Method, not attitude, marks the political divide
People on the Left, at least in the UK, take the view that the difference between themselves and those on the centre-right comes down to a difference in attitude. They appear to think that they care for the poor, the deprived, the minorities, and the immigrants, whereas those on the centre-right care only about the rich, the fat cats, the successful, and those who can bend government to boost their profits.
This justifies some of the left, in their own eyes, in hating those on the centre-right as people without virtue, people who can be despised, shouted down, spat at, or physically assaulted. Since the left thinks it has a monopoly on human values, opponents are deemed to be entitled to no human or civil rights, but treated as contemptible scum.
This not only degrades politics, it also chokes off any rational argument, reasoned discussion, and the possible exposure of errors. It is a regrettable development, and one that itself is based on a factual error. It is not a difference in attitude that separates the left from the centre-right; it is a difference in methodology. Many, if not most of those on the centre-right care as much for the fortunes of the poor and deprived as do many on the left. The difference lies in what the two sides think can be done about it.
The left typically favour the use of state power through high taxation, nationalization and the fixing of prices. The centre-right typically favour relatively free markets, private enterprise, and prices that respond to changes in supply and demand. Their case is that these usually achieve more sure and more rapid economic growth than can be attained by collectivist planning and state controls. The left pursue greater equality, whereas the centre-right seek to promote greater opportunity.
Those on the centre-right tend to espouse a real-world approach based on what achieves results in practice. The left, by contrast, tend to follow an idealized concept of what the world could be like. The centre-right point to the huge gains in living standards achieved across the world by following their policies, and to the failure of countries that have taken the leftist course. They point to the numerous examples, from the Soviet Union to Venezuela, of the economic chaos, the shortages and the misery that have followed leftist methodology. The poor and the deprived are not aided by such policies, they point out, the more so since they often go hand in hand with repression.
The centre-right’s methodology is what separates it from the left, and they regard the difference as being between what works in practice and what does not.
The inadequate economics and history of the slavery reparations movement
We've another of those calls for reparations to be paid for the Atlantic slave trade, this time in The Guardian:
It is clear that it would be just to pay reparations, and it is also possible to calculate the amount that Britain and other nations owe. A lot of work has been done in the United States to determine the damages owed to African Americans. The figure owed comes to far more than the “forty acres and a mule” that were promised to some African Americans who fought in the civil war. The latest calculations from researchers estimates that for unpaid labour, taking into account interest and inflation, African Americans are owed anywhere between $5.9tn and $14.2tn.
That is rather to visit the sins of the father upon the child of course. But the underlying argument is that it was slavery itself that enabled the industrial revolution to take place, therefore we who benefit from that revolution should cough up.
Which is, we feel, rather to get things the wrong way around, for it was the Industrial Revolution which did away with slavery itself. It was precisely the replacement of human muscle power with that of steam and machines which did away with the vileness of chattel slavery and forced labour.
This is not exactly a new idea either - it's a commonplace argument that the Roman Empire never did mechanise simply because human labour was so cheap in the form of all those slaves. Similarly, it's a common enough argument that Britain mechanised first because labour was expensive - there not being chattel slavery in England in any great numbers from the 12 th century onwards, definitely not after Somersett in England and Knight in Scotland in the 1770s.
Our important point here being that pretty much everywhere before the industrial revolution had if not directly chattel slavery then something at least akin to it, and pretty much nowhere has had anything like it since a successful industrial revolution. It being that mechanisation of human grunt work which made the abolition of slavery happen.
School stunts development
It's so far unclear whether extra school in middle adolescence benefits or harms those affected—some studies find a benefit to cognitive or non-cognitive skills, others don't. Some find benefits to earnings. These are all affected by the usual problems: issues with identification, lack of controls, fade-out, and publication bias. But the evidence on earlier schooling is much less divided—and it almost universally finds that going to school too early stunts child development.
