Three neoliberal ideas from Barack Obama

Here’s another reason to be cheerful: Barack Obama’s final days as President are taking a neoliberal turn.

1. He’s just spoken out against planning regulations in America’s cities. This is a huge limit on growth – maybe bigger than in the UK. By constraining the supply of housing in places people want to live, like New York and San Francisco, and keeping people in less-productive places, building and zoning regulations are an significant drag on productivity growth – a recent NBER working paper estimated that the costs were equivalent to 13.5% of GDP lost every year. If you could cut those regulations to the level of the median US city, allowing more houses to be built and workers to move, you could boost US GDP by a whopping 9.5%. The "toolkit" of evidence and policy fixes he's released to help people fight back against NIMBYs is a great first step, and his bully pulpit could be even more effective at getting people to realise that blocking developments has a wider cost.
2. He’s driving ahead with TPP and TTIP against strong opposition. I’m a big fan of these trade deals, which seek to reduce regulatory barriers to trade as well as tariffs. These are really important, because while the WTO requires member states not to put high tariffs on goods, they can be sneaky and protect their domestic firms from better foreign competition with regulation (stringent or time-consuming safety approval processes for things already sold safely in other countries, for example – the FDA does this a lot with drugs and medical instruments). In TPP, the biggest gainer will be the poorest country – Vietnam, and as Tyler Cowen writes it’s a good thing to attach many of the countries involved to the global liberal trading order. 
3. His White House issued a report last year attacking occupational licensing laws. In America 29% of jobs, including things like hair-braiding and interior design, require licenses that are often expensive or difficult to acquire. (Fourteen states require licenses to braid hair.) The laws seem bonkers, mostly. According to Ramesh Ponnuru, “more than 1,100 occupations are regulated in at least one state, but fewer than 60 are regulated in every state” – a sign that for almost all of them it’s possible to get by without, and a big barrier to migration between states, which helps people to find the right jobs for them (see point 1). We’re lucky in the UK that these aren’t as big of a problem as in America, although some I do suspect some licensed professions, like lawyers and black cabbies, of operating a bit of a racket.

I don’t think Mr Obama will be remembered as a great president, but we may miss him when he’s gone.

Oddly enough, we already know this about the gender pay gap

Given that this comes from the alma mater of one of us perhaps we shouldn't get too grumpy about it. Or, perhaps, we should get grumpier for the same reason. The point being that we already know this about the gender pay gap:

Fewer than one in five of the UK’s top 1% of earners are women, according to a study that highlights a stubborn gender divide among the super-rich.

Researchers writing for the London School of Economics found the UK picture was replicated in all seven other countries they studied, with men always making up a majority of the top income groups.

Women accounted for less than a third of those in the top 10% in all the countries. Higher up the income distribution, the proportion was lower still, with women constituting between 14% and 22% of the top 1%, according to the studypublished by the LSE’s International Inequalities Institute on Tuesday.

Aficionados of this particular statistic will recall when the Statistics Ombudsman (perhaps Commissioner?) rapped Harriet Harman over the knuckles for her misrepresentation of that pay gap. Harman was gaily rolling along telling everyone about the difference in mean wages. And was told to stop being so misleading - we should be using the difference in median wages. 

The reason being that we don't record those with negative wages and there is no obvious limit to wages at the top end. Further, we know very well that the top end of that distribution is heavily weighted in favour of men. Thus, quoting the gap concerning the mean gave an entirely misleading impression of the situation facing the average person - thus the median should, in fact must, be used.

All that this report does therefore is tell us what we already know. That rather fewer women than men successfully climb the greasy pole to the very top. The reason being that rather fewer women think it a useful way to spend ones life - being sensible they find that there are better things to do with the limited time we have here. 

If it were that women are not allowed to do so then that would be a problem: we do believe in equality of opportunity after all. But if the difference comes from freely made choices then it's not a problem, is it, as we don't believe in equality of specific outcome, only in the possibility of the equality of utility maximisation.

