And there we were, thinking that science is about logic
We can see that one part of this argument most certainly could be true. But we just cannot get our minds around the idea that the other part possibly can be:
Robotic artificial intelligence platforms that are increasingly replacing human decision makers are inherently racist and sexist, experts have warned.
The argument is that such AIs are trained on the data that already flows through society. If that data is itself skewed in some manner, sexism, racism, whatever, then the logical rules the AI picks up from the data will reflect that underlying bias in the data.
We don't know but we're entirely willing to believe that it could be so. However, we can't see this part of it at all:
Professor Noel Sharkey, Co-Director of the Foundation for Responsible Robotics, said more women need to be encouraged into the IT industry to redress the automatic bias.
He said the deep learning algorithms which drive AI software are “not transparent”, making it difficult to to redress the problem.
Currently approximately 9 per cent of the engineering workforce in the UK is female, with women making up only 20 per cent of those taking A Level physics.
“We have a problem,” Professor Sharkey told Today.
“We need many more women coming into this field to solve it.”
It's only if men and women are the same that there's any reason to expect equal interest in any part of our world. But here we've an appeal to difference as a reason for there to be an equal outcome.
Yet that's not the only illogicality. The claim is that the basic data supplied by society is biased, this creates the bias in the AIs. How does the gender or sex of the engineers change that? Further, now alerted to it shouldn't any competent engineer be able to zero in on the solution, assuming there is one, regardless of sex or gender?
We're entirely aware that there's a societal mantra at present, a ritual obeisance, insisting that there must be more female engineers because. We're also absolutely delighted with the idea that if there is some bias holding back people from being able to maximise their utility that such is on the way to eradication. But we really do hope that engineering, even of the societal kind, continues to be based upon science rather than religion, however modern that theology is.
We do think it's rather the point of engineering after all.
How expensive houses make everyone poorer – even homeowners
Usually when people discuss housing they focus on the first-order costs. Too few houses means higher housing costs, which lowers people’s standard of living. Since rent or mortgage payments make up most people’s biggest single expenditure after tax, especially for poorer people, reducing housing costs seems like one of the best ways of helping to raise people’s standard of living.
These high rents and house prices are a big enough problem on their own. But prices change people’s behaviour, and expensive housing costs could have significant effects on where people choose to live. This in turn could have significant effects on productivity and GDP per capita. I will first try to explain the mechanisms behind this and then the empirical evidence around it.
Chelsea is nice but expensive, so I choose to live in grottier but cheaper Stockwell, south London, instead. But Stockwell expensive compared to Hull – so many people are choosing to live in Hull when, if housing costs were the same, they’d prefer to move to London.
That might matter economically because in London there are more and better job opportunities, in general, than in Hull. Larger cities tend to be more productive per worker than smaller ones. The costs of matching workers and firms with each other in mutually beneficial ways are smaller, so businesses have a larger pool of workers to choose from. Knowledge transfers become easier too, with workers, entrepreneurs and managers being better at learning from others when they’re close to them.
So expensive housing keeping workers out of London is harmful for perhaps two other reasons – it stops them from getting the job that they would be most productive in, and on aggregate may be preventing business innovations from taking place that would raise the productivity of workers around them, as well as their own. Sheer size is not the only thing that matters here – a good computer programmer might be better off in Silicon Valley than in New York City, because the population of relevant jobs, firms and workers is still larger in San José than in larger-overall NYC.
Empirically we have quite a lot of evidence in support of this view. Not only are big cities more productive than smaller ones, a study from Spain shows that workers who move from small to large cities gain a wage premium when they do so and accumulate better experience as time goes by – experience which persists even if they leave. In the United States, productivity per worker rises by 11% with each doubling of city size, “whether from 10 to 20 thousand or from 1 to 2 million”.
However, this average effect is subject to a lot of variation between cities, and seems to be driven by skilled workers – unskilled metro areas do not tend to become more productive as they get bigger. Work by Ed Glaeser suggests that the bulk of the evidence supports the knowledge transfer theory that cities are more productive because they allow people to learn from one another more easily. It is not that cities automatically become more productive as they get bigger, but that they create more opportunities for entrepreneurship and innovation that raises productivity.
