A most interesting argument about the housing market

We might also term this an interesting installment in our "How to lie with statistics" course. From the Green MEP for the South East:

Perhaps as a result, the south-east has seen the biggest rise in rough sleeping levels with a shocking 96% overall rise since 2010. And in 2013/14, no new social housing was built at all by the region’s local authorities.

This represents a massive political failure to serve the interests of our communities.

Well, no, not really. Here are the numbers for housing completions in Britain. What you will note is that council building of houses is, as is stated, pretty much non-existent. That's because we changed the way we did this, moving over to social housing being constructed by social housing associations, rather than councils directly. We can still argue, of course, that more of these should be built. But the way that number has been quoted leaves the impression that no social housing is being built: when some 25,000 units were last year, at least some of which will be in the South East.

Then there's this which is a most ugly idea:

This should be implemented alongside a “right to rent” policy. Homeowners who are unable to meet their mortgage payments and are under threat of repossession would have a right to transfer ownership to the council, at less than market value, in exchange for the right to remain in the home and pay rent as council tenants. This would stop people living under threat of eviction and in fear of not being able to make next months rent.

This is equivalent to compulsory purchase of the property by the council. And given that it's at less than market value it is a confiscation from the holders of the mortgage. It's flat out theft in fact.

That then has an interesting knock on effect: if the security of a mortgage is to be called into question in this manner then all mortgages will cost everyone more. Further, quite apart from this, negative equity is not eradicated upon the sale of a property. The total amount is still owed to the mortgage holder. so this solution doesn't even solve that problem of people being in negative equity.

Yes, this is election season and all sorts of barkingly mad things are proposed at such times. But really, this could do with a bit more thought.

Economic Nonsense: 40. Too much wealth is owned by too few people

Underlying the claim is an assumed egalitarianism.  How much is "too much" and how few is "too few?"  Obviously those making the criticism have some concept in their minds of how they would like to see wealth distributed in society, and it seems they would prefer a more equal distribution than is currently the case.  The obvious question is "Why?"  The answer often given is that this would be 'fairer', but since they seem to define 'fairer' as 'more equal', this is not very helpful.

It does not help, either, that many of these measures of inequality only count certain forms of wealth.  Many people in the UK see equity in housing as their main source of wealth.  For some it is pensions.  Many assessments of wealth distribution, on the other hand, only count assets and investments, and thus miss much of the wealth owned by ordinary people.  Few if any seem to count entitlements to such things as health and education as part of measured wealth, even though they undoubtedly improve the living standards of the average citizen.

It could be argued that societies with an unequal distribution of wealth are able to increase wealth faster, and that poorer people in those societies become richer more rapidly than those living in more equal societies.  To poorer people it matters that they are able to command more resources.  It matters less to them that software multi-billionaires have widened the gap between them and made society less equal.  

Part of the reason this criticism persists is envy, the resentment that some have more, yet aspiration is often motivated by the observation that some have it better.  The success of others can inspire the desire to emulate instead of simply envying.

The false zero sum game probably plays a role in this criticism, the notion that because some own so much, the rest must make do with less.  In fact wealth in constantly being created, and creating wealth is a far surer route out of poverty than redistribution.  Instead of envying those richer than themselves, people would be better advised to try to copy them.

Come and work for the ASI in your gap year!

It's that time of year again: the ASI is looking for two new employees, to start in September 2015, and stay for 4-9 months. Our current crop—Sophie and Nick—are not quite finished (they are staying for the Summer before they go to Edinburgh and Cambridge respectively). But we are opening applications nice and early to make it easy for everyone to plan their gap years.

As last year, the crucial requirements are that you:

• Are on a gap year; you must be 18-20
• Are open-minded, inquisitive, friendly, intellectually curious, eager to learn and interested in policy
• Know and have an opinion on the ASI's perspective and what it does
• Have a broadly liberal perspective on the world

Your duties will include:

• Organising lunches and dinners
• Keeping the database up-to-date
• Managing the blog
• Reviewing and editing ASI publications
• Selling ASI merchandise
• Doing secretarial work for the directors
• Logging RSVPs for events
• Meeting a wide range of interesting & important people
• Learning about social & political science
• Socialising with the staff
• Carrying out self-directed research
• Writing blog posts
• Setting up and cleaning up after events
• Mailing out publications to subscribers

Previous interns have gone on to work with the Adam Smith Institute, including the ASI’s current Deputy Director, Sam Bowman, and Head of Digital Policy, Charlotte Bowyer, who was a Gap Year intern in 2009-10.

The role pays the National Minimum Wage. All applicants will interview with President Madsen Pirie and Deputy Director Sam Bowman at the Adam Smith Institute offices in Westminster during the summer.

Please send a CV and cover letter of around 500 words to gapyear@old.adamsmith.org by May 1st 2015.

Iceland's new money and banking proposal. Yes, why not?

Iceland is considering a new report which would rather radically change the banking system of that country:

Iceland's government is considering a revolutionary monetary proposal - removing the power of commercial banks to create money and handing it to the central bank.

The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

"The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said.