Welcome Oliver and Amelia!

Oliver Riley and Amelia Stewart have joined the ASI as gap-year employees. We asked them to introduce themselves:

Amelia:

My biggest concern about taking a gap year was that I wouldn't find I job I liked (or even find a job at all!) but from day one here, I knew I would enjoy myself. The Adam Smith Institute has also turned out to fulfil all of its seven brand values - cool, empirical, compassionate, heretical, educational, flexible and optimistic – so I can’t really imagine there being a better place to work.

I did French, English, Maths and Economics for A-level but not one of them prepared me for the intense level of ASI tweeting I have to do. They have, however, helped me understand (bits of) the amazing articles and blogs the ASI publishes everyday and now I have a few pieces of deep, obscure knowledge on things like solar power and NHS prescriptions. 

Everyone who works here is very intelligent and funny so it’s fascinating listening in on practically any conversation. Every evening I come home with stronger opinions about e-cigarettes and railways and the more I hear and read, the more I’m convinced the ASI’s approach is the way forward! 

I’ve written my first blog on women’s entrepreneurship in the Middle East but there’s more to come as I want to maximise my chances of winning the monthly blog raffle’s £20 Amazon voucher. After I finish here, I plan to go hiking in Nepal and to study French and Arabic at university. 

Oliver:

After a set of A level results above what I was expecting, the thought of taking a gap year before heading off to university became a serious consideration. When I discovered that I had secured the internship, I was certain that I would take a gap year. So far, I have been filled with confidence that my time here shall be well spent and that upon leaving I will be ready for the challenges that lie ahead. However, as the President of the Institute Madsen Pirie comically insists, the question to ask is not whether the interns will be ready for the world, but rather, whether the world will be ready for the interns.

Many skills have already been learned that transcend the generic pre university Gap Year spent in nightclubs and hostels. For instance, my editing and formatting abilities are wildly beyond what they once were and I now have changed and better educated opinions on issues all the way from the privatization of Network Rail, to biometric border systems!

I consider myself a fan of Winston Churchill, and so was pleased to see his face adorn the new five-pound note. Though I understand he had many indiscretions, his devotion to liberalism is one that I share.  I also harbour an interest in Education policy, and have written my first blog post on a voucher based education system.

It’s very exciting to be a part of the team of energetic and intelligent people here at the ASI, and I can’t wait learn and help even more.

This is not capitalism, this is economics

If we are going to discuss what will happen when the robots come to take all out jobs then we need to get our initial analysis correct. Something that Tim Dunlop fails at we're afraid:

How likely is it that a robot will take your job?

It is a question asked with increasing urgency as everything from 3D printing to driverless cars to machine learning is rolled out by a tech industry that sees automation as almost a sacred duty.

To answer, let’s begin with a little-discussed fact. We live in a capitalist system, and the point of capitalism is to destroy jobs, not create them. That might sound counterintuitive but it is easy to explain.

Capitalism is driven by profit. Wages are a cost to be controlled in pursuit of that profit. This means that whenever capital can find a way to turn a buck without employing a human, it will take it, whether it be with robots in factories, automated checkouts at supermarkets or drones to deliver packages.

The destruction of jobs is not something which defines capitalism. It's something which defines economics.

Our basic starting point is that human desires and wants are unlimited. We also note that we have scarce resources with which to sate those desires and wants. Economics is about the allocation of those resources to meet them. Human labour is a scarce resource - we therefore desire to be efficient in our allocation of it just as we wish to be efficient in our allocation of copper, energy or land.

Whatever our economic system we become richer by increasing the efficiency with which we allocate those scarce resources. All economic systems therefore, at least those that make us richer which seems to be rather the point of the exercise, aim to destroy jobs for that is increasing the efficiency with which we use human labour, one of those scarce resources. 

The only point at which capitalism enters the picture is that this mixture of that capitalism plus free markets is the most efficient system devised as yet to reach that desired goal. Of us all being able to consume more, sate more needs and desires, while employing less human labour to get there.