This doesn’t mean that there would be no benefit from poorer people moving to those cities, where wages are generally higher even at the bottom of the skill distribution, just that the productivity gains may be lower overall. And there is no suggestion that low skilled workers make anyone worse off.
Back to our computer programmer. If she and thousands of others like her are prevented from moving to where they’d be most productive, we would expect not just individual effects but noticeable effects on overall economic growth. Even if she was a less skilled worker, her income could be much higher working in many jobs in a relatively high productivity city.
The total effect of this ‘spatial misallocation’ in the United States has been estimated by Chang-Tai Hsieh and Enrico Moretti to be somewhere in the order of 13.5% of GDP, more than two Great Recessions’ worth of growth. This is driven mostly by regulatory constraints on housing supply in places like New York, San Francisco and San Jose. Cutting planning regulations to the level of the median city, making it cheaper and easier for people to move to where they’ll be most productive, could boost US GDP by 9.5%.
A more recent paper by the same authors, which looked at 220 metro areas, found such a large GDP estimate that I can hardly believe it myself: that housing supply constraints may have lowered aggregate US GDP growth by almost 50% between 1964 and 2009. The authors also note that one way of mitigating the effects of tight constraints on housing is to have a good transport network, like London’s – though London’s commuter train network is now highly constrained by the green belt and in-city building regulations. Other recent evidence points to high housing costs stopping lower-skilled workers from moving to more productive parts of the US.
A rough calculation by London YIMBY, author of an excellent recent paper co-published with the ASI, suggested that the GDP hit to the UK of our own housing constraints might be in the region of 25-30%. These should be taken with a pinch of salt but suggest that ‘spatial misallocation’ is at least as important a part of the housing story as high housing costs themselves are. It may be that highly skilled Northerners are mostly not put off moving to London, but less skilled ones are and could have much higher earnings if not for the price of housing.
We have suggested various solutions to this problem for many years. But the purpose of this post is to illustrate that expensive housing is something that makes us all poorer, even rich homeowners, through lower productivity, lower GDP per capita, and less money available to pay in tax. The first order effects of tight supply constraints and expensive housing are bad enough, but the second-order effects may be even worse.
Do you need a uni degree?
GCSE results day was today; A level results have already past. The fuss surrounding them shows just how the first quarter of our life is so dominated by the pursuit of knowledge. We are driven not by interest or creativity but labour through three levels of formal verification to prove we can remember things that have been fed to us in the right order, and then regurgitate that information onto a page on demand. While this regurgitation is admirable does it really count for much? The answer is no.
This isn’t just my opinion: we can see clear evidence of employers from all sectors no longer placing any value in a uni degree, even if thats a first from oxbridge. This is primarily because of two things; the first being that unis no longer have a limit to the number of students they can accept and the more students they take, the more money they make. Secondly nearly everyone gets a 2.i with a 2.ii being the new third and a first being mildly commendable.
While most would say this marks our whole education system as redundant there are some interesting side effects. With so many young degree holders employers have been forced to use other tools to find the most suitable staff. This includes psychometric testing for personality, aptitude and general intelligence—things a 2.i from a Russell Group university often fails to guarantee. Testing IQ can strip away social advantages like private education and drills down to underlying potential.
Out of the companies that used psychometric testing 81% said that they expected to make more reliable and less risky decisions as a result in 2016, compared to only 67% who said the same thing in 2010.
In fact if we could slim down the school system and instead seek out people for certain industries or jobs according to these clever tests we could give equal opportunity to all, as well as streamlining our education system. People could specialise much earlier and not have to waste 5 years of their life learning 7 subjects that they have no interest and will most likely never use practically.
Yes there is reason to set a base foundation in general subjects. But are advanced algebra or in depth geology ever going to be practically used by the vast majority of the population?
We can either reform the education system, restricting student places, in order to once again make a degree a clear and rare signal of ability and application. Or we could accept that the system is broken and as a collective decide to move away from formalised testing of a syllabus and rote learning. Instead, we could make greater use of aptitude testing from a younger age and try and streamline the population into pursuits that they not only have talent in but also hold a genuine interest.
Happy birthday, Madsen!