What's more, "too early" is well within the range of when we currently send kids to school. In Britain kids go to school at four or five. But a Danish study (pdf) found that even at around age seven starting school later led to less crime and delinquency through life. This study—and most of the others I present—used a "quasi-random" study design.
For example, the authors might use arbitrary cutoffs. If someone is born on 31st August and another person on 1st September it's likely that a jump in some variable between them that isn't seen between 30th & 31st August birthdays, or between 1st & 2nd September birthdays, is down to the effects of the cutoff.
In Brazil, starting school later made kids more likely to get into university. In Germany, starting school later made kids less likely to smoke, and healthier throughout life. In Louisiana later starting was also associated with lower crime, especially for disadvantaged groups in high crime areas. In Israel later school boosted maths & Hebrew performance. In Finland it boosted average educational attainment. In Australia it cuts obesity. And here's a second Danish paper, this time linking later starting with lower hyperactivity and inattention.
Now I can't claim any expertise in child development. In fact, I'm almost completely ignorant. So take this as a conjecture rather than an explanation for these findings. But here is a very interesting paper (pdf) from Aaron Blaisdell that offers a possible reason why school has such consistently bad outcomes for kids when applied too early: stunting child development.
Children love to play. Why do they find such a frivolous activity so pleasurable and desirable? Perhaps it is not frivolous, but instead is an adaptation designed to guide proper cognitive development in human children.
To understand why, I marshal evidence from different fields to build a case for play as a central behavioral mechanism of human brain and cognitive development. I start with a discussion of human evolution, focusing on the evolution of human physiology, tool-use, the human brain, and life-history strategy, and development, and how these are all connected as an adaptive suite.
The anthropological and developmental evidence suggests the existence of an extended childhood adapted to establish the skills, knowledge, and understanding necessary to become a successful hunter-gatherer. I also compare human and chimpanzee brain development, and how brain-specific genes evolved uniquely in humans to foster human brain development.
I conclude with the evidence from developmental psychology that even contemporary, first-world children are born with the drive to learn and develop intellectually through play. In this framework, human play can be viewed as an adaptation that guides human brain development to produce curious, intelligent and well-adjusted adults. I close by speculating on the possibility that barriers to or constraints on play may hamper intellectual and cognitive development.
I focus on the important concept of developmental decanlization as a mechanism of evolutionary mismatch. I argue that more empirical study is needed to better understand the importance of play compared to other forms of education for optimal intellectual and cognitive development.
I know that the "free range kids" and "unschooling" folks tend to be weirdo cultists. But maybe there is something to their schtick.
It's not the size of the budget, it's how it's spent
Don't worry, we are indeed aware that the US, like everywhere else, is not quite entirely the land of peace, love and understanding which we would all hope for, even on matters such as race. We also entirely agree that not everyone gets an entirely fair shake of the stick in this imperfect world.
However, there is something we do think should be mentioned concerning this piece in The Guardian:
Two summers ago, Indigo Williams couldn’t have been more thrilled to send her son off for his first day of school.
Her home was zoned into Madison Station elementary school in Madison, Mississippi, an “A” rated school and district where her son JS, then five, quickly dove into Kindergarten with enthusiasm. JS was taking Taekwondo lessons and was served fresh fruits and vegetables in the cafeteria. He had access to tutoring.
But when Williams and her children moved just a few miles away before the start of the following school year, her home was instead zoned to an elementary school in the Jackson, MS school district. She was horrified to see just how dramatic the difference could be.
Now attending Raines Elementary, Williams says Jonathan’s environment “feels more like a jail than a school. Paint is chipping off the walls. They’ve served him expired food in the cafeteria,” she said.
That first school district is majority white, the second overwhelmingly black. Thus a court case over the inequality. Which we do indeed hope succeeds. For there's an interesting little point which The G's story doesn't tell us.
School funding in the US is almost entirely local, paid for from property taxes inside the school district. There's also some levelling and topping up from the State in most places. It's thus obvious enough that poorer school districts could have lower budgets than richer ones and yes, as we all know, there's a racial imbalance in the US in who has all the money and the nice expensive houses.
