was a wage rise of 4.3%. What happened has been a continuing real fall.

“There has been a startling and unprecedented lack of wage growth as unemployment falls,” Machin says. The “herd mentality” of forecasters is always to expect things to improve, but there is no sign they are right. This begins to look like the new permanent, as flatlining real median pay began back in 2003, long before the crash. Nor, finds Machin, is immigration a cause of falling pay: areas with high or low immigration saw pay fall equally.

Polly does at least pay lip service to the idea of being a Keynesian but I'm sure she would be surprised to find that Keynes would have been fully supportive of all of this happening. If people are unemployed then those people have to be priced back into work: and it was exactly Keynes who pointed out that people get very touchy indeed about falls in nominal wages but will put up with falls in real wages if they're lightly disguised by a bit of inflation. Further, the Phillips Curve comes out of very much the same sort of thinking. That there's a trade off between the unemployment rate and the inflation rate. We reach NAIRU (the non-accelerating inflation rate of unemployment) and if unemployment dips below that then inflation will rise. If it's above it then inflation will fall. And if we're seeing ever-falling unemployment and no sign of wages rises then we can conclude that NAIRU has fallen: which is absolutely great, for it means fewer people have to be consigned the the scrap heap of unemployment in order to keep inflation at bay in the future. We've had a favourable change in the basic structure of the economy.

However, the real shocker to us here is this:

Low pay is not just unjust, it’s crippling the country’s finances.

That's dangerously close to insisting that the populace are just the milch cows there to pay for the State, the sheep to be shorn of their incomes to pay for public employees. Actually, given that it's Polly saying it that's not dangerously close, that's what she means.

UK politicians' ignorance towards immigration gives Juncker credit he probably doesn't deserve

It’s a tough day when you have to agree with Jean-Claude Juncker. After all, I tend not to see eye-to-eye with those who think the European Commission needs “to be an even more political body.” But today, Juncker came out strong against Cameron’s proposed cap on EU migration to the UK; which is good, important even:

From The Telegraph:

Mr Juncker said: "I am not prepared to change [freedom of movement]. If we are destroying the freedom of movement other freedoms will fall. I am not willing to compromise."

He said that any attempts to address the issue of the amount of benefits being claimed by foreigners would have to be in line with current EU treaties.

“Member states are free to take the initiatives they want as long as these initiatives are line with the treaties," Mr Juncker said.

Here's the problem - I don't think I do agree with Juncker; in fact, I have a sneaking suspicion he and I hold the opinion that free movement in the EU should remain uncapped for fundamentally different reasons. I, for one, don’t think migration is complimented by mandates to ensure a universal ‘minimum social wage’ throughout the EU.

Rather, I see free movement as an integral and necessary component of UK economic prosperity, not to mention a huge benefit for communities that both migrants and natives come in inhabit.

Yet on this particular topic, Mr Juncker and I have the same end goal. And his commitment to protecting free movement—rejecting Cameron’s migration negotiations—has taken us another step towards a full-blown referendum in 2017. Such a referendum, described in the most positive light, would be an opportunity for Britons to discuss and debate the implications EU regulations have on the UK (the specifics of trade agreements and vacuum cleaner bans are two topics that immediately spring to mind…). But there is a deep worry on the part of pro-immigration advocates such as myself that many will use the referendum to lock migrants out of the UK as best they can.

The majority of Juncker’s policies fall short of promoting freedom and prosperity—but on migration, at least his end goals are right. And until UK politicians (all of them really, Conservatives and Labour across the board) stop trying to halt the overwhelming benefits migrants bring to the UK, I find myself in unfamiliar waters, with Mr Juncker as my ally.

Northern Ireland does something very stupid about prostitution

It's always a little difficult for an Englishman, even one with an extra Irish citizenship (as your author does), to criticise an Irishman for being stupid. That century or more of their being the butt of bad jokes about imbecility creates a certain sensitivity to such an accusation. But this is still flat out a stupid thing to be doing:

Paying for sex is to be banned in Northern Ireland after members at the Stormont assembly members backed the move in a landmark late-night vote.

The proposal to outlaw purchasing sex is among a number of clauses contained in a bill aimed at amending Northern Ireland’s laws on trafficking and prostitution.

Paid-for consensual sex is currently legal in Northern Ireland though activities such as kerb crawling, brothel keeping and pimping are against the law. The proposed ban is similar to the model operating in Sweden.