A year ago two of Madsen's friends made the video below to celebrate the life of Madsen Pirie, the ASI's President. It's only recently been available to view online, so as it's Madsen's birthday I thought I'd post it on the blog. You can also read Madsen's Millennial Manifesto, which is out today, here.
Energy suppliers engage in price discrimination – that’s a good thing
Most consumers are equal parts confused and outraged at energy prices. It’s not simply that they’re too high (although they could be lower), it’s that two customers who get identical products can pay vastly different prices. ‘Loyal’ (low-engagement) customers on standard variable tariffs (SVT) pay substantially more for their energy compared with active switchers who shop around for the best deal. OfGem reckon that customers on the worst deals could be as much as £230 better off each year if they switched to a better deal. But customers don’t even need to shop around to get a better deal. Simply going online and moving from the default standard variable tariff to a fixed rate tariff can save you over £100.
Politicians left and right have condemned this. Tory MP John Penrose writes on ConservativeHome:
“What other industry doesn’t give their most loyal customers any discounts or special deals, but charges them higher prices than anyone else instead? Which companies believe that loyalty should be exploited, not rewarded? Who treats their longest-serving customers as chumps, to be quietly and secretively switched onto expensive, unfair deals when they aren’t looking, and then milked; ripped off mercilessly for as long as possible.”
It just seems unfair. As a result politicians like Theresa May and Jeremy Corbyn have called for price caps. Penrose himself has called for a slightly different policy, backed by the centre-right think-tank Policy Exchange, a relative price cap. He thinks we can fix the energy market by banning firms from charging vastly different prices to different customers.
Penrose is opposed to price discrimination – the practice of charging vastly different prices for goods that cost roughly the same amount to produce. A retailer can charge all customers the same price for a certain product. But some customers might have been willing to buy it for more than that, and some customers won’t be willing to pay for that at all. A Venti coffee at Starbucks costs a penny more than a Grande to make, but lets them charge frugal customers less and profligate customers more for what is basically the same product, allowing them to sell to more customers and maximise revenues. It sounds unfair, but when firms have high fixed and sunk costs it's consumers that benefit.
Take research and development intensive industries like pharmaceuticals. In order to produce a new drug, a pharmaceutical firm will have to spend heavily on researching and testing new cures. Producing the first pill is very expensive, but producing the second, third and fourth is incredibly cheap, costing next to nothing. The more drugs a firm can sell the lower the average cost per drug is. That’s why pharmaceutical companies invest heavily in drugs aimed at a mass-market and require subsidies or philanthropic donations to tackle rare diseases. If discriminating between consumers, charging high mark-ups to some and tiny mark-ups to others allows them to sell more pills then they’re able to spread their fixed costs widely, lowering average prices for all.
Politicians are typically quick to blame huge price differentials on a lack of competition. Penrose writes for Bright Blue’s CentreWrite magazine that “This shows this market is completely broken. So broken that even the basic laws of supply and demand aren’t functioning properly. Clearly, we must reform the sector so it behaves like a normal industry where the customer is king – not the regulator, or the politicians.”
But, firms in competitive markets frequently engage in aggressive price discrimination strategies. Take fast food. No one can deny that competition in the market for a quick burger and chips is intense (The Guardian amongst others frequently is concerned about there being too many takeaway firms). But McDonalds doesn’t adopt a strategy of uniform mark-ups. As airline deregulator Michael Levine points out: “It is a commonplace in the business that a fast food restaurant sells hamburgers with a much lower mark-up from variable cost than is entailed by the prices of french fries and soft drinks (which are sold separately at very high margins above variable cost). How can we explain this in a world without market power? …firms constrained by competition from earning monopoly rents will adopt price discrimination as the optimum strategy to allocate common costs among buyers.”
If McDonalds didn’t engage in this kind of price discrimination they would almost certainly go bankrupt as KFC, Burger King and Wimpy would have substantially lower average costs.
The same is true for energy costs. Building a power plant is expensive, but once the power plant is up and running the marginal cost of an extra kilowatt of energy is relatively low. Charging price insensitive customers (those who can’t be bothered to switch) more allows them to cover their fixed costs and charge marginal customers almost no mark-up whatsoever.