The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

To be honest, the report (which can be read at that link) is little more than a rehash of the proposals of Positive Money. And worth about as much as such a rehash is going to be. It's worth pointing out that Julian Simon was actually correct, human ingenuity, and the knowledge it produces, is the ultimate resource. And given that Iceland's population is some 300,000 people there's not a great deal of it natively. We have noted around here more than once the problems that stem from trying to extract decent economic ideas from the rather larger population of Norfolk as an example.

The basic idea is that as banks create credit, credit creation is behind boom and bust, put credit creation into the hands of the government and abolish boom and bust. We don't think that that's how it will work out. Rather more likely is that politicians will follow the incentives of being able to spend this newly created money without having to tax to gain it and the result will be high and persistent inflation.

However, we're absolutely delighted that someone undertakes the experiment. Actually, we're delighted that someone else undertakes this experiment. Good luck to them say we. And we'll come back in 20 years, see whether there's been that abolition of boom and bust, been that persistent inflation or not, and then we can make a decision about whether to follow or not.

Economic Nonsense: 39. Only strong government regulation can hold big business in check

It isn't strong government that causes concern for big business.  They are more worried about the smaller, newer businesses that might take away their trade.  It is competition, not government that they worry about.  Big business often cozies up to big government.  It employs lobbyists to negotiate with civil servants and ministers, and hammers out agreements on what types of regulations should be introduced, and how they should be implemented.

Big business can cope with regulation.  It can afford the staff to deal with compliance.  Small businesses, especially start-ups, find it more difficult to afford the money or the staff time that regulatory compliance takes up.  Big business knows this, and often strikes deals with lawmakers to impose regulation that will deter newcomers from entering the market.  Far from it being used to control big business, regulation often helps big business by imposing unacceptable costs on its real or would-be competitors.  People speak of "regulatory capture" when the industry works with government to secure helpful regulation.

Some regulation is needed to reassure the public that it will not fall victim to sharp practice or shady dealing, but five words should be engraved above the door of every legislator: "Competition is the best regulator."  It is competition that keeps firms striving to deliver high quality and keen prices.  The fear of losing trade is more powerful than the fear of incurring the displeasure of government.

Regulation is commonly used to protect those in the market from competition by those who might enter it.  If no-one can trim hair without training and a certificate, the prices charged by existing hairdressers will not be undercut.  If no one can enter the taxi trade without a medallion or a two-year training course, the fares charged by existing cabbies will be protected.  All rules like these are done in the name of protecting the public, but in reality it is the established operators that they most commonly protect.

To control big business government should pursue a policy of promoting competition.  It should make it easier, not harder, to enter established markets.  This, more than regulation, will keep firms attentive to their customers.

Blithering stupidity about electronic cigarettes

Sometimes we just despair for the human species. Perhaps it might be time for us to resign and make way for intelligent life. Such is our reaction to this latest report about electronic cigarettes:

E-cigarettes need to be more strictly controlled to stop teenagers using them, health professionals have argued.

The call was prompted by new research showing that 19% of 14-17 year olds have tried the products despite them only becoming available in recent years.

An analysis by researchers at Liverpool John Moores University found that the e-cigarettes were used by 5% of teenagers who had never smoked, 50% of former smokers and 67% of light smokers.

Or as the BBC reported:

Many teenagers, even those who have never smoked, are experimenting with e-cigarettes, researchers in north-west England say.

Questionnaires completed by 16,193 14 to 17-year-olds, published in BMC Public Health, showed one in five had tried or bought e-cigarettes.

The researchers said e-cigarettes were the "alcopops of the nicotine world" and needed tougher controls.

The truth is, of course, that these results show that electronic cigarettes are an entirely marvelous product that are likely to save many lives in the future. Yes, lots of teenagers are using them. But what is the effect of their using them? As one of us has pointed out elsewhere:

That halving of teen smoking rates coincides with the invention and introduction of vaping (overlaps at least, the first devices really came in 2007). And other studies show very much the same thing. People use vaping equipment instead of smoking, not as a gateway to it nor does vaping increase smoking prevalence. It is thus a substitute, not a complement. As such of course it is to be greatly welcomed.

Electronic cigarettes lead to less smoking of cigarettes. Thus, far from our wondering about whether we ought to regulate them more the actual discussion should be about whether they are quite so wonderful that we ought to be subsidising them.

Young Writer on Liberty Competition 2015

  The Adam Smith Institute invites the under-21s to enter our annual 'Young Writer on Liberty' competition.

This year’s theme is: The road not yet travelled: Three paths the next government should take towards a freer United Kingdom

This is not a typical essay contest. Instead, entrants should submit three, ASI blog-style articles, each highlighting a different policy the incoming government (whoever they may be!) should adopt to make the UK freer, richer and happier.

You may argue to get rid of certain regulations, or a repeal a specific law. You might suggest reform of the banking system, the right to sell organs for money, or a move to direct democracy. You might even call to abolish politicians completely! No idea–however radical–is out of the question.

We are looking for entrants who can think creatively and express themselves clearly and succinctly. As such, winning entries will be thought-provoking, well-argued, and suitably researched.

Prizes: There are categories for the Under-18s and the 18-21s, with a winner and a runner-up in each.