Hmm.
Except. The Madison school district spends some $7,500 a year on each pupil, a little lower than the Mississippi state average (and well below the US one but then wages in general are lower too) and the Jackson one $8,100.
As we've been known to point out before it's not, often enough, the size of the budget that matters, but how it is spent that does.
An odd thing to complain about
We'll admit to not being up to date with the details of how such clubs work ourselves but we do think that this is rather an odd thing for anyone to be complaining about:
The popularity of sex clubs is by no means restricted to Kent, but local authorities around the country have limited powers to regulate the activities of consenting adults.
The purpose of regulation is, or at least should be, to deal with the effects on any third party of what consenting adults might get up to. Thus the not in the streets and frightening the horses type of regulation is just absolutely fine and dandy. But other than that there not only isn't a need for regulation, to regulate is against the very purpose of the body politic itself.
For the purpose of government and the body of regulation it erects is to enable consenting adults in their activities. The regulation of those third party effects is only, solely, to enable those others to also enjoy their lives as they see fit without bearing the burden of the choices of others.
That is, regulation is there to increase freedom and liberty by preventing its denial. We may not like that some deploy such liberty in the pursuit of enthusiastic non-monogamy but that's an irrelevance. The social contract demands that we tolerate it, as we do so much else, up to and including the existence of Simon Cowell.
That is, the whole of the game is that the authorities have limited powers to regulate the activities of consenting adults. As long as all are consenting, all are adult and all is in private then there should be no such regulation.
That's actually the point.
Will Hutton recommends satire to reverse Brexit
According to Will Hutton a show from the Fringe should be mounted in every constituency in order to satirise Brexit. The aim, of course, being that showing those who support it as they truly are we'll all decide it was a jolly jape but now we'll be sensible and stay in:
But when we’re faced with the next test of public opinion, however it happens, the economic case for continued EU membership and having a say in its rule-making has to be rammed home, along with the high ground argument about making common cause with European countries who share our values against the world’s Donald Trumps and President Xis.
But above all, let’s make the EU case full of hope – and, on top, a carnival of fun and mockery. There must be multiple versions of Brexit the Musical mounted in every pro-Leave constituency in the country, continually revised as every twist and turn in the story becomes ever more incredible. Every old people’s home, every ex-mining or ex-steel town, every seaside resort fearful of immigration should see the show and laugh at Brexit. Let’s smile our way to victory – and use satire, that most British of reflexes, to consign Brexiters to history.
We do, of course, agree that satire has its place, is most British and that it can be extremely effective. Wodehouse certainly contributed to the laughter at Moseley with his black footer bags comments.
However, we would also remind that satire is not the only tool available. Truth works too:
We are looking disaster in the face. A British version of Fannie Mae and Freddie Mac must be created now. Legislation to create a Gordon Mac should be introduced before the summer recess. It should be operating by the end of September. Nor is this just an economic gambit. It will be opposed by the Conservatives as an 'anti-business' public intervention. They are wrong. The only way out of this crisis is to embrace the politics of public purpose rooted in the economics of Keynes. Mr Brown has an opportunity to restore the housing market, the economy and his political fortunes. He must act.
That was, of course, Will Hutton, writing on 22 June 2008. Some 10 weeks before Fannie and Freddie were declared bust and taken into conservatorship.
With economic and political predictive perspicacity like that who needs satire?
It's not a Brexit divorce bill, it's actually the price of staying in
That some money is going to flow from the UK to the EU during Brexit seems obvious. Quite how much, and quite how much will flow the other way in the split of assets, isn't obvious as yet. But one thing we do think needs to be clarified - this isn't a divorce bill, it's the cost of staying in:
The UK will pay money to the EU as part of the Brexit process, Boris Johnson has conceded, having previously said the EU could “go whistle” over a reported bill of between €60bn and €100bn.