This isn’t just elegant, if counter-intuitive, theory. There’s real world evidence to back it up. Simhauser and Whish-Wilson, two economists working for large Australian energy incumbent AGL, compare two Australian regions Southeast Queensland and Victoria. Victoria’s retail energy market is almost entirely deregulated with huge price differentials between tariffs, while Southeast Queensland has a regulated price-cap.
In Victoria prices vary massively with some consumers paying 30% more than others and standard variable tariff offers well-above (around 10%) average unit cost. Southeast Queensland on the other hand has much less price dispersion as the regulated cap forces firms to set tariffs below average unit cost. Many politicians would look at each market and conclude that things were working better in Southeast Queensland. They would be wrong.
Consumers behave very differently in the two different markets. In Southeast Queensland 46% of customers stay on the default more expensive standard variable tariff, with just 22% benefitting from medium-level discounts (there are no high-level discounts). Deregulated Victoria is a different kettle of fish. Just 11% of customers stick on bad-deal standard variable tariffs with 45% accessing high-level discounts and pricing being set at marginal cost for many. Switching rates are also much higher in deregulated Victoria, suggesting that Penrose is wrong to claim “because, at the moment, contrary to all economic theories, the amount of switching does not increase as the size of the potential cost savings rise.”
Based on Sinnhauser and Whish-Wilson’s analysis, capping standard variable tariffs would push average prices up and hurt consumers. But we shouldn’t need economic theory or data from Australia to know it’s a bad idea. We should simply look at OfGem’s recent interventions to simplify the market and reduce price discrimination to see why price controls are a bad idea.
In 2008, OfGem brought in non-discrimination to remove ‘unfair’ price differentials. Banning practices such as offering higher prices in regions where they were the incumbent or largest supplier and lower prices in regions where they were trying to increase their market share. The result? “Competition reduced, customer switching fell by half, and profits of major suppliers increased by nearly £1 billion, at the expense of customers” according to economist and former Director General of Electricity Supply Prof Stephen Littlechild.
But, if at first you don’t succeed, try and try again. Rather than learn the lessons of their failed 2008 intervention, OfGem (under significant political pressure) forced firms to ‘simplify’ their tariffs, forcing firms to only offer four separate tariffs. As Littlechild once again points out "Suppliers naturally chose to keep their most popular and profitable tariff types and phase out their minority preference tariffs…”. The best deal on the market fell foul of the regulations (it was too complex apparently) and was withdrawn. Worst of all, E.ON’s StayWarm tariff that offered customers over 60 years of age a fixed monthly bill regardless of how much energy the customer used was withdrawn. Ironic for OfGem considering that they had singled the tariff out for praise in 2001 because it addressed the needs of the fuel poor.
Price controls simply don’t work. They reduce competition, cause popular tariffs to be withdrawn and push up average prices. The Government should ditch its manifesto pledge to cap energy prices and instead boost competition by scrapping OfGem’s misguided interventions.
Taxes and regulations hurt people not 'business'
There is little more irritating than being told that some new tax or regulation "Will cost business £x" – all the more so if it is preceded by the word "only". The aim (usually of those who are promoting the new taxes or regulations) is to suggest that only a few people whose lives revolve around owning and running businesses will suffer, while the rest of us, normal people, will benefit. And of course being capitalists, the losers can afford it anyway. And being greedy capitalists, they deserve to pay anyway.
But taxes, tariffs, quotas, regulations, licences, trade restrictions and all the rest do not cost business. They cost people. People like you and me, even those of us with no business interests. And they cost us far more than the £x price-sticker suggests. Let me explain.
In the first place, businesses themselves, and the people who own and run them, are not some alien species. Most businesses are small businesses, as small as one person, and most of a country's commerce goes through these small operations. Something that costs "business" in fact costs millions of these same people, from the local farmer to the budding software developer.
Second, business is an entirely imaginary concept. It means networks of owners, suppliers, workers, distributors and customers. That is, people. Something that costs "business" in fact costs all of these individuals And it is not necessarily the owners who bear the bulk of the cost. An increase in business taxes, for example, is borne primarily by the workers and customers. Ordinary folk like us.