The winner of the Under-18 category will receive £150 prize money and a box of liberty-themed books. They will also have their articles published on the Adam Smith Institute blog.

The winner of the 18-21 category will receive 2 weeks work experience at the Adam Smith Institute, £150 prize money, a box of liberty-themed books, and have their work published on the ASI blog.

Runners-up in each category will also receive a box of books, and have an article of their choice featured on the website.

How to enter: You should submit your three articles using our Young Writer on Liberty submission form.

The deadline for entries is 11.59pm on Friday, May 15th. Applicants must be under 21 on this date.

If you have any questions or queries, please contact schools@old.adamsmith.org

We look forward to reading your entries!

Economic Nonsense: 38. The market cannot produce art, music, literature & museums

The market actually does produce such things in some other countries.  What the market does best is to allow people to create the wealth that will fund cultural activities.  The United States has a strong tradition in which people who have done well in business support the arts.  Names such as the Guggenheim Museum or the Getty Centre remind us of the generosity of rich patrons.  Andrew Carnegie, who found fame and fortune in the United States, funded the provision of organs in many churches in his native Scotland, as well as numerous libraries.

In fact the arts have been funded by rich patrons through the ages.  It was often regarded as a sign of good character and culture that a wealthy person would support art, architecture and sculpture.  The emergence of modern economies since the Industrial Revolution has enabled wealth to be created on an unprecedented scale.  This, in turn, has allowed some people to become rich through business and become patrons, where previously it was mostly aristocrats and rich merchants who could afford to do so.

When Kingsley Amis wrote for the Adam Smith Institute opposing arts subsidies, his central case was that if government through its arts committees funded the arts, their output would be skewed towards the desires and tastes of the paymasters, rather than from the passion and inspiration of the artist.

It must remain a suspicion that the committees responsible for handing out public funds as grants to the arts will give effect to their own tastes, rather than those which the public might freely choose to support otherwise.

Some arts can be self-supporting through ticket or admission prices, but government can help through its tax laws, remitting all or part of the tax that would have been due on money donated to artistic institutions.  It does not itself need to dole out taxpayer-funded largesse,  The UK's National Lottery has multiplied financial support for the arts without needing taxpayer funds.  The view that the market cannot finance the arts and that government grants are needed to sustain them is simply not correct.

Immigrants and institutions

It's becoming increasingly difficult to be opposed to significant immigration for economic reasons. One of the more sophisticated arguments for restricting migration–proponents include Paul Collier, in Exodus: Immigration and Multiculturalism in the 21st Century, and George J. Borjas in Immigration Economics–concerns the socio-political baggage that immigrants bring with them; institutions, characteristics, and social norms which might even have had some bearing on the poverty of their countries of origin. There’s a substantial literature to support the claim that institutions like secure property rights and the rule of law are by far the most important guarantors of long term prosperity and growth. If it were true that high levels of immigration could serve to undermine these institutions, (as Borjas hypothesises) significantly mitigating the vast welfare gains some predict immigration will bring, those who support very high levels of immigration might well reevaluate their position.

The newly updated version of a Cato Institute working paper, soon to be published in Public Choice, goes some way to looking at these claims empirically. They use data from the Economic Freedom of the World Annual Report to examine the effects of migration on the institutions such as property rights. The main finding of their analysis is that countries with a larger percentage of immigrants in their population in 1990 had a higher level of economic freedom in 2011.

Indeed, Clark et al. conclude:

Regardless of the immigration measure used or the precise regression specification, we have not found a single instance in which immigration is associated with less economic freedom. It does not appear that immigrants are bringing the poor economic freedom records of their home countries abroad with them.

and

Overall, we find some evidence that larger immigrant population shares (or inflows) yield positive impacts on institutional quality. At a minimum, our results indicate that no negative impact on economic freedom is associated with more immigration.

As the evidence around the economic case against immigration is weakened (I could have also blogged today about a recent CReAM discussion paper which concludes that low-skilled immigration to Denmark pushed up native wages, employment, and occupational mobility), we might wonder whether people have other reasons for opposing it.

It's not entirely obvious that inequality is increasing

It's a standard trope of our times that inequality is increasing beyond all reasonable levels. And it's also true that this isn't really quite true. Inequality within the rich countries has been increasing in recent decades, this is true. But global inequality has been falling. And now from Branko Milanovic (one of the major scholars on this subject) we get that chart above, and this:

...the noted convergence of countries’ inequality levels (see the graph, indicating that countries with higher inequality before 1980 had smaller increases or even declines in inequality since)?

He's actually arguing about something else which is why the quote is so truncated. But this is interesting, don't you think? While there has been rising inequality in some to many countries in recent decades those with the highest original inequality have seen, in some cases at least, falls. And that convergence does mean that the world is, at the country level, becoming equally unequal.

The standard trope of that increasing inequality has more than a few problems with it therefore: not just that decreasing global inequality but also this convergence of inequality. and that's before we even get into things like trying to measure inequality of consumption, adjusted for price levels, at which point we'd be very hard pressed indeed to claim that there's been any rise in inequality in the UK at all.