Jobs destruction isn't capitalism - capitalism's just good at it.

Boost jobs for the low-skilled: extended retail trading hours

Up until 2006, Germany regulated all shops' opening hours under a 1956 union-driven law; all shops needed to be closed on Sundays and public holidays, no shops could open after 8pm or before 6am on work days, and if 24th December was a work day, opening hours could be at most 6am-2pm. Then the federal government devolved control of opening hours regulation to the states, and most of them deregulated.

According to a new paper by Mario Bossler and Michael Oberfichtner opening hours deregulations substantially boosted the market for retail workers, comparing states which did deregulate with those that kept the strictures as-is:

We study the effect of deregulating weekday shop opening hours on employment in retailing. Using administrative data on all German food shops, a difference-in-differences analysis shows that relaxing restrictions on opening hours raised employment by 0.4 workers per shop corresponding to an increase by 4%. This effect is driven by part-time employment and employment in large shops, and it implies an increase by 0.1 workers per additional actual weekly opening hour. While the wage bill increased by less than employment, the deregulation seems not to have reduced earnings of workers already employed in retailing before the deregulation

Of course, these weren't specifically Sunday Trading regulations, which stayed intact, but it's not crazy to extrapolate from this that rolling back the size limits that stop bigger shops from opening late in the UK would boost employment here. So that's a sixth reason to hate Sunday Trading Laws.

Just another reason industrial policies don't work

The dreadful suggestion that Britain really should have an industrial policy is raising its ugly head again. Which is an apposite time for a look at what industrial policies actually do to an economy:

The use of industrial policies to support a country’s steel sector has damaging effects on the export competitiveness of downstream manufacturing sectors that make use of steel. That is the central finding of research by Professor Bruce Blonigen, published in the September 2016 issue of the Economic Journal.

We don't, of course, have to look far to find people telling us that steel is one of those essential industries which a country just must have. And thus a sector which simply must be at the heart of any industrial policy.

The problem with this is that steel is an input into other processes - as any such basic industry we might try to protect will be. And thus that input into other industries becomes more expensive (obviously so, if it were already cheaper than foreign made then we wouldn't be trying to have a strategy to protect it, would we?) thus putting the boot into those other industries. That leads to:

One practical concern is that a layering of industrial policies often accumulates over time, leading to the presence of multiple policies at cross-purposes with each other.

Or as we might put that, government commits some other idiocy to try to adjust for the first. Instead of doing the sensible thing and just stopping doing the original idiot one.

Of course, the next stage of this argument is that no, this time around we'll really, and we mean this, study the effect of our industrial policy on all sectors of the economy. Before we intervene even! But that sadly runs into Hayek's objection, that we cannot use anything other than our market economy to calculate our market economy. Which means that we've got to use a market economy, sans intervention, to calculate our intervention - all of which means we'd probably better stay with the market economy in the first place, eh?

So government isn't very good at running research programs then?

The standard argument in favour of government running research programs is that the product, knowledge, is a public good. That is, it's non-rivalrous and non-excludable and thus the private sector will underproduce it. Simply on the grounds that non-rivalrous and non-excludable goods are difficult to profit from and thus a profit seeking private sector won't do very much of that activity. Thus government should step in to produce the socially optimal amount of whatever it is.

There are most certainly areas where we agree with the argument. It is exactly the logic which produces the patent and copyright system for example. However, the wider logic of government intervention in the provision of public goods is not the same as concluding that government must provide that item. We think, for example, of the herd immunity provided by a vaccination campaign. The US does it largely by insisting the children cannot enter public education without having been vaccinated - the UK by the NHS directly providing the vaccinations. We think that second system works a little better. But that is not necessarily true of all public goods.