The human trafficking and exploitation bill was tabled before the assembly by Democratic Unionist peer Lord Morrow.

Trafficking and exploitation are already illegal: making voluntary transactions between consenting adults illegal will not make their incidence any less. Far from it, driving currently legal activity underground will produce more of those already illegal activities rather than less.

At the grander level this is horribly illiberal: the touchstone of any possible liberal society being that consenting adults, when their activities do not harm any non-consenting people, animals or things, get to do what they want. A society that decides to regulate adult sexual activity is not and cannot be described as liberal. It can be anything from Puritan to authoritarian but liberal it cannot be. And we've made hugely welcome strides in the direction of that liberality over the decades: for example, from the illegality of homosexual activity to the widespread acceptance societally of same sex civil partnerships. Plus, of course, the more general idea that what people do in their sex lives is up to them. Quite why anyone thinks that the intercession of a £50 note into the proceedings makes any difference is extremely difficult to fathom. It's still the entirely voluntary playing out of the Tab A and Slot B scenario that we all agree consenting adults are entirely at liberty to perform as they wish.

At the more detailed public policy level there will obviously now be calls that England should follow suit. To which the correct answer is, as above, no it shouldn't. But even if you don't find a defence of adults being allowed to be adults convincing there is another. Which is that we really should take advantage of this devolved administration stuff to wait and see what happens. It'll take a few years for this change in the law to filter through to human behaviour. Time which could usefully be spent actually looking at what happens. Only after we've done that will we know what does actually happen: and only once we do know what happens that's the first time that we can or could usefully discuss whether it's a good idea or not.

It's definitional that of course consenting adults should be allowed to consent. But even if you don't believe that let's wait and see what actually happens here, eh?

Is Gamergate a classic case of left-wing infighting?

I published a 'think piece' on gamergate over at the research side of the website yesterday. I argued that the pro-gamergate side was likely to lose because the left usually wins (for good or bad) on cultural issues:

Gamergate is one of the most interesting cultural issues that has appeared in years. It is a rare time that the losing side of the culture war has put up a good fight. But the anti-gamergate side will win, because Progress always wins. I’ll try and give a concise guide to gamergate, what’s at stake, where it came from, and why exactly it is that it will lose.

I read another good post on it from Cathy Young over at realclearpolitics—she made a different point to mine, trying to stress how it was not reasonable to characterise much of the movement as anti-women or misogynist, but simply taking an alternative (and she believes, valid) approach to improving the lot of women in gaming:

There are valid concerns, shared by at least some GamerGate supporters, about sex-based harassment in gaming groups and stereotypical portrayal of female characters in videogames. Unfortunately, critics of sexism in videogame culture tend to embrace a toxic brand of feminism that promotes antagonism, grievance, and intolerance of dissent, not equality or empowerment.

When I posted my piece on twitter I asked for constructive criticism, and one good point that was made is that, at least according to their own views of themselves and their results on political compass tests, gamergaters tend to lean left.

This makes me think that gamergate might be best characterised as a case of leftist infighting, but this time between Murray & Herrnstein's 'cognitive elites' that make up social justice anti-gamergate journalism and the broader constituency of more 'normal' pro-gamergate leftists holding more traditional leftist views. An open front in the war between New and old versions of what justice consists in.

This fits with my anecdotal experience that it is those (like Richard Dawkins) who are or have been associated with the left that experience most of their ire when they state or are suspected of having unacceptable views. As ever it's interesting to look at the parallel with religion, which abhors apostates much more zealously than infidels.

And it also fits with the modern left's de facto focus on race, gender, sexuality, (dis)ability as opposed to their previously overwhelming concern with economic exploitation or justice. As I said in the think piece:

Bear in mind that although social justice advocates do care about wealth disparities, this is far from their main concern, at least in terms of how they allocate their time. For example, insufficiently pro-transgender feminists will arouse large campaigns stopping them from giving lectures at many universities, while libertarian capitalists can speak freely. This is why I have argued that social justice is (a) a facet of neoliberalism, and (b) an artefact of the cognitive elite’s takeover of society. This is what makes the modern social justice movement so different.

This ends up working quite well for the ASI: we are quite comfortable with social progress as long as it allows for liberal economic policy, and only tend to object when social progress conflicts with more important goals such as free speech.