The issue of the “divorce bill” has split the pro-Brexit camp, with some leave supporters demanding that the UK decline to pay a penny, and Johnson told the Commons last month that a demand for €100bn (£92bn) would be extortionate.
We repeat, whatever the bill is isn't the cost of leaving, it's the cost of staying.
For that is in fact the justification being used to demand it. If you Brits had stayed then you would have paid this much into the EU budget. In fact, you've already agreed to pay this much into the EU budget. So, you should pay this much into the EU budget.
That is how it is all being justified, demanded even. If you stay you will pay this. Thus this amount is the cost of staying, not leaving. The leaving part is just making it more obvious that this would be the cost of staying.
What concerns is not the size of the bill, but the way that it is being presented.
Another way to think of this is that the £50 billion, whatever it is, is a sunk cost. And if we stay then more such bills will arrive in the future, if we leave none will. That doesn't change anything about reality of course but it might change the way people think about it, getting the situation correct.
Rents direct investment and innovation to where it is most useful
Market power is when a firm can charge more than the cost of making a new unit, because of barriers to entry. In a competitive market where firms rent their capital, they can only charge marginal cost: if not, other firms would pop up and steal the market by undercutting them. Some of the most competitive real live markets are close to this—supermarkets make tiny margins and offer near-identical prices. But most markets are to some degree away from this.
This means there are rents. In an extreme case these are monopoly rents. Imagine you own and run a railway between Manchester and Leeds. Building and operating a new one costs a lot, and this new railway would have to charge lower prices to attract customers. Assuming there are no other modes of transport then this gap—expected potential profits—determines what prices the monopolist can set before they'll face competition. The gap between a competitive price and the monopoly price is a rent. This is a pure redistribution from users of the network from whoever happens to own it.
It helps to distinguish between barriers to entry and costs of entry. If building a new railway was trivial technically, and the only cost was regulatory—e.g. you had to pay off a corrupt bureaucrat but rails appeared magically—then potential competitors face barriers to entry. Real costs that society has to bear—like using workers, capital, and management or entrepreneurship to organise building a railway line instead of doing something else—are costs of entry.
Barriers to entry reduce competition with no corresponding benefit, but when there are large costs of entry, the loss of competition is balanced by keeping resources spare. Competition requires "unnnecessary duplication", something that greatly troubled early socialists and led them to believe that the socialist economy would not only be more moral than the capitalist one, but more efficient.
In any case, a canny monopolist will set prices such that no competitor enters, enjoying their rents for as long as possible. Modern regulators aim to set prices so that natural monopolies do not earn rents, and consumers get higher consumer surplus instead. So far, so sensible. But this approach may have a key defect: it requires Herculean feats of innovative winner-picking elsewhere when you think the economy might be dynamic, not static.
This is because rents that are caused by costs of entry (but not those caused by barriers to entry) are automatic prizes that reward entrepreneurs in direct proportion to how much they can alleviate inefficiency in the marketplace. Higher rents not only motivate investment, as in the example above, where someone might build a second railway (or indeed a road, canal, bus service, or air link) between Manchester and Leeds, but also innovation.
This is quite general. Some innovation does not take away profits, but instead reduces the need for labour, land, or capital. But the cost of these is a rent too—a factor rent. Just as we don't see these as fixed, nor should we see market rents as fixed. As long as we think innovation is reasonably possible, we should be open to allowing market rents to exist to direct innovation. Efficiency-enhancing innovations do not fall from heaven—they come from where we focus our research activities as a society.
It's obvious how this applies to intellectual property. When I have a patent to produce a drug, if this drug is useful I will earn large rents. But it is precisely those rents that indicate that finding a substitute is so valuable. If a firm can find a close substitute, they stand to get some of those rents for themselves—driving innovation into the highest value areas. So we should be more sanguine about less competitive markets and natural monopolies—where competition is restrained by facts of the world, not regulation—they help tell us where improvement is most valuable. And they pay people for doing that improvement!
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.