Which brings us to biomedical research. The Zuckerbergs are funding $3 billion of such. This is welcomed as the field currently rather suffers: 

Success rates for NIH grant applications are at the lowest they’ve been going as far back as the 1970s. When the money for science is this tight, researchers don’t take big risks. Instead of making innovative leaps in science, researchers early in their careers are typically among the most risk averse, taking on bits of studies designed by their senior mentors. Writing a successful grant application often requires preliminary data – in other words, you need to have already done a chunk of the research you’re proposing to do. Even then, about 20-25% of academic biomedical researchers’ time (in my experience) is spent applying for grants to support their projects. Much of their mental effort goes into grantsmanship, which is not at all the same thing as creativity.

Academic researchers are promoted on the basis of “achievement” – grants won and papers published. Volume is what matters here, not necessarily impact. According to Adam Grant, a professor of organizational psychology at the Wharton School of Business, “The greatest originals are the ones who fail the most, because they’re the ones who try the most.” But biomedical researchers can’t afford to have failed experiments because they’re not publishable. Furthermore, they need to take as much of the credit as possible for that “productivity” to count towards their advancement, so there’s an incentive against working with too many other people. Biomedical research is highly siloed in parallel with the grants funding it. An added challenge is that the gold standard for medical research – the randomized clinical trial, ideally conducted in multiple sites and settings – is very expensive.

The NIH spends 10 times as much per year as that entire Zuckerberg gift. And yet we're told that government does this job of funding research rather badly.

Or as we might put it more widely. That we've identified a possible market failure does not mean that government is the solution - for there is such a thing as government failure too.

Questions in the Guardian we can answer

The Guardian asks us:

Do we really want post-Brexit Britain to be the world’s biggest tax haven?

Yes.

Next question?

Or in more detail, yes we do want tax competition. For it is that very competition, as it is in so many other areas of life, which limits the amount that we the people can get shafted. 

We all know very well that a monopoly supplier of beer would be watering that of the workers even as they raised the price. We prosecute people who build cartels for the very same reason - such cooperation between producers means that it is the consumer that is going to get screwed.

Tax competition is exactly the same logic. It's entirely true that there does need to be government - no, we are not anarcho-capitalists around here - and that means there must be tax revenue to pay for it. It is also true that a government is going to be sovereign over its own territory. Which means that the only form of competition we can have here, to protect us against that monopolist problem, is between tax jurisdictions rather than within them.

And thus the joy with which we welcome tax competition and yes, even tax havens. Simply because their existence limits the depredations the governors may make upon the pockets of the populace.

And why shouldn't it be us that leads the world in such matters? We did, after all, rather pioneer these very ideas. Our own Adam Smith leading the way in much of it of course. Starting with that point that it is economic freedom which leads to the enrichment of said populace, competition being the thing which ensures that economic freedom.  

We insist that the bakers and then butchers compete for our custom. Why should that not be true of those who would claim to rule us, those who claim to know how our money should be spent? We might even find that leaving it to fructify in the pockets of the populace provides that optimal solution.

Which is exactly why those who would rule us don't desire the system of competition - and thus exactly why we must have it.

George has missed the point again

It will not come as a great surprise that George Monbiot has managed to miss the point again. Here he is on transport and cars:

The primary aim has become snarled up with other, implicit objectives: the sense of autonomy, the desire for self-expression through the configuration of metal and plastic you drive, and the demand for profit by car manufacturers and fossil fuel producers whose lobbying keeps us on the road rather than moving along it.

Step back from this mess and ask yourself this. If you controlled the billions that are spent every year – privately and publicly – on the transport system, and your aim was to smooth the passage of those who use it, is this what you would do? Only if your imagination had been surgically excised.

The point being that a free society does not have some rational planner determining what everyone should be doing. Rather, we allow the system to be emergent from what the people actually want to be doing. And as it turns out absolutely every society where people have been able to afford cars has had people flooding to have cars. Simply because that appears to be what people want.

Whatever the purported rational planner says about it.

There is this though:

Let’s reopen old rail lines closed in the mistaken belief that train travel was on the way out (it has grown 74% since 1995) and build new lines to bridge the gaps. Let’s bring train services under public control and use the money now spent on road-building to make tickets affordable for everyone.