If you tax or regulate something, you will get less of it. That goes for business too. Unfortunately, the whole purpose of business is to create value and to produce the things we want to consume. Indeed, the only reason we go to the effort and expense of producing things is to consume them. Less business means that less value is created and there is less to consume. We get less of the things we value, less of what we want.
So customers lose. They may not be able to purchase the things they want, or those things may become more expensive because of the tax and regulation on their production. And here is an important and overlooked point: customers lose far more value than the £x that is lost to "business". The reason is simple: customers do not buy something unless they think its value to them is greater than the price they paid for it. Which means that something that costs "business" costs consumers more.
But perhaps the biggest worry is that all these effects are cumulative. Commerce lost today means fewer opportunities for investors, workers and customers. So there is a smaller base for value-creating opportunities tomorrow. And that in turn shrinks the opportunities available the next day, and the next.
Taxes and regulations may be deemed necessary. But they have a lasting, expanding cost. And that accumulating cost falls on all of us, not just "business".
Ever such a tiny problem with Owen Jones' latest claim
Owen Jones manages to get two things right in his latest offering. Portugal's economy did not do well and now is doing better. Sadly, he manages to get the why wrong:
But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis.
Hmm.
At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office.
Presumably all was sweetness and light as a result?
The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted. The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury chargewas imposed on homes worth over €600,000 (£550,000).
The promised disaster did not materialise. By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules.
Well, yes, that is the claim, isn't it? The problem with the claim being that economic growth returned in 2013. Something which happened two years before the socialists took power is unlikely to be connected with the socialists taking power really.
We're really quite sure about that.
How To Write An Anti-Sex Work Article
Over the course of this month, several articles have appeared in British media promoting the “End Demand” approach to sex work: criminalizing people who buy sex rather than fully decriminalizing the market. Two of these articles were been released by radical feminist Julie Bindel on the Independent website and in The Spectator respectively, and both promote her upcoming book on the global sex trade (which I look forward to reviewing). The third article—written by UK Feminista co-founder Kat Banyard—was published yesterday on The Guardian’s website, and also promotes a new book titled Pimp State.
These articles are remarkably similar in structure and content—so much so that I’ve created a simple guide for how to write your own article advocating harmful approaches to sex work regulation!
Bindel’s first article does this from the outset: it’s titled “Tell me if you still think prostitution is empowering after hearing what the buying punters have to say”. Her second article does the same:
We’ve become accustomed to thinking of prostitution as a legitimate way of earning a living, even ‘empowering’ for women...don’t believe the ‘happy hooker’ myth you see on TV...the loudest voices calling for legalisation and normalisation of prostitution are the people who profit from it: pimps, punters and brothel owners.
...I discovered that whatever the lobbyists say, women and girls in prostitution are overwhelmingly from abusive backgrounds, living in poverty, and otherwise marginalised.
Banyard’s article does this indirectly, quoting a German local support worker:
Constabel didn’t hesitate when I asked her who drove efforts for prostitution to be recognised as work. “It was people running the brothels … they wanted these laws that made it possible to earn as much money as possible.”
From Bindel’s first article:
The punter has the most choice, and women have the least. They are paying for sex because without the money the woman would not consent. What else do we call sex without consent?
Her article for The Spectator does something similar, although at least this time it’s an falsifiable empirical claim rather than an ontological one:
In almost every case [sex work is] actually slavery. The women who work as prostitutes are in hock and in trouble. They’re in need of rescue just as much as any of the more fashionable victims of modern slavery.
Banyard takes a more general approach, equating all commercial sex with ‘sexual abuse’:
For all the ways it is marketed, the sex trade boils down to a very simple product concept: a person (usually a man) can pay to sexually access the body of someone (usually a woman), who does not freely want to have sex with him. He knows that’s the case - otherwise he wouldn’t have to pay her to be there. The money isn’t coincidence, it’s coercion. And we have a term for that: sexual abuse.
Bindel’s first article cites her own research on men who buy sex:
I have been interviewing sex buyers since 1999 when I, with sex trade survivors and other feminist activists, set up a re-education programme for men who pay for sex in West Yorkshire. In 2009 I was a researcher on a major, six country study on men who buy sex. I was part of the team that interviewed 103 sex buyers in London. Over 50 per cent of the men, who were interviewed at length and face-to-face, admitted that they knew the women they bought were trafficked, pimped, or otherwise coerced. Not one man chose not to have sex with the women upon realising this.