Privatisation has led to a 74% increase in rail use. Therefore let's reverse privatisation in order to increase rail use.

That is better than just missing the point, isn't it? 

Why the Middle East needs more female entrepreneurs

The majority of Middle Eastern and North African Countries (MENA) have a problem with female unemployment. While male unemployment has been falling in countries such as Bahrain, Iran, Jordan and Tunisia, female unemployment is growing. The country with the largest gap is Egypt, where female unemployment is four times that of male.

For a region that is cutting unemployment rates faster than any other developing region, this may at first seem surprising. Equally, the Middle East has made a huge amount of progress enrolling more girls into primary and secondary schools as well as universities. It would seem that as more jobs are on offer overall, and more women are educated and therefore employable, female unemployment should be falling.

However, rising female unemployment can simply be explained with rising female workforce participation: more and more women want to work, but the economy is struggling to adapt to provide suitable jobs. Although there has been a surge in job creation, the type of jobs on offer are centered around construction and other manual labour, areas that are often inaccessible for women.

This is why promoting female entrepreneurship is key. Not only do more start-ups equate to more jobs for everyone, firms run and owned by women are more likely to employ other educated women then firms run by men. While there is an imbalance between men and women creating start-ups around the world, this issue is particularly acute in the Middle East and North Africa. According to The Female Entrepreneurship Index, MENA countries rank in the bottom 20%, so essentially have the worst environment for women starting up companies.

If the Middle East pushes for more companies run by women, then creating the estimated 54 million extra jobs the region will have to in order to keep up with the ever-increasing population can be realised more easily. Families would benefit from an extra source of income, and educated women would no longer face a life of dependence and unemployment ahead of them.

It is also possible that by adding more female start-ups to the economy, pre-existing companies will up their game. The Global Entrepreneurship Monitor’s Report on Women and Entrepreneurship found that “the distribution of women entrepreneurs across broad industrial sectors … is comparable to those of men”, suggesting women and men basically create the same kinds of companies and compete alongside each other.

This competition boosts productivity: big gaps between countries in terms of the number of female start-ups can explain big gaps between the same countries’ productivities. A Sheffield study found that the Middle East suffers a total income loss of 27% (higher than any other region) as a result of high levels of exclusion of women from working.

The social benefits of improving women’s statuses in the workforce are not to be underestimated either. Women being poorly represented in business feeds through to them being poorly represented in politics, as money often equals influence. Women having their own source of income – independent from any relatives – is important domestically too in enabling them to take their own risks to maximise their personal happiness. If we begin to conceptualise a world in which women are just as likely to hold the highest paid, most senior jobs as men, then perhaps we will place more significance on girls’ educations in countries where it remains undervalued.

It is evident that harnessing more female entrepreneurship makes sense for everyone; it would make the population richer, more productive and would reduce gender disparities. The question is what can we do to help women in the Middle East start up companies?

One solution would be to reduce bureaucracy and corruption. According to the World Bank, simplifying businesses processes is likely to create more first-time female owners at a 33% faster rate than men. The countries with the best environments for female entrepreneurs (The U.S, Australia, the U.K, France, Denmark) all rank highly on transparency indexes too.

Secondly, women are still considered ‘legal minors’ in certain Middle Eastern countries, so are forced to, for example, ask for a man’s permission to travel. Often only men can receive tax and employment-related benefits intended for families.

The final, biggest and most uncomfortable reason why so few women are starting up businesses is for social reasons. It’s important to distinguish between the differing challenges women face in Middle Eastern countries, as life as a secular Jewish woman in Israel is very different to life as domestic worker in Saudi Arabia. There isn’t an obvious solution to this, as there is little that the governments or the markets can do to change a mindset that often does not encourage women to work.

But perhaps the first step is for more women to recognise their own potential as entrepreneurs. Helping women become entrepreneurs and employees doesn’t improve the lives of women at the expense of men, it makes the whole economy more productive, more competitive and wealthier for everyone.