Her second article also references her interviews:
I have interviewed a number of punters, both in the UK and elsewhere, and this is the sort of thing they say: ‘I don’t want her to enjoy it — that would take something away from me.’ And: ‘I like prostitutes cos they do what I tell them. Not like real women.’ What about this: ‘It’s no different from buying a burger when you’re starving and the wife hasn’t cooked you anything.’
Banyard follows protocol and cites her conversations, although her quotes aren’t quite as shocking as Bindel’s:
I heard a range of justifications rolled out by the men I spoke to about why they pay women for sex: “I don’t have any option … At the moment I’m just single so I have to buy it”; “It’s just a male thing where it’s get as many as you can” ... “I think it’s just a fact of ‘I’ve done my duty’,” for instance.
What united these men, however, was an overpowering sense of entitlement to sexually access women’s bodies.
4. Make vague, incorrect pronouncements about how sex work decriminalization is useless or harmful. Alternatively, avoid talk of decriminalization entirely and attack legalisation: despite this approach being condemned by sex workers' rights advocates.
From Bindel’s first article:
During one of my book research trips to Holland, where the sex trade was legalised in 2000, I met a punter who told me that prostitution “prevents rape”, and, conversely, if men, were prevented by nasty feminists from puntering, they would be driven to rape “real women”. This is one of the most pernicious of all the myths about prostitution. In the first place, it is an abhorrence, and should be an anathema to all feminists, that we are told that men are programmed to rape if they do not get their rocks off. It is one of the most pessimistic and inaccurate views of male sexuality I have heard.
But equally as dangerous is the view that some women should be made available to men to be sexually violated so that “other” women can be safe from rape.
From Bindel’s second article:
New Zealand, we are regularly told, is the gold standard in dealing with the sex trade. The Home Office Select Committee (prior to its chair Keith Vaz being forced to step down following allegations that he paid for sex with young men) was looking at adopting a similar model of decriminalisation in the UK.
On the streets I met Carol, who looked 70 but was much younger, using a zimmer frame to rest between punters. Carol told me that since prostitution was decriminalised 13 years ago, nothing had improved for the women. The punters are still violent, and police still don’t care, she said. Nor do human rights defenders. While women all over the world fight to end violence and abuse, the Labour party and Amnesty International, to name but two public bodies, betray them.
And finally, from Banyard’s Guardian piece:
Getting governments to facilitate a commercial market in sexual exploitation therefore requires masking it with myths such as: that demand is inevitable; that paying for sex is a consumer transaction, not abuse; that pornography is mere “fantasy” and that decriminalising the entire trade, pimping and brothel keeping included, helps keep women safe.
5. Advocate for the flawed Nordic Model.
From Bindel’s first article:
Buying sex is neither a need, nor a human right. But it is a right for women and girls to grow up in a world where prostitution is an ancient relic.
Bindel tacitly advocates for the Nordic Model in the second piece:
If I suggest to fans of prostitution that nothing terrible will happen to men if they can’t pay for sex, I hear the same complaints…
Banyard praises the Nordic Model in her article too:
First pioneered in Sweden, the abolitionist legal framework works to end demand for the sex trade. It criminalises sex-buying and third-party profiteering, but it completely decriminalises selling sex and provides support and exiting services for people exploited through prostitution.
And there you have it! That’s how to write your very own anti-sex work article.
The rise in the self-employed is just disguised unemployment
And those in such self employment are making pennies - it's a common enough comment being made about that rise in self employment since the crash. It's one of those things which could even be true, therefore one of those things we need to test:
Britain's public finances were back in the black last month as a surge in self-employed workers' tax payments boosted the Treasury's coffers.
The surplus of £184m is the first in any July since 2002, figures from the Office for National Statistics (ONS) show.
Economists had expected the Treasury to record a deficit of £1bn, up from the £308m additional borrowing in July 2016. But instead rising self-assessment tax receipts gave the Chancellor a boost.
The July figures show that payments of self-assessed income tax increased by 11pc from the same month of last year to £8bn, the highest level since records began in 1999.
Ah, so, having tested it we find that it's one of those things which turns out not to be true. Ah well.
Which is an interesting little reminder of a deeper point. There are many things which could be true in something as complicated and chaotic as the economy of 65 million people. This could be causing that, it might actually be doing that other over there. A priori we're really not sure, as here, theory isn't good enough to tell us whether self employment is a push matter, people not being able to find anything else, or a pull, people doing it because it's better. We just have to wait and find out.
Which runs us smack into Hayek's wall about the pretence of knowledge. Theory isn't good enough, only facts can aid us in deciding. But facts are difficult to come by and they're certainly not available beforehand, only in fragments and afterward. Thus we cannot go around planning and in detail simply because the information we need isn't there to predict that future.
Tech giants are undercutting business - and that's a good thing
In today’s Times, consumer affairs reporter Andrew Ellson argues that “Feckless ministers have let tech giants undercut business”, but his objections are rather wrong-headed.
First, he’s concerned that Amazon will outcompete car dealers and the treasury will get less tax as a result. He writes:
“Car dealers will soon be the latest victims. After being told that they must pay an extra 15 per cent in business rates over the next five years, they now face the prospect of Amazon, which benefited from a rates cut in April, selling cars online. Expect blood on showroom floors. Car dealers are not high on anyone’s list for sympathy but they do pay a decent amount of corporation tax, which will disappear if they go bust. Last year Amazon paid only £7.4 million tax on earnings of £1.46 billion.”
Where to begin?
First, business rates aren’t a tax on business but a tax on property. They reflect property values and because of our incredibly restrictive planning system the incidence falls mostly on the landowner not the business owner. Without business rates, car dealers would simply pay higher rents. (Of course, if we fixed our godawful planning laws and let firms build then the burden would shift to business owner and it’d become a big problem, but until then…)
Second, Amazon, like other online retailers, chooses to locate its warehouses on the outskirts of cities where rent is cheaper. Ellson’s complaint is essentially that Amazon uses land more efficiently and as a result will be able to offer lower prices. A problem for car dealers not for car buyers.
Third, Ellson’s worried that Amazon outcompeting car dealers will leave a hole in the public finances. He points out “Amazon paid only £7.4 million tax on earnings of £1.46 billion” but corporation tax is levied on profits not revenues. Amazon keeps its mark-ups low and reinvests in expanding into new markets. A company abusing its monopoly to charge high mark-ups would almost certainly pay more in tax, but we’d all be worse off as a result. I doubt Ellson would praise a firm that laid off its minimum wage workers and used the savings to boost CEO pay, because it meant they paid more to the Exchequer.
Amazon isn’t the only innovative firm in Ellson’s sights.
“At every turn, technology giants using favourable tax arrangements are undercutting British businesses. Airbnb, for example, has won a huge chunk of revenue from hoteliers because its users do not have to pay VAT on their stays while hosts do not have to adhere to the same safety standards.”
Again, Ellson is misinformed on the tax front. He seems to describe Airbnb’s tax arrangements as the result of ministerial sloppiness. Airbnb does pay VAT on its cut. It’s the host that doesn’t and the reason why is simple. The threshold for registering for VAT is an annual turnover of £85,000. Few hosts will earn that. Now perhaps, we should lower that rate to take into account the rise of self-employment, but Airbnb hosts and Uber drivers wouldn’t be the only ones to pay.
Ellson also complains that Airbnbs don’t have to comply with the same safety standards of hotels. But Airbnb’s rating system corrects for safety and quality control just as well as any government bureaucrat.
Ellson believes that these ‘favourable’ tax arrangements are enabling ‘libertarian tech barons’ to ‘grow to such dominance that the economy and innovation suffers.’ He cites Google’s search dominance and Apple’s mobile dominance claiming that “one has to question whether these companies are really creating wealth or just using their market share to extract a cut of someone else’s.”
But it’s clear that Amazon, Apple and Google are creating wealth. Amazon has delivered low prices and near instant delivery, Apple’s iPhone has revolutionised the world, and Google are constantly innovating by producing driverless cars as well as the best search offering on the market. All three firms may have driven others out of business but that’s exactly the sort of market competition that delivers for